How API-driven banking is changing finance


Posted on October 19, 2021
How API-driven banking is changing finance
APIs are the key component bringing finance into a new era. Banking-as-a-Service, Open Banking and Embedded Finance all rely on API integration, connecting non-financial companies and financial institutions.

OpenPayd Editorial Team
OpenPayd Editorial Team
October 19, 2021

APIs are the key component bringing finance into a new era. Banking-as-a-Service, Open Banking and Embedded Finance all rely on API integration, connecting non-financial companies and financial institutions. So how do they work, and are all APIs more or less the same?

What is an API?

While we’re now hearing about them more frequently, APIs are by no means a recent development. They predate the internet itself and, put most simply, they are what allow different software systems to ‘communicate’ – sharing information and performing instructions.

An easy way to remember how an API works is to think of a waiter in a restaurant. Imagine you’re sat at a table looking at a menu. There is a selection of different meals which you can choose from and that information needs to be conveyed to the chef in the kitchen.

If we think of the chef in the kitchen as a different ‘system’ that we need to share information with, and receive an output from, how do we do that? The chef is behind a closed door which we don’t have access to. Perhaps we’re abroad and we don’t speak the same language as the chef. This is where the waiter comes in.

The waiter takes our information (the order) to the chef, communicates it in a way that the chef can understand, and then brings back our cooked meal. That’s your API. Taking information, communicating it to another system and receiving something back which it can then communicate/give to you.

APIs in banking and finance

APIs are a key aspect of Open Banking, Banking-as-a-Service and Embedded Finance. Through allowing different systems to communicate, features such as Payment Initiation Services (PIS) and Account Information Services (AIS) are now possible. Not only are they possible, thanks to the Second Payment Services Directive (PSD2) banks now have to grant access to their data and services through APIs, should the customer consent to it.

There is a staggering number of possibilities that APIs bring to both businesses and consumers. Non-financial companies are now able to access services relating to payments, FX, banking, remittance, insurance – any service that a bank provides can now be offered by a business which has no financial experience or licensing.

This means that financial services are becoming far more customer-centric, as newer brands with a greater focus on their end users can plug in products and services instead of attempting to forge partnerships, which has usually been a long and arduous process.

Integrating these services benefits non-financial businesses for various reasons, including opening themselves up to new revenue streams, forming stronger relationships with their customers and obtaining competitive advantages. APIs are not just changing finance for the consumer, they are prompting businesses to consider how they can better meet the needs of their customers and massively enhance their offering.

Benefits of the OpenPayd API

The fact that APIs are widely used across all industries and have been operating for decades does not mean that they’re all the same. Far from it. APIs all come with their own documentation and implementation process that developer teams have to work with. To take the waiter analogy a step further – there’s a world of difference between someone taking your order at McDonalds, and the Maitre’d of a fine restaurant.

We are particularly proud of the OpenPayd API for a number of reasons.

Simplicity: We designed our API with simplicity of integration as a priority. We can integrate clients in as little as two weeks. What’s more, the entirety of our platform’s capabilities are accessible via a single API.

Scalable infrastructure: Our multi-tenant platform with modular architecture facilitates the quick and easy accommodation of multiple customers, meaning your business can scale in any way you see fit. This growth all occurs within the same infrastructure at no additional cost.

Security: OpenPayd has multi-layered security controls which are applied across our entire platform. We bolster the APIs security with regular external auditing and penetration testing to verify our security posture. Needless to say, we are fully PSD2, PCI DSS and GDPR compliant.

Being connected to a full suite of financial services offers very little benefit if the integration takes half a year, the tech has to be constantly adapted as you grow or you are vulnerable to attack. The same can be said if the services are unreliable or unintuitive to use.

This is why getting the above points right is so important to us. If you’re a business seeking to integrate financial services via API, it’s not a mad scramble. It’s important to research the service provider to check your tech team can integrate them easily and to ensure you’re getting all the services you need.

Where API-driven banking takes finance is not easy to predict. Some have suggested that new companies acting as API marketplaces for banking services are likely to appear and achieve success. Others have suggested ‘every company will become a fintech’, and the way in which we interact with financial services will be radically different to today.

What we can say with certainty is that API-driven banking is already changing finance. Every business needs a strategy for integrating financial services or they risk becoming irrelevant.

If you’d like to know more about what OpenPayd can offer your business, get in touch today.