Open banking is a new concept, but the application programming interfaces (APIs) that make it possible have been around for quite a while. As we’ve mentioned elsewhere, in the simplest terms, APIs are connectors. They let different pieces of software, or applications, talk to each other and share information. Think of them as clever interpreters or translators. They work as part of an overall system or architecture that’s divided into small groups, known as microservices. Often, microservices use APIs to communicate with each other.
There’s some debate as to which one of two tech giants — eBay or Salesforce — can claim to have come up with the first API. What’s certain, though, is that both did so more than 20 years’ ago. So now we know three things about APIs:
- By translating information, they let different pieces of software communicate.
- They are important building blocks for the open banking and fintech industries.
- Having been around for more than two decades, they are here to stay.
Let’s delve a little deeper into how APIs work.
A is for application…
…but also for assimilation, absorption and account. API users such as banks and third-party providers (TPPs) can assimilate information. Using the API in combination with their own software, they gain information from each other and make full use of it. So they absorb data and benefit from the knowledge and understanding that it gives them. Each organisation will want to be sure that it receives high-quality data. APIs that can provide this calibre of information are therefore invaluable to their users.
When it comes to open banking, customer account information is some of the most important and sensitive data handled by APIs. Not only is it valuable and useful to banks and TPPs, it is, of course, very important to customers and individuals. That’s why APIs must treat the data they handle with great care and keep it secure.
P is for programming..
…but also for payment, platforms and potential. Payment APIs, for example, are designed to make transactions smoother. They do this by helping a customer’s bank to speak to payment platforms and vice versa. Such APIs aim to create a seamless exchange between merchant and buyer. For the merchant, this can reduce time spent on admin such as handling queries. For the buyer, it can help to increase their confidence in the process, perhaps making them more likely to return. In short, APIs have the potential to help their users save time and money and make their businesses more appealing to customers.
I is for interface…
…but also for information, innovation, imagination and independence. We’ve already highlighted that information is king in the fintech world, but it’s worth saying it again. It follows that APIs that can help both participants in a conversation (or transaction) to understand each others’ information are very valuable tools.
In fact, APIs are being used in new ways to foster innovation all around the world. You could say that imagination is the only restriction on how they can be put to work.
With that, we come to our final “I” — independence. In the world of open banking, APIs are often designed not by banks or TPPs, but by independent developers who can see the bigger picture. This freedom and flexibility lets them create useful and appropriate solutions to complex problems. And, of course, independence is a key tenet of the open banking movement. APIs and microservices are helping banks’ customers to make their own choices.