WTF is a bank API?

Whatever you think the future of banking portends, it’s pretty clear that the banks of the future will be different than today. One way the role of banks is changing is through technology. Incumbent banks are making their own banking infrastructure available to software firms for collaboration.

What’s a bank API?

Banks are beginning to open up their infrastructure to third parties, not unlike the way Amazon has done for ecommerce companies. APIs, or application programming interfaces, are the hooks and software used by programmers to build applications that connect to other firms’ technology. Banks with APIs enable fintech firms to build apps that utilize their infrastructure, like checking account balances.

Why do bank APIs matter?

Much of the risk in banking has been regulated out of the industry and the bank of the future will look much like a financial utility. Banks continue to get better at core banking and innovation will come from the extended collaboration between incumbent financial institutions and upstart fintech players. APIs ensure that the software community gets to experiment and build tools and applications on top of stable, core banking technology. It also means that startups don’t need to go through regulatory hurdles and expense of getting their own banking license and can instead rely upon all the work banks have done before them.

Who’s got banking APIs in the market?

Many banks have varying versions of APIs available. BBVA, a multinational bank based in Spain, has embraced the API movement and has a series of open APIs available. Open means that these APIs are made freely available to any firm that wants to use them. Other banks, like Barclays, for example, have APIs available for their partners, but they’re closed, made available only to partners of the bank and given to members of bank accelerators. There are other technology firms that provide suites of APIs for financial companies of all sizes to use to build their core financial IT.

Fine, but do APIs really change the end financial product or service?

Well, yes. That’s because APIs make it easier for new fintech apps and programs to focus on creating a good user experience while they essentially outsource the underlying banking features. So banks do what they do well and fintech companies do what they do well. This symbiosis, in theory, should improve usability and encourage innovative solutions to financial problems. APIs also, in effect, create technology and business ecosystems around banks, as they plug in external partners. Banks with ecosystems can provide broader and deeper offerings to future customers through their API partners.