Open Banking APIs Explained

What Is an Open Banking API?

Open banking APIs, or application program interfaces, facilitate open banking and enable financial institutions to share financial data with one another, typically through a third-party-developed application. Banking API providers such as emerging FinTech companies and collaborators create those third-party-developed applications to improve traditional banking systems and make the digital banking industry better for everyone.

How Banks with APIs Improve Their Financial Services

The Open Banking Project (OBP) is an open-source platform of financial data, allowing existing financial institutions to share their data with emerging FinTech firms to develop new open banking APIs and technologies in the digital banking industry. Instead of competing with these FinTech companies themselves, existing financial institutions are partnering with them to enrich their own data and create a more competitive market in the industry.

FinTech firms are great at using the data of existing financial institutions to develop innovative personal finance management (PFM) applications that in turn push existing financial institutions to improve their own service offerings. If they don’t partner with the FinTech firms helping lead the charge to newer and better ways for customers to bank online, they risk falling behind the rush of competition in the market.

How Do Open API Banking Platforms Work?

Open API banking platforms allow communication between two different applications, typically one from a FinTech provider and the other a financial institution. Let’s walk through a couple of use cases for open API banking platforms for a clearer understanding.

Developing A PFM Application

Say a FinTech company is looking to develop a budget management app that uses a customer’s transactional data and bank account information to provide personalized budgeting recommendations for the user. Existing financial institutions have decades’ worth of such customer data stored in their own proprietary systems that, through the OBP, can be shared with third-party app developers with the customers’ permission.

If a financial institution is in the market to provide their customers with an intuitive budgeting tool for automated and personalized financial guidance, they would want to connect with the FinTech startup and share their data via the opening banking network system.

After connecting with the financial institutions’ customer data, the FinTech start-up is free to run their applications using the data to refine the open banking API over time. In this scenario, all three parties benefit - the financial institution with an improved service offering, the FinTech with compliant access to rich data, and customers benefiting from industry-leading privacy and security measures while receiving better guidance to achieve their financial wellness goals.

Envestnet | Yodlee’s AI-powered API, FinCheck, is exactly such a tool available for existing financial institutions to connect to and start providing the service to customers.

Developing Security Applications

With a concept like open banking, security concerns over financial data are taken seriously by financial institutions and FinTech firms alike. They both must meet regulatory rules and requirements in order to share their open API banking platforms, so they share a deep interest in providing customers with the most secure banking experience possible.

Say a bank is looking for an application that helps mitigate fraudulent activity like fake accounts or payments. They could look to a FinTech firm that leverages artificial intelligence and machine learning technology to authenticate transactions and accounts in a matter of seconds. This would streamline the time it takes for transactions to be processed, and provide customers peace of mind their financial data is being looked after with leading technology.

Envestnet | Yodlee’s bank account verification tool connects to partnering institutions’ open banking APIs following industry-leading credentialing and security practices. Once connected and a transaction is initiated, the API runs the information against historical data of consumer trends, patterns, and behaviors to look for errors and flag fraudulent activity.

Open Banking And Bank APIs Enable Banks to Get Ahead of Competition

Banks with open APIs are getting ahead while those who are not using open APIs to improve their digital banking experiences for customers are missing out on new customer bases, revenue, new technologies, and market influence. Expectations about the customer experience have grown as digital banking has become widely accepted. The majority of financial institutions believe open banking will reshape the financial services industry over the next 10 year, though there remain challenges for open banking adoption within organizations. Download the Open Banking: A New Frontier Whitepaper to learn more.

api banking platform

Why are banks that have invested in open API technology getting ahead of their competition?

  1. Faster Innovation

When banks connect their financial data to third-party applications via open banking APIs, they’re letting a specialized team of FinTech innovators streamline the time it would take an internal team to develop new technologies. Internal teams can be bogged down with other work to complete, while FinTech firms are dedicated to refining their processes to offer customers the best financial solutions and payments services available.

  1. Increased Revenue

We can see in countries with developed open banking regulations, banks are less in need for expensive in-house technology build projects when they effectively outsource the work to FinTech companies who are experts, economical, and benefit from the partnership

  1. Details Customer Insights

Open banking initiatives allow for FinTech firms to connect with financial institutions’ customer data to provide highly relevant trends and patterns. This is where the value of FinTech’s specialization for PFMs comes into play. With access to Envestnet | Yodlee’s aggregated enriched data that only gets more and more refined over time, banks that use open banking APIs are miles ahead of traditional banks that do not leverage customer analytics as a service.

  1. Personalized offers

With open access to customer financial trends and patterns, FinTech APIs can generate personalized banking services in just minutes. All FinTechs need is compliant access to a customer’s data before using artificial intelligence to process it and create personal recommendations to consider, thereby offering improving customer engagement with financial products and their affinity with their online banking platform.

Open Banking API Examples

Through open APIs, FinTechs and banks are also able to create more exciting and innovative products that will continue to improve and transform the customer experience - not just in the financial services sector, but across other industries. Open banking data sharing powers the delivery of personal finance management apps that offer a complete picture of consumers’ financial health along with data-driven insights and advice. Open banking APIs also enable FinTechs to add payment services, price comparisons, and other useful features to apps to increase convenience, improve consumers’ financial situations, and drive new revenue streams. View some open banking examples