Financial institutions rely on APIs to permit their different financial software solutions to communicate or to give clients access to their processes. Every time a client opens a mobile app for banking on their phone or interacts with the financial services industry through the web, they are using APIs (Application Programming Interfaces). The interaction with mobile users is one of the biggest benefits of API banking and APIs in general.
Banking is past the time when clients only perform transactions through a human teller. What is API banking, and how could your business benefit from putting this into practice?
Generate a full-featured,documented, and secure REST API in minutes.
Sign up for our free 14 day hosted trial to learn how.
What Is API Banking?
The fintech world has changed financial services to such an extent that APIs are an essential requirement for banking. Banking APIs present an opportunity for open banking. This allows financial institutions to provide access for third-party service providers to customer data, which is one of the benefits of API banking.
Use cases for open banking include:
- Startups in the fintech industry and other tech spaces can access account information and other financial data for marketing purposes or so that the customer can make a transaction through a third-party institution.
- Changing banks requires a transfer of information, which is difficult to perform with traditional banking.
- Automation of data sharing and other processes relies on open banking APIs.
Open banking is part of the trend towards modernization. DreamFactory is an API platform that can help you with efficient and responsible use of APIs and replacing legacy systems with cutting-edge technology.
What are some of the benefits of an API strategy?
Benefits of API Banking
There are three main benefits of API banking: Driving customer engagement, increasing efficiency through open banking and better securing and utilizing financial data.
1. Drive Customer Engagement
Over 50 percent of web traffic all over the world is from mobile devices. This means that any bank or other financial institution that lacks a mobile API is missing out on the ability to potentially double its client base by bringing in new customers.
Mobile APIs are only one piece of the puzzle. Financial service providers depend on APIs for real-time communication between institutions and for authentication.
When you access a bank account through a web service, the site presents you with some form of authentication. Usually, this consists of a password and username, though two-factor authentication (2FA) has become increasingly common as well. This is a feature of the API through which you access your account.
Since clients interact with your services and are protected through such APIs, they drive engagement.
2. Increase Efficiency Through Open Banking
Banking companies in the European Union have to comply with the European Banking Authority’s Payments Services Directive, also known as the PSD2 regulations. These require banks to make client data available to third-party providers. An API business model allows you to do this with ease.
DreamFactory provides REST APIs and functions in the cloud. The platform permits you to deploy and manage various APIs simultaneously, so you can expand your services and ensure the highest level of functionality and reap the benefits of API banking.
3. Better Secure and Utilize Financial Data
The number of APIs that companies use has grown incredibly in just the last couple of years. Unfortunately, every API that your company utilizes presents its own security risks and challenges. Over 90 percent of companies report at least one security problem caused by API vulnerabilities each year.
Transferring customer data presents a greater risk for clients. Privacy policies include information regarding the use of personal data, but less than 10 percent of people read them. This means that some clients end up completely blindsided when a data leak results in financial loss.
So how can you reap the benefits of API banking?
While APIs do commonly suffer from vulnerabilities and it is almost impossible for developers to eliminate any potential security risks, an API management platform monitors security for APIs. This can change an API from a liability to an advantage.
Such a platform can perform regular API testing to find vulnerabilities, as well as guarantee compliance to common data security standards such as:
- GDPR (Global Data Protection Regulation). GDPR regulates the use of data from citizens in the EU. It also affects any companies that may deal with this data, so companies with online services cannot be exempt no matter where their actual location may be.
- HIPAA (Health Insurance Portability and Accountability Act). This standard affects the use and sharing of health data. It is extremely strict and there are many expensive fines for failure to comply.
- PCI DSS (Payment Card Industry Data Security Standard). This standard is particularly relevant to the financial industry, but also to every industry where financial information is exchanged to make payments.
The best API management platforms will have compliance to these standards built-in, ensuring that your financial institution will not have to face heavy fines and data breach costs.
Other potential benefits of API banking would include increasing client trust, modernization, enhancing agility in your business processes and reducing costs.
Benefits of API Banking and Management
API development can be difficult and costly. Mistakes can result in your business taking a serious financial hit or compromising the trust your clients place in you.
DreamFactory helps you streamline API development and also monitor APIs to prevent vulnerabilities. You can better drive customer engagement, increase efficiency and protect important client data through the secure platform.
Financial institutions should be able to pick the best option for API management to get the full benefits of API banking. Sign up for a 14-day free trial and start creating your APIs today!
A Three-Step Guide to Insurance Transformation