Banking API vs Open Banking vs Neo Banking Made Simpler

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Woman looking into banking APIs vs open banking

Fintech is the future of finance. From digital wallets to firms that help traditional banks create digital customer solutions, financial technology companies are thriving. Because of this, you may come across plenty of new banking terms. Keeping up with this terminology may seem challenging, which is why we’ve created our guide to the banking API vs Open Banking and Neo Banking.

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API Banking

API banking involves a bank providing its partners with a banking API. An API, or application programming interface, is a way for services to connect seamlessly to each other. A banking API provides partners with access to certain aspects of the bank’s systems. For example, digital wallet companies will use a bank’s account credit API. This allows money to transfer between digital wallets and bank accounts via a single click, presuming the user has performed adequate security checks.

APIs can be used to authenticate bank account users, to create banking apps that give quick views of balances or transactions, or to register for new services such as a savings account. Fintech services can utilize banking APIs to create their own bespoke services, building their own brand and look that has the bank’s infrastructure running underneath. 

DreamFactory can provide guidance for fintech companies that want to make the most of API-led connectivity.

Banking API vs Open Banking

Using a banking API sounds ideal for most fintech firms, so how does Open Banking differ? Open Banking is a concept that allows the sharing of certain financial information between banks and other financial institutions. One example of this is if you apply for a loan, you might have to pull all your accounts together in order to provide the relevant financial history. Open Banking posits that providing a user has given consent, it’s easier and faster for all parties concerned to simply share the relevant information. Banks can provide lenders with account and transaction details, making applications like this a better experience for both the providers and the end-users.

When considering API banking vs Open Banking, it’s important to realize that the latter also uses a range of APIs in order to function. APIs can support fintech apps that bring together several financial services into one place, allowing users to have all their finances in one place. One example of this is Curve, a service that allows a user to register any number of cards in a single app. The app constantly provides an available balance for each card and allows users to pick a card to use when they shop. However, users can’t transfer between the cards – the APIs in this instance connect the app to the banks, but not the banks to each other.

Despite the name “Open” Banking, one of the primary features of this type of banking is the requirement for a highly secure web interface. Security is a top concern for all banking services. User consent is required at every step of the way, and the APIs themselves will often have integrated security. Because of this, in theory, Open Banking should be as secure as only ever communicating directly with a single bank. DreamFactory can identify vulnerabilities with API security and uses a number of strategies from tokens to gateways to ensure secure connections.

To better understand API integrations for Open Banking, talk to DreamFactory about effective API generation and management.

Banking API vs Neo Banking

Neo Banking takes digital transformation a step further, by removing the physical bank altogether. Neo Banks are entirely digital. Customers sign up online, they do all their transactions online, and any statements or communication they receive are also all digital. Many Neo Banks or Neobanks manage their customer base by offering their services to a very specific target group. For example, Arival bills itself as the “first fintech bank for the abnormal”, and only provides business banking services, primarily startups, freelancers, and SMEs. This allows them to only offer a small range of services, highly tailored to their users. Neobanks may evolve into Challenger banks once they gain the relevant certifications from regulators to provide an expanded range of services.

Transformation and disruption of the financial industry are going to continue to benefit consumers and businesses as we move into the future. API-led banking provides fintech firms with slicker, smoother ways to provide services to their users. Each of the services we’ve looked at, whether it’s banking API vs Open Banking vs Neo Banks, have their own advantages and ways to save users time. It’s unlikely that conventional banks are set to disappear from the financial landscape just yet. But, expect digital and remote banking to dominate the sector, especially as providers become more digitally savvy

Talk to DreamFactory about developing the right API foundation for your fintech offering.

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Getting Started with DreamFactory

If you are want to learn more about the open banking platform strategy or if you want to take steps toward using open banking platform options for your business, DreamFactory can help. Open banking isn’t a new way of banking, only a smarter, more flexible, and easier way to do banking, for everyone. Start your free 14-day free trial with DreamFactory to discover how a top API platform can improve your business’s technology.

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