A definitive guide to understanding API banking

In the last chapter, we discussed how APIs help companies to provide a seamless & efficient customer experience. Now in this chapter, we are going to cover some of the important types of banking APIs and their usage. Let’s jump into it right away.

Types of banking APIs explained

The WRB Report 2017 by Capgemini finds that the banking industry is evolving to an open-source model through the use of APIs. As per the report, there are three types of banking APIs -

  • Private APIs
  • Partner APIs
  • Open APIs

Now that we know what they are called, let’s see what they actually are.

Private API

These are APIs that are commonly used within the traditional banking institution to enhance the efficiency of operations. This set of APIs is viewed as essential by banks because they significantly reduce the development time to build new systems or new customer-facing apps that maximize productivity. Rather than creating applications from scratch, developers can draw from a common pool of Private APIs.

Partner API

These APIs are used as an interface between the banks and their strategic business partners, which helps banks to expand their product lines, services, etc. Sounds confusing? Let us explain with an example.

A bank could work with a third-party company (a strategic business partner) to automatically create loan documents for the numerous loan applications banks in general receive. By working this way, banks can work together with partners to solve a common problem by just sharing APIs with them. This would increase banks’ efficiency, and allow them to automate loans.

The partner APIs allow the bank to pick and choose players they would like to give exclusive access to.

Open API

This set of APIs lately have become quite famous in the banking industry. These APIs make available the data for third-parties that may not have a formal relationship with banks. The whole Open banking initiative was to add more to the list of Open APIs, due to the customers’ desire for better digital banking solutions.

APIs can be implemented in a number of places because of their potential and fintech companies are at the forefront of these implementations.

Classification of Banking APIs by functionalities

Apart from the classification discussed above, these are divided into several categories according to their usage -

  • Core banking APIs
  • Lending APIs
  • Card Issuance APIs
  • Acquiring APIs
  • KYC APIs

Core banking API:
It includes APIs used for creating savings accounts, for doing cash deposits, and APIs helping cross-border payments.

Lending API:
As the name indicates these are the APIs that help in providing credit to customers. These APIs provide all information that loan officers require to make lending decisions.

Card Issuance API:
Card Issuance APIs allow you to create, manage and distribute physical & virtual cards. These are APIs used to create cards for your businesses.

Acquiring APIs:
This set of APIs includes payment gateway APIs and online card acquiring APIs. Online cards acquiring APIs enable companies to accept payments with the use of cards or internet banking.

This set of APIs helps in identifying a business or retail customer. It will help in reducing the onboarding time required for customers, making the process automated & seamless.

That’s it. We have covered most of the popular banking categories that are available in the market for building next-gen fintech products & services.

But we don’t want to leave you on the shore where you’ll just keep counting the waves. So let’s dive deeper into the ocean of APIs and look at how these APIs are helping us solve real customer problems.

Read our next chapter on core banking APIs from here.