Guide on Banking API: Definitions, Benefits and Client Examples. API Banking Explained

Everywhere we look, we can find APIs. For example, a restaurant’s website may have embedded Google Maps, so you know where to find it. That’s done using an API. And if you’re reading an article and you see live tweets with further information, that’s made with the help of an API as well.

But the real revolution is coming with the introduction of API banking. With this technology, banks can provide a better digital experience to their customers while also ensuring their data is perfectly safe. Besides that, the API access also allows them to work now together with the FinTech companies and for example, embed their bank APIs into non-financial apps. Bank APIs work to reduce friction in the fragmented financial services industry, improving the overall banking experience and paving the way for the future of banking. This is closely related to the concept of embedded finance, where APIs enable financial services to be seamlessly integrated into non-financial platforms, making banking services more accessible across various industries.

That way, having an Open Banking API can increase a bank’s appeal and allow them to respond to quickly changing customer demands. But what is it, and how does it work?

In this blog post, we will discuss all you need to know about API banking. So if you’re ready to take your business to the next level, read on!

What Is API Banking?

Basically, an API (Application Programming Interface) is an interface through which it’s possible to sync, link, and connect the service database with any application. APIs also enable communication and integration between different software components within banking systems, supporting a modular and interoperable architecture. You can say they serve as a bridge between an app and service that ensures data transmission in a secure manner without involving third parties.

API banking meanwhile refers to a set of protocols that makes a bank’s services available to other third-party companies via API. Core services such as payments, account management, and data analytics are exposed through APIs, allowing integration with third-party companies and fintech applications. This way, banks and third-party companies can combine their offerings and offer a much wider range of services than they could otherwise.

How Does API Banking Work?

API banking functions by creating a seamless connection between a bank’s services and third-party applications through the use of Application Programming Interfaces (APIs). These APIs act as a bridge, enabling secure and efficient data exchange between a bank’s core systems and external platforms. This is how banking APIs work: they facilitate secure data sharing and allow third-party integrations for financial services, ensuring standardized and modular connections within the open banking ecosystem. For instance, when a customer uses a mobile banking app, APIs facilitate real-time access to their bank account data, allowing them to check balances, transfer funds, and pay bills directly from their smartphones. In this process, API calls are used to process transactions and retrieve account information instantly and securely.

Beyond basic transactions, API banking empowers customers to track their spending, manage budgets, and explore personalized financial products offered by third-party developers. By integrating banking services with various applications, API banking not only enhances the user experience but also opens up new revenue streams for financial institutions by offering innovative and tailored services.

Types of Banking APIs

Banking APIs can be categorized into several types, each serving distinct functions and purposes within the financial ecosystem. Here are the main types:

1. Public APIs (Open APIs): These are accessible to third-party developers and are often used to promote innovation by allowing external developers to create new applications and services. Public APIs facilitate open banking by enabling secure data sharing between financial institutions and third-party providers. Open banking APIs specifically allow consumer-permissioned, standardized access to banking data and services, supporting secure integration and regulatory compliance for third-party access.
2. Private APIs (Internal APIs): Used within a financial institution, these APIs are not exposed to external developers. Private APIs help streamline internal operations, enhance system efficiency, and improve communication between different systems within the organization.
3. Partner APIs: These are shared with specific third-party partners, allowing them to access certain functionalities or data. Partner APIs are typically used in strategic collaborations, enabling partners to integrate with the bank’s services and offer enhanced solutions to customers. Secure API connections are crucial in partner APIs to ensure reliable data access and seamless integration while maintaining high standards of security and user control.
4. Composite APIs: They combine multiple service requests into a single API call. They are designed to streamline processes by aggregating various data points and services, reducing the number of calls needed to perform complex transactions or retrieve comprehensive data sets.

By leveraging various types of banking APIs, financial institutions can enhance their service offerings, improve customer experiences, and drive innovation within the banking industry..

Choosing the Right Banking API

Selecting the proper banking API is crucial for financial institutions and FinTech companies looking to leverage the power of API banking. With so many APIs available, it can be challenging to determine which one is best suited for your needs. Here are some key factors to consider when choosing a banking API.

1. Security: Look for APIs that prioritize security and comply with industry standards such as PSD2 and GDPR. Ensuring the protection of customer data is paramount.
2. Scalability: Choose an API that can handle high volumes of traffic and transactions. This is essential for growing businesses that anticipate increased usage over time.
3. Flexibility: Opt for an API that offers flexibility in terms of customization and integration. This allows you to tailor the API to your specific business needs.
4. Documentation: Ensure that the API provides clear and comprehensive documentation to facilitate easy integration. Good documentation can significantly reduce development time and effort.
5. Support: Look for APIs that offer reliable support and maintenance to ensure minimal downtime. Having access to timely support can help resolve issues quickly and keep your services running smoothly.
6. API Usage Monitoring: Evaluate how the API enables monitoring of API usage to track performance metrics such as latency, identify bottlenecks, and ensure security. Monitoring API usage is critical for maintaining the overall health of your banking services.

In addition, consider the value of monitoring and analytics layers, which provide an extra level of oversight by tracking API usage and performance. These layers help maintain API health and optimize operations by enabling continuous performance improvement and operational oversight.

Implementing API Banking

Implementing API banking requires a strategic approach to ensure successful integration and deployment. Below we list important steps to follow in this process.

1. Define your API strategy: Determine how you want to use APIs to achieve your business goals. This involves identifying the specific services you want to offer and the customer needs you aim to address.
2. Choose the right API: Select an API that meets your needs. Consider factors such as security, scalability, flexibility, documentation, and support.
3. Develop a robust API architecture: Design an API architecture that is scalable, secure, and flexible. Each banking function, such as payments or KYC verification, should be encapsulated in an appropriate service module, allowing for modular updates and targeted improvements. Additionally, ensure your architecture supports direct integration with third-party platforms for seamless service delivery and real-time transaction handling. This will ensure that your API can handle growth and adapt to changing requirements.
4. Implement API security measures: Ensure that your API is secure and compliant with industry standards. This includes implementing authentication, authorization, and encryption protocols to protect customer data.
5. Test and deploy: Test your API thoroughly to identify and fix any issues before deployment. Once testing is complete, deploy the API to production.
6. Monitor and maintain: Continuously monitor and maintain your API to ensure minimal downtime and optimal performance. Regular updates and maintenance are essential to keep the API secure and efficient.

Security Measures in API Banking

Security is at the core of API banking, as financial institutions must protect sensitive financial data while enabling seamless access to banking services. To safeguard banking data, API banking employs advanced security measures such as HTTPS and TLS encryption, ensuring that all data transmitted between banks and third party developers remains confidential and tamper-proof. Authentication and authorization protocols, including OAuth and JSON Web Tokens (JWT), are implemented to verify the identity of users and applications, granting access only to authorized parties.

Financial institutions also conduct regular security audits and penetration testing to identify and address potential vulnerabilities in their API infrastructure. These proactive steps help maintain the integrity of the entire system and build trust with customers who rely on secure banking services. By prioritizing robust security measures, API banking enables financial institutions to confidently share data with third party developers, supporting innovation without compromising the safety of sensitive financial data.

Documentation and Support for API Banking

Comprehensive documentation and responsive support are essential components of successful API banking. Financial institutions provide detailed API documentation, including step-by-step guides, code samples, and integration tutorials, to help third party developers connect their applications to banking services efficiently. This clear and accessible documentation reduces development time and minimizes errors during integration.

In addition to documentation, dedicated support teams are available to assist developers with technical challenges, ensuring that any issues are resolved quickly. Many financial institutions also offer sandbox environments, allowing third party developers to test their applications in a secure, simulated setting before going live. These resources foster a collaborative environment, empowering developers to innovate and build robust third party applications that enhance the API banking ecosystem.

Flexible Solutions in API Banking

API banking is designed with flexibility in mind, enabling financial institutions and third party developers to create tailored financial products and services that meet evolving customer expectations. APIs can be seamlessly integrated into existing banking systems, allowing for rapid development of new solutions such as mobile banking apps, digital wallets, and intuitive financial management tools.

This flexibility empowers financial institutions to respond quickly to market changes and customer demands, offering features like real-time account management, instant payments, and personalized financial advice. Third party developers can leverage API banking to build innovative applications that perform transactions, deliver unique customer experiences, and expand the range of available financial products. By embracing flexible solutions, API banking helps financial institutions stay competitive and relevant in the fast-paced world of digital finance.

Customer Insights Enabled by API Banking

API banking unlocks powerful customer insights for financial institutions by providing access to rich transaction history and behavioral data. By analyzing API-driven transaction data, banks can gain a deeper understanding of customer preferences, spending habits, and financial needs. This data-driven approach enables the creation of highly personalized financial products and targeted marketing campaigns that resonate with individual customers.

For example, by monitoring transaction history, financial institutions can identify opportunities to offer tailored savings plans, credit products, or investment options. APIs also facilitate the collection of customer feedback, helping banks refine their services and improve overall satisfaction. Leveraging these insights, financial institutions can enhance customer engagement, build loyalty, and deliver financial products that truly meet the needs of their clients.

Best Practices for API Banking Integration

Successful API banking integration requires adherence to industry best practices by both financial institutions and third party developers. Security should be the top priority, with robust authentication and authorization mechanisms in place to protect sensitive data and prevent unauthorized access. Comprehensive documentation, including clear instructions and code examples, is essential to guide developers through the integration process and minimize errors.

Thorough testing is another critical best practice. Financial institutions should provide sandbox environments for developers to test their applications safely before moving to production. Ongoing monitoring and analytics help maintain optimal performance and quickly identify any issues that arise. Finally, establishing open communication channels between financial institutions and third party developers ensures that questions and concerns are addressed promptly, fostering a collaborative and efficient integration process. By following these best practices, API banking can deliver secure, reliable, and innovative financial services to customers.

Examples of API in Banking and FinTech

APIs have become pivotal in enhancing the functionality and reach of banking and FinTech services. APIs are designed to address specific banking functions such as payments, account management, and data analytics, allowing these capabilities to be accessed as distinct modules. By enabling seamless integration and data exchange, APIs empower financial institutions and FinTech companies to offer innovative solutions that cater to diverse customer needs. Additionally, APIs enable fintech companies to build on existing financial infrastructure, making it possible to deliver new services and products efficiently. The following are key examples of how APIs are transforming the banking and Fintech sectors.

Payment Processing APIs

Payment processing APIs enable secure and efficient transactions, allowing users to transfer funds, pay bills, and make purchases directly through banking applications. These APIs often integrate with payment gateways and payment processors, which play a crucial role in facilitating real-time transaction processing through APIs to ensure seamless financial transactions.

Account Information APIs

These APIs provide access to users’ bank account data, including the user’s bank account as well as other financial accounts, such as savings, checking, and investment accounts. This includes balances, transaction histories, and account details.

APIs enable secure access and management of multiple bank accounts for users, allowing seamless integration and sharing of financial account information across different financial services and applications. They are essential for applications offering financial management tools and services, enabling users to monitor their financial activities.

Authentication APIs

Authentication APIs focus on ensuring secure access to banking services by managing identity verification and user authentication processes. They play a crucial role in maintaining security and compliance with financial regulations.

Data Aggregation APIs

Data aggregation APIs enable the collection and consolidation of financial data from multiple sources, with data aggregators playing a crucial role by providing efficient access to this information through APIs. These APIs are particularly useful for personal finance management applications.

Loan Origination APIs

These APIs streamline the loan application process by automating tasks such as credit scoring, identity verification, and document submission. They enhance the efficiency of loan processing for both banks and customers.

Investment APIs

Investment APIs provide access to financial markets, allowing users to manage their investment portfolios, trade securities, and track market trends. These APIs are often used by Fintech platforms offering investment services.

Currency Exchange APIs

Last but not least, currency exchange APIs facilitate real-time currency conversion and foreign exchange transactions. They are essential for applications dealing with international transactions and global banking capabilities.

Benefits of Using API Banking

In 2024, API adoption in the banking sector continues to surge, with over 51% of banks and credit unions actively leveraging APIs, up significantly from 47% in 2021 and 35% in 2019. APIs enable banks and fintech companies to provide financial services more efficiently and at scale, transforming how customers access and manage their finances. Financial services companies are at the forefront of driving API adoption and innovation, using these technologies to offer enhanced services such as data sharing, account aggregation, and integrated banking portals. For many banks and fintechs, leveraging APIs has become a core business strategy to inform decision-making, improve operational efficiency, and gain a competitive edge in a rapidly evolving market. Additionally, the global API banking market, valued at $24.7 billion in 2022, is projected to reach $217.3 billion by 2032, growing at a CAGR of 24.7%. But what exactly makes banking APIs so appealing?

Enhanced Data Sharing and Security

Perhaps the most obvious benefit is that APIs make it easier for banks and other financial institutions to share data, integrate with systems, personalize their services, or add new services to their offering. So now, when data transparency and easy sharing between parties are crucial, banking API allows companies to do exactly that while also improving internal security (all banking APIs have to meet strict compliance and security requirements).

Personalization and Customer Retention

The vast amount of data the API can gather and store can be a goldmine of information for the banks and help them tailor their service to the customers’ expectations. By leveraging data analytics, banks can derive actionable insights from API-driven data, further enhancing the personalization of their offerings. The more personalized the products and services, the less your customers turn to your competitors. And since the data is collected automatically, you don’t need to spend any more time managing the data yourself.

Profitable Partnerships and Market Expansion

Collaboration with other banks and third-party institutions can also prove to be incredibly profitable. By gaining access to user data from other participating financial institutions (particularly other banks), banks can market their products and services to a much wider audience. Third party platforms leverage APIs to expand the reach and functionality of banking services, enabling streamlined lending processes, embedded payments, and banking-as-a-service (BaaS) offerings. This opens up a world of potential for banks to develop their own integration-based financial services.

Improved Consumer Experience and Convenience

In addition to being extremely useful for businesses, APIs are also very helpful for consumers. Using an app saves time spent on transactions, makes any service or product a consumer might need straight away, and helps them with managing their finances. API integrations enable a wide range of financial tools within banking apps, providing essential features and improving the overall user experience.

Reduced Administrative Burdens

Those apps also helped eliminate many administrative hurdles for the customers, such as the paperwork needed to apply for a loan or check their creditworthiness, making banking services more accessible than ever. Being able to access other related services they might need (like insurance) straight from the app is also a massive time-saver for the customers – they don’t need to spend time searching for a provider, they can have a tailor-made offer for them available straight from the app. APIs enable seamless integration with third party services, allowing banks to streamline administrative processes and expand available functionalities within the app. 

Disadvantages of Using API Banking

While API banking offers numerous advantages, it also presents certain challenges. One significant concern is the potential for security vulnerabilities, as APIs expose data to third-party developers, increasing the risk of data breaches and unauthorized access to sensitive financial information.

Additionally, the integration process can be complex and resource-intensive, especially when connecting APIs with existing core banking systems. These core banking systems often have legacy architectures that can make seamless integration difficult, requiring financial institutions to invest in robust infrastructure and skilled personnel to ensure smooth operation. However, modern core banking solutions are increasingly modular and API-driven, helping to address integration challenges by supporting flexible, secure, and scalable banking services. Another drawback is the reliance on third-party providers, which can lead to dependency issues and potential disruptions if these providers face technical difficulties. Furthermore, the rapid pace of technological advancements necessitates continuous updates and maintenance, which can be costly and time-consuming for banks.

But despite these challenges, the benefits of API banking often outweigh the disadvantages, making it a worthwhile investment for many financial institutions.

Open Banking and API Banking

Open banking and API banking are two interconnected concepts that are revolutionizing the financial services industry. Open banking refers to the practice of sharing financial data between financial institutions and third-party providers through secure APIs. This allows customers to grant third-party providers access to their financial data, enabling them to provide personalized financial services and products.

API banking, on the other hand, refers to the use of application programming interfaces (APIs) to enable secure communication between financial institutions and third-party providers. APIs allow financial institutions to expose their services and data to third-party developers, who can then use this data to create innovative financial products and services. By enabling third party developers, APIs facilitate integration and innovation, allowing external developers to build new financial applications on top of the bank’s platforms.

The combination of open banking and API banking has created a new era of financial innovation, enabling financial institutions to provide more personalized and customer-centric services.

The Future of API banking

While banks and financial institutions looked at API banking with some degree of reserve and hesitation at first, the benefits of those speak for themselves. From frictionless payments to more secure and simple ways of paying, there are enormous benefits for merchants, payment providers, open banking operators, and consumers alike. Intuitive financial management tools will further enhance the overall customer experience by enabling smoother interactions and providing customers with the capability to perform transactions more conveniently, thereby transforming how users engage with financial services.

That’s why more and more banks and financial institutions and FinTech companies are joining the trend. ​As of December 2024, the number of active open banking users in the United Kingdom surged to 12 million, up from approximately 8 million at the end of 2023. Notably, in July 2024, Open Banking Limited announced that there were 10 million consumers and small businesses regularly benefiting from open banking technology. This upward trend reflects the growing trust and reliance on open banking solutions to manage financial activities more efficiently.

As we explore the evolving API ecosystem, it’s worth understanding what is BLIK payment—a popular mobile payment system in Poland that allows users to make instant, secure transactions directly from their banking app. BLIK exemplifies how API-driven solutions can streamline payments and enhance user convenience, offering a glimpse into how API banking is reshaping digital finance globally.

And this is just the start – what more can we expect to see from banking API technology?

Globalization of FinTech Industry Thanks to Modern Tech Solutions

The digital transformation that was supposed to take a decade is happening right in front of our eyes – and API banking is one of the best examples of a Digital Transformation of the financial industry in recent years. Traditional banks are increasingly adopting API technology to enhance their services, improve efficiency, and expand their global reach. APIs enable banks to modularize their bank’s services, such as account management, payments, and data analytics, allowing for greater flexibility, third-party integration, and targeted innovation within their service offerings. Banking apps, “Buy now, pay later” options, and seamless mobile payments are just the start, though.

The UE regulation, Payment Services Directive 2, forced banks and financial institutions to implement modern solutions to fit into the regulations affecting their systems’ security, privacy, operation, or management. Depending on the country, the process was quicker or slower. But the effects are already visible. Thanks to the digital revolution, companies from the finance industry can partner with FinTech companies from all over the world and work together on creating a better banking experience for the customers.

The trend is shifting toward customers picking a financial service coming from a different place than they are just as easily as signing for a local one – and that’s all thanks to open banking, which simplifies the management of accounts from multiple financial institutions.

Banking API as a Source of Centralized Data for Artificial Intelligence

Integrating multiple services into one place and gathering user data from there can drastically improve institutions’ ability to find more about the customers and then build a complete profile of their customers. But the vast stream of transaction data can be just as useful for teaching Artificial Intelligence-powered tools how to process and understand each of the customer’s needs.

Thus, AI could be a great asset to the financial sector, helping them segment and convert consumers, predict business trends, and recognize issues or challenges. AI is also playing a growing role in financial advisory and customer service. Many banks and fintech companies have adopted Generative AI-powered virtual assistants that provide customers with real-time investment insights, spending recommendations, and savings plans. Unlike traditional chatbots, these AI-driven tools continuously learn from user interactions and offer proactive financial guidance, rather than just reactive responses.

What’s more, AI could free the employees of some manual, tiresome tasks (like manual lead scoring, risk, or assessment) and also manage big data for them, letting companies tailor their service to each and every customer. Beyond automation, AI is revolutionizing fraud detection and regulatory compliance. Modern AI models analyze real-time transaction data to detect anomalies, flag suspicious activities, and prevent fraud before it happens.

Since the AI potential hasn’t reached its limits yet, we can expect to find even more uses for AI in the banking industry in the future. One of the most anticipated advancements is the rise of AI-powered voice banking and biometric authentication. Banks are integrating voice-activated banking assistants that allow users to perform transactions and manage accounts hands-free, using only voice commands. At the same time, AI-driven biometric security, including facial recognition, fingerprint scanning, and behavioral authentication, is becoming a standard in API banking.

Potential Problems with Linear Journeys

Customers’ expectations have changed over the years. They are no longer happy with just visiting the bank or calling whenever they want to check their account. No, now they expect banks to provide an omnichannel experience for them so that they can use their funds, track profits, or manage their data, anywhere and anytime through online banking.

It’s also why assuming that all customers will behave in a linear manner is no longer feasible. Rather, banks and financial institutions should give customers the option to use the banking services however it is convenient for the users.

And this is one of the key things API banking will change – it will concentrate multiple financial services in one place so that customers can have quick and easy access to all their data, even from different banks or providers.

What else could financial institutions do here? Mobile app and web app creators specializing in FinTech could integrate banking into numerous 3rd party applications, letting users use their mobile devices far more efficiently. That way, customers won’t have to go to a physical bank to make a money transfer or set up a subscription – they can make a payment anywhere.

Consumers nowadays want to be able to use their funds as easily and seamlessly as possible, so from a technical perspective, API banking is a must-have for all financial institutions.

How We Do It: CrustLab x Oanda TMS Brokers

Now, what does building such an API look like? We could go through the theoretical steps of creating one, but instead, we’ll show you an example of one by looking at how we built an online currency exchange API for OANDA TMS Brokers company. Secure data sharing is crucial in API implementation to ensure seamless and efficient communication between financial institutions and third-party applications.

What Was the Project?

TMS wanted to enhance its online virtual currency exchange office with new functionalities for the users, such as new types of transactions and ways of authorizing them. It was especially important for them to improve onboarding and exchange processing.

What Was the Challenge?

This project involved expanding the user panel’s functionality and other elements of the currency exchange platform. The company’s main goal was to streamline and automate the currency exchange process for the users and give them new types of transactions to use.

What Was the Outcome?

We have added new features for individuals and companies to the app, including:

• New types of transactions (SPOT+ and NETTO), 
• An expanded admin panel,
• Bank integrations (PKO BP, Alior, Santander), 
• The option to make deposits, 
• SMS authorization of critical actions,
• The option to share an account and assign roles to individual users,
• A widget that allows partners to present TMS platform courses on their websites,
• A feature that allows monitoring the flow of money within the organization,
• Accounting process automation,
• Enabling partners to execute transactions using an open API.

Our team has also optimized the platform’s overall work by fixing bugs, reducing the likelihood of new ones occurring, and optimizing the deployment process.

Conclusion – Let CrustLab Implement the API Banking Solution for You!

Giving your customers a superb experience is now virtually a must, especially if you want to keep customers using your financial services. And taking advantage of API banking technology is currently one of the best ways to give them easy access to those. Several top banks have already launched their API services, and many others are expected to do the same soon – so if you want to gain a competitive edge, you should start thinking about introducing banking API’s to your business. 

However, if you are unsure where even to start, why not let us help? As a software house specializing in FinTech solutions, we are experienced in implementing banking APIs, so we understand both the development process and the strict compliance law. By working with us, you might soon have your own app and reap the benefits yourself. Contact us to learn more.