Open Banking API: The Nuts and Bolts

14 March 2022
Dawid Siwko
Dawid Siwko
Backend Developer
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  • Intro

What is open banking API? How does it work? This blog post will answer those questions and more. We’ll talk about the basics of open banking API and how it can benefit your business. Stay tuned for more information on this exciting new technology!

What is an Open Banking API?

An Open Banking API is a mechanism by which third parties can access your bank account information without having to know anything about you. It takes banking regulations, banking ecosystems, and application program interfaces into consideration, and truly speeds up digital transformation.

In essence, what this means for financial institutions such as banks, is that they can outsource API development to a third party. This allows smaller institutions and start-ups to develop payment products and innovative services which may not have been possible before.

How does an Open Banking API work

Open Banking APIs work by allowing authorized users (e.g. developers) to access specific information about bank customers’ accounts. In order to do this, the developer must first register for access and then be approved by the bank.

Once approved, the developer will be able to access account information such as account numbers, balances, transactions, and more. This information can then be used to develop new products or digital services which can benefit both consumers and financial institutions alike.

As part of this process, you must obtain permissions from each and every user. If banks give you API access, it doesn’t mean that you can immediately access and make use of all their data. The client has to consent to use their data for this purpose. 

Benefits of Open Banking API

#1 Better banking experience

Open Banking APIs can be used to develop innovative new payment products and third-party services that can improve customers’ banking experience. For example, a developer could create a mobile app that allows customers to view their account balance and transactions on their phone.

This type of innovation is possible thanks to the Open Banking API standard, which enables developers to access bank data directly from their own servers rather than having to rely on third-party providers such as banks or fintechs.

This means developers can create innovative new application services that may not have been possible before, giving consumers a better impression in an increasingly competitive marketplace in the financial services industry. This could include things like personalized offers based on spending habits and location-based services which show users the nearest ATM or bank branch, available banking initiatives, access to bank data on the spot, or other banking platform features.

#2 All banking products under one roof

Open Banking APIs allow developers to build web applications or mobile apps that connect directly with banks’ systems. This means consumers no longer need separate accounts for each bank, as all their banking products can now be managed from one place using an app developed by a third-party provider (e.g., fintech app).

For example: if you have a bank account, a credit card, and a loan with different banks, you would need to log in to each of these institutions’ websites in order to view your account information. With an Open Banking API, all this information can be accessed from one place using a single app.

#3 Boosted service offerings for the fintech industry

The fintech industry is one of the biggest beneficiaries of Open Banking APIs. This is because they provide a way for developers to build applications that can interface directly with banks’ systems.

This means that fintech businesses no longer need to rely on banks to develop new products and services, as they can now do this themselves using the bank’s data. This gives fintech companies a competitive advantage, as they can now develop products and services at a much faster pace than banks.

It also allows them to focus on their core competencies (e.g., developing innovative new technologies) rather than having to spend time and resources developing basic banking features such as account management and banking model transactions.

Open Banking API benefits infographic

How to get started with an Open Banking API and what to expect during the implementation process 

What are the steps in implementing an Open Banking API and what should you expect? Check out what Marcin Śpiewak, our Co-Founder, and CTO, got to say about it:

Crustlab is experienced in implementing banking APIs as well as consuming them from the largest financial institutions. Therefore, we know how to handle this challenge.

APIs of this nature are highly regulated by the PSD2 directive. In addition, technical documentation (including examples of calls and response schemes), as well as a test environment for entities that wish to integrate with us, must certainly be created along with the API – this is from the perspective of the company that would like us to use Open Banking API into their product. The second scenario – that is, when we have a company that wants to integrate, for example, with a bank (and this bank provides an API), our role is to read the documentation and implement accordingly.

In light of this, you should consider that it is not a very fast process. The bank must issue appropriate certificates. Staging environment tests and then, of course, implementation is also required.

It is clear that Open Banking APIs offer many benefits, but their implementation can also be quite costly and time-consuming. Based on experience, we can say that a basic integration with a financial entity takes about 10-15MD.

Among the interesting uses of the Open Banking API is the ability to automate the posting of transfers. Many companies have the accountant enter a bank account and run through the history and save the result in another system – it is a lot of manual work and it is very easy to make a mistake. APIs allow organizations to automate this process, virtually eliminating the need for an accountant to handle the project.

Who are key players in the development of Open Banking API

The key players in the development of Open Banking APIs are the big banks, startups, and tech companies.

In accordance with the EU, each financial unit that allows for storing money within its own accounts is legally required to issue an API so other institutions can use it further. There are regional regulations that apply to particular areas. Poland, for example, has a Polish API for open banking as a standardization. 

The big banks are leading the charge on developing these APIs, as they see it as an opportunity to stay ahead of the curve and maintain their relevance in an increasingly digital world. Startups are also playing a major role in this space, as they see the development of Open Banking APIs as a way to gain a foothold in the banking market. And finally, tech companies are also getting involved, as they see this technology as a way to expand their reach into the financial sector. 

Organizations can differentiate themselves by providing simple and transparent documentation or by offering development and testing-friendly environments.

There are a few key players in the development of Open Banking APIs. The Open Banking Implementation Entity (OBIE) is a not-for-profit membership organization founded by eight UK banking organizations in early 2017. The OBIE’s goal is to develop and promote the adoption of an open API standard for UK banking and third-party applications.

The Financial Conduct Authority (FCA) is the UK financial regulator and played a leading role in developing the Open Banking Standard. The FCA has said that it wants to see widespread adoption of open banking APIs in mobile applications and financial management, as this will increase innovation and competition in the financial services sector.

Finally, a number of technology companies are also playing a role in the development of open banking APIs, even if they stay out of the so-called fintech industry. These include Google, Microsoft, and Apple who all are involved in banking adoption and provide partner APIs (e.g. via accepting payments in their business model).

What are the future prospects for Open Banking APIs

Open Banking APIs are the future for banking and the digital economy. They will make it easier for consumers to access their account information and make transactions, and they will also make it easier for businesses to develop new secure connection products and innovative solutions for better customer engagement, growing customer bases, and other innovation efforts.

The big banks have been slow to adopt Open Banking APIs, but we think we’ll see more of them jumping on board in the next few years. The benefits are just too great for them to ignore in the banking industry. And as customer demand for open banking increases, we think we’ll see fewer legacy systems and even more innovation in this area in the upcoming period of time. So stay tuned, API economy is only just getting started!

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