APIs and Open Banking: the future of finance

APIs and Open Banking: the future of finance

“Open banking is a secure way for banks to share financial data and services with third-party providers such as mobile stock-trading applications or popular mobile payment service applications that use technologies like APIs,” says Filep. “It complements one of the core principles of banking — to protect customer information — by sharing the data in open and collaborative ecosystems, if customer consent is provided.” What Is Open Banking? DISCOVER: Learn how APIs can be used to open up opportunities for automation.

There are four basic types of APIs: public, partner, internal and composite. What Are the Different Types of APIs?

Public APIs (also called Open APIs) have no restrictions on use or availability. Partner APIs are designed to facilitate specific business-to-business communication and often have increased security and authentication controls. Internal APIs are used to connect systems or services within corporate networks, such as payroll and HR. Composite APIs combine two or more APIs to create a sequence of operations that help streamline more complex functions. “APIs mean customers can directly access their bank account when executing transactions online, allowing easy tracking of balances and outgoing payments,” says Filep. “They can also enable integrations between physical banks and merchants, which offer consumers financing and lending options at the point of sale.”

APIs underpin the efficacy of open banking initiatives. In order to provide seamless data access, interoperability and security across multiple vendors and other financial institutions, multiple APIs are required, each with a specific purpose. However, Filep says, “while open banking adoption numbers are growing, security, privacy and fraud remain legitimate concerns. A primary risk for consumers, banks and third-party providers is how to ensure data privacy and security beyond banking systems if fraudsters take advantage of APIs.” How Are APIs Used in Open Banking?

“For customers, open banking provides a better experience by building brand trust and security, improving payment experiences, and increasing transaction approval rates,” notes Filep. “For merchants, it reduces processing costs as there are typically no interchange fees. Chargebacks are also removed, which makes the process seamless and simple.” As noted by the Future of Privacy Forum, while challenges remain with interoperability and standardization for open banking, President Biden’s recent Executive Order on Promoting Competition in the American Economy suggests the creation of new rules under Section 1033 of the Dodd-Frank Act. These include better support for open banking initiatives that make it easier for consumers to switch banks or try innovative services by promoting data interoperability.

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