Before we get ahead of ourselves, let’s start with some basic definitions. API stands for application programming interface, and it’s essentially a software ‘middleman’ that allows different applications to communicate and interact with one another.
So, to put it in simple terms, open banking APIs make it possible for the Service X software to interact with the Bank Y software, and come out with the information (usually financial data) requested.
What are the benefits of open banking APIs?
First and foremost, open banking APIs enable people and businesses to reap the benefits of open banking (which essentially boils down to increased innovation). In and of themselves, the APIs are important because they give third-party providers access to data from financial institutions in a safe and efficient way.
Ultimately, open banking APIs should make it easier for new fintech services to focus on providing a great user experience – as they can rely on the stable, core banking infrastructure already created by financial institutions.
And if you’re wondering what banks get out of this deal – by fostering innovation, these APIs are creating entirely new ecosystems around the banks. Ecosystems these banks can leverage to broaden their offering and attract new customers.