An Introduction to API

By IBF Posted 2yr(s) ago Reading Time: A few minutes

Financial institutions are starting to use APIs as a means to link their products and services with customers as well as key third-party providers. This is driven by the need to deliver more customer oriented functionality and a faster time-to-market.

But what is an API and why is it so important for business growth?

What is an API?

Application Programming Interface (API) is a software-to-software interface that enables two applications to exchange data among each other. As such, APIs enable applications to obtain data from multiple sources and manipulate them in different ways to suit the information needs of the users.

One particular key role that APIs play is to facilitate intra and cross-sector partnerships and increases information and resource sharing between organizations.

For example, restaurants use APIs to link their websites to Google Maps so users can find information about the ratings and operating hours of restaurants near where they are, while travel sites use APIs to allow customers to select flights, hotels and car rental according to their budget and travel plans.

4 advantages of an API economy

1. Greater speed to market - By opening your organization's API, you're allowing your organization to be leveraged by an ecosystem of customers and partners that enhance your potential to respond to market opportunities and reach out to market sooner.

2. Vibrant marketplace - Collaborative environment that accelerates growth by tapping a broader application ecosystem where you could draw on the resources and networks of expertise beyond your organization to help with non-core parts of your application infrastructure.

3. Extension of customer base - Allowing parts of your application infrastructure to be handled by domain experts in a broader ecosystem puts you in the position to learn from said experts, and extend services and products beyond traditional reach.

4. Better risk management - APIs are a tool to help you outsource parts of your operations and infrastructure to other companies that are domain experts. Your organization can thus focus on the core business as well as the governance and risk management aspects to significantly improve compliance and risk management.

The Rise of APIs

APIs are driving the growth in new businesses because of their ability to integrate applications across channels and speed to implement. The following piece illustrates the growing importance of APIs in the competitive business landscape.

APIs in Financial Services 

To keep up with changing and increasing customer demands, banks have started to use APIs to create connections between their products, services, customers and other service providers. The ABS-MAS API playbook was also developed and launched in Nov 2016 to identify common and useful APIs for the industry.

How APIs work in banking 

Here are some examples of how banks could make use of APIs.  

Personalized information and transaction

Banks could utilize APIs as channels that transmit data to different parties. For example, customers are able to access information and perform transactions via internet or mobile banking through the use of API technology. This includes information on account balances, transfer of money, paying of bills and alert notifications.

Two-way regulatory reporting

With API, it makes it easy for regulators to disburse statistical information to banks upon request, and banks in turn would be able to file regulatory reports on new or updated financial products, at the click of buttons.

Business partnerships

A bank can leverage on API to allow business partners to use its infrastructure to offer services, ranging from cards applications, reward programs to insurance policies.

Not only would this help the banks to expand their client merchants and partners, it would also enable banks and business partners to offer their services to end consumers seamlessly.

The future of APIs

By using open APIs, banks and fintech companies are able to leverage on each other's strengths to develop new products and services, as well as improve customer experience.