API banking today is decentralizing the control and bringing all products on one platform at competitive prices.
Over the last decade, the banking sector has undergone a massive disruption, which began with the advent of digital banking, Fintech companies, and products and services that are highly personalized. What began with NEFT, RTGS, IMPS has now reached API led banking or open banking, which is another paradigm shift, that is set to change the banking industry forever.
In order to understand how API banking is revolutionizing the banking sector in India, we need to first understand what exactly it is.
What is API Banking and How Does it Work?
Application programming interface or API is generally the tech interface between software programs. In banking, this interfacing is able to facilitate a third-party application to synchronize and connect with a bank’s tools and services. API banking is generally attributed to a group of protocols that make the services of a bank available to third-party companies. It ends up helping both the banks as well as the third-party companies in augmenting their services, and offering customers much more facilities together than they would have been able to individually.
For banks and Fintech companies, API has become particularly significant in the last few years. Providing them with better means for sharing data, integration with systems and personalization of services, APIs can help financial services become quicker and more efficient. In fact, for banks,it can help in granting secured access to the services to third-party platforms, which can help organisations in building products around banking services. This helps in heightening the experience for a customer, while the banking operations remain the same.
What are the Benefits of API Banking?
- Owing to API banking, organisations and start-ups have much more flexibility in providing great features and services that helps in streamlining financial services, therefore helping in the creation of roaring competition and innovative Fintech products.
- There has been an increase in the visibility of cash flow, due to the enhancement of real-time banking capabilities.
- With the reduction in a lot of administrative hurdles, there is higher ease in managing one’s finances. Processes like applying for a business loan, checking one’s credit score, etc. have become much simpler and quicker.
- One can now have a single view of all their finances, and be able to control, analyse and track all financial movements all under one roof.
- With API banking helping innovation, the cost of serving the underserved and unbanked has become more economical, as well as the products and services that suit their needs much better are being offered.
- Fintechs can now utilize API banking in retrieving account balances in real-time, which helps in speeding up transactional processes.
- With the help of API banking, enhanced information for reconciliation is now available in real-time, which helps in the processing of vendor and dealer finance transactions faster, thus facilitating speedier churn in the ecosystem
One of the most important features and contributions of API banking is data analytics which is really the core of this revolution. Granting banks the ability to collect monumental amounts of data related to customer behavior, enables them in creating more tailored products and services along with targeted marketing initiatives.
API banking today is decentralizing the control and bringing all products on one platform at competitive prices. By giving users insights into their financial transactions, API banking is paving the path for a new banking environment, where customers have much more power, and can switch between service providers.
Eliminating barriers between businesses, wherein everyone has access to the same data, helps in the overall growth of the financial industry, and a marked improvement in the quality of services that are available. Hence, there is absolutely no doubt that API banking is revolutionizing the banking sector in India just as core banking once did, ushering it forward to a digital future.
(The author is Vineet Tyagi, Global CTO, Biz2X and the views expressed in this article are his own)