“API banking has fully unlocked the digital potential for financial services,” says Sam Wadhwani, a director with PwC UK. “It allows for increased specialization, personalization, and integration, and has led to the emergence of third-party products that complement banks’ core offerings with niche services and high-quality customer experiences.”
In traditional banking models, customers with accounts at multiple financial institutions found it difficult to quickly generate a picture of their overall financial situation; clients who wanted such an accounting lens for their personal finances were forced to combine transaction histories from individual sources themselves. Open banking, by contrast, allows applications to pull data from all the institutions where an end-user holds accounts, creating a more holistic financial view of—and for—a customer. And the technology, once limited to specialized aggregators and other third parties, is now entering the mainstream.
Specific applications of API banking include:
- Payments. Rather than requiring customers to enter card details or create direct debit mandates, API banking allows retailers, e-commerce platforms, or any other third party to take payment directly from a bank account.
- Instant loans and credit scoring. Loans can be approved immediately upon application, because lenders can gain instant access to applicants’ risk level and transaction history.
- Aggregated bank accounts. Individuals, businesses, and their financial services providers can create a comprehensive view of an entity’s financial situation by combining data from multiple sources.
- Specialist tools. Third-party providers can develop tailored customer experiences for niche solutions such as budgeting apps, automated invoice reconciliation, or bill sharing.
- Cross-selling. Opportunities to offer a wider range of products to existing customers can be boosted by leveraging data from those customers’ current assets, liabilities, financial profiles, or digital wallets.
“Open or API banking enables new value to be created for banks, which are able to better serve customers. Primary financial institutions and third-party financial services providers will now have access to the data they need to offer innovative products and services, and consumer banking and business banking customers across segments and sectors will benefit from greater choice and specialization in the offerings banks can provide,” says O’Connor.
