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A Banking API that captures the data from over 120 sources

With Kontomatik Banking API you only need to integrate one tool to let your users import data from any financial institution of their choice.

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Banking API: The Driving Force Behind the Fintech Revolution

If tech companies want to dominate an established market, they want to create a disruptive technology. Their product needs to outshine all of the current market leaders. Before Uber, we were happy to stand on the side of the road waiting to flag down a cab. Before the iPod, we were happy to enjoy our music one album at a time. Before Tesla, we were happy to top-off our fuel tanks before a long journey. For each of these companies to be successful, existing market leaders had to fail.Fintech companies have the same high aspirations, but face a whole new set of challenges. Banking is a heavily regulated industry, and financial products are integrated into the core functions of every modern business. To compete with traditional banks, you’d need to go through an extensive licensing process and raise significant assets. How is a budding startup going to compete in a market with such high barriers to entry? With Banking APIs, they might not have to. This technology will end the monopoly traditional banks have on their customer’s data, forever changing the way we do business. Although simple in concept, the impact of this technology could result in the biggest market shift the banking industry has ever seen. ***Note: “what is banking API” is grammatically incorrect. If you prefer an exact match keyword, I can add it into the content somewhere else.***

What is a Banking API?

APIs are the foundation of the modern web. As an abbreviation for Application Program Interface, APIs facilitate communication from one platform to another. There are many popular examples of what can be done with an API. If you were to visit the website of your favorite restaurant, you might find a button that gives you directions. As soon as you press it, your smartphone opens Google Maps and finds the fastest route to get there. The Google Maps API allowed this website to communicate with their app, sending the address to begin navigation. Have you ever seen a website ask you to share their content online? Thanks to the Twitter and Facebook APIs, you can do so with just the touch of a button. Information is taken from the website and provided to twitter. APIs make it possible to pull information from one online service and share it with another. Soon, Banking APIs will allow you to do the same with your financial data. Traditionally, banks have full control of your financial data. Changing banks is a complicated process. You’d first have to reapply, providing all of your personal information to the bank. Then, you’d have to transfer all of your funds from one account to another. Finally, you’d have to update your payment information to reflect the new account. What if there was a button you could press that would automatically send all of your financial data to your new bank? Your personal information, payment history, and transaction data can be shared just as easily as updating your twitter status. This concept of freely flowing information is the perfect API Banking Definition. For consumers, this ultimately means that you have more control over your own personal finances.

Why All The Hype?

If APIs are so common among modern industries, why has API Banking only recently become such a hot trend? The financial sector is the heart of modern business. Every change needs to be carefully examined in order to understand the global implications. Changes that affect the foundation of modern business don’t happen overnight. In this industry, significant changes are rare. Thanks to the PSD2, we’re in the midst of one of those rare changes. The European Commission’s job is to regulate the banking industry through a set of rules set out in the Payment Service Directive. The PSD2 is a revision of this document slated to come into effect in the first quarter of 2018. Prior to the release of this document, many banks didn’t allow users to export their financial data to an outside source. Data was kept secure and protected, accessible only by consumers through the bank’s proprietary system. Some institutions were experimenting with bank API integration, but many considered this a threat to their business. But the PSD2 forces banks to open up their data, specifically citing APIs in order to “enable payment by directly connecting the merchant and the bank.” Prior to these regulations coming into place, Fintech companies best shot at success was by licensing their technology to established banks. When the PSD2 comes into effect, banks will be forced to open their platform and allow consumers to choose how their data is used.

Public APIs

>What is possible with banking APIs? The opportunities extend well beyond the framework laid out in the PSD2. However, these regulations do give us a clear outline of capability will see. To make sure that the transition to open banking goes smoothly, the PSD2 is being implemented in two distinct stages. The first stage went live in March 2017. This preliminary API was fairly basic in functionality, providing access to reference data about products and services. Information such as rates, fees, and ATM locations are made available. The first stage made it easy for content providers to help consumers compare products or services offered by major financial institutions. Prior to the API rollout, content providers would have to manually research the services offered by each bank. The API makes it possible to dynamically pull the data from all available sources, ensuring each provider is fairly represented. With this stage, the ultimate goal was to test API functionality and give stakeholders a chance to implement the technology and prototype their application. On January 31st, the second stage comes into effect. Existing APIs will be expanded to include transaction data. With user authorization, the API will be able to pull a list of transactions and personal information from accounts. The API requirements set out in the PSD2 are designed to standardize payment systems between card, online, and mobile payments. Consumers will be able to choose to use 3rd party applications to manage their financial data. In addition, authorized service providers will be able to query consumer’s financial data to offer services that are personalized and accessible.

Private APIs

Just as language is a set of standards and rules that allow us to communicate ideas, APIs regulate the type and format of data shared between platforms. For two people to communicate effectively, it’s essential that they speak the same language. The PSD2 has outlined a banking API standard that will ensure that every service provider is speaking the same language. However, this public API isn’t the only solution available. If you were to look through a list of banking APIs, you’d find that the features can vary a lot from product to product. Many providers are using non-standard APIs. There are two key advantages to these platforms. Many of them are available today, and many offer features that may not be available in the PSD2. There are two types of banking APIs currently on the market: 3rd party and vendor supplied. Most 3rd party APIs work by scraping client data from the bank's online portal. A user selects their bank from a list and enters their login information. The platform then pulls all of the relevant information from their page and passes it back to your application in a standardized format. The advantage of 3rd party APIs is that they can access any information the client can find online. These systems are commonly used to verify a client’s personal information in a manner that fulfills KYC (Know Your Customer) regulations. They’re also used by lenders to pull transactional and account data in order to assess a prospective client’s financial health. In some cases, by licensing an existing banking API, PSD2 compliance is much more affordable. Making small modifications to an existing system can save both time and money compared to developing a new system from the ground up. Vendor supplied APIs are proprietary protocols offered by banks. Generally, these platforms are designed specifically to integrate financial products into existing services. For example, a service provider might use a banks API to process credit card transactions in their online application. Although these APIs are much more restricted than common banking APIs, they’re able to perform a particular function that won’t be available in cross-institutional APIs.

Who Benefits from API Banking?

Anytime a market is disrupted the competitive landscape changes. Some businesses stand to gain, while others suffer losses. API banking is certainly a disruptive technology, but there are no clear losers. This technology has value to all stakeholders. What makes this disruption different from others? Consumers can choose to take an Uber instead of a taxi. They can choose to rent from AirBnB instead of a hotel. When banking API integration result in the next generation banking platforms, consumers will be able to choose to use another financial service provider. But this won’t necessarily take business away from established institutions. Startups that want to create the next generation of banking products won’t have to reinvent the wheel. Instead of creating a competing service, API access will allow them to repackage existing banking products into a modern platform. For example, a startup might want to offer an exciting new lending service. They’ll be able to focus exclusively on that aspect of their business, utilizing existing banks to handle aspects such as payment processing, billing, and authentication. They’ll be able to offer instant approval, as an API query can verify your financial health. Eliminating redundancy can slash development costs and help get new products to market faster. Startups won’t necessarily be offering a product that directly competes with the banks own service. Instead, they’ll be adding value to an existing service. Established banks will be able to work with Fintech companies instead of competing against them. When a hot new product comes to market, banks can use API to integrate this new service into their existing platform. This can increase customer loyalty as banks improve their service, and increase profitability as new products can be sold through established sales channels. It’s clear that open banking provides immense value for all service providers, but it’s consumers who stand to gain the most from API banking. They will regain control over their financial data. There will be more service providers to choose from, each offering banking services that are more personalized and accessible than existing platforms.

Applications of Banking APIs

Perhaps the most exciting application of this new technology is in BaaS (Banking as a Service) platforms. The concept behind BaaS products is to provide a single unified platform that can be used to handle all consumer financial transactions. Many consumers find it easier to do business with a single bank. With BaaS platforms, consumers could choose as many service providers as they like while still enjoying the simplicity of using a unified interface to control their services. When applying for credit, consumers could shop around and find the best rate. When investing, more options would be available. BaaS is on the horizon, but the technology isn’t quite there yet. Today, Banking APIs typically perform read-only requests to allow consumer to provide their data to 3rd party providers. Loan companies use APIs to understand a consumer’s financial position. Other industries take advantage of the fact that banking is tightly regulated, and requires consumers to provide ID for verification. Instead of requiring consumers to upload their private identification, they can simply check the supplied information against a bank account to comply with KYC regulations.

Tomorrows Standard

For now, API integration has allowed many businesses to get a competitive edge. Loan providers have a faster application process, regulated industries can verify customer information instantly, and data analysis can be performed automatically. But this won’t last. Soon, integrating business processes with financial services will be the new way of doing business. As APIs become industry standard, the banking industry will be more like an ecosystem. Services offered by one company can be integrated into another. What was once considered competition can now be considered an ally. Businesses can tap into this ecosystem and gain access to a whole new set of tools. Whether they’re increasing the value of their product or streamlining their business processes, the value of Banking APIs cannot be ignored. APIs are the foundation of the modern internet, and they’ll soon be the foundation of the global financial landscape.