What is an Open Banking API?

By now you’ve probably heard the term Open Banking and may even have an understanding of what it is. If you don’t, here’s a refresher: it’s the process that allows third party service providers to access a customer’s financial and other banking history (with the customer’s consent) to glean a better understanding of, among other things, their creditworthiness. (There are many other benefits, too!)

But that definition just scratches the surface of the world of open banking. As you look into it more, you’ll find that there are many other terms to understand, from PSD2 to RTS, to AISP and more (get started with our helpful glossary here) 

One of the most important among these is an API, which is arguably one of the core important elements of open banking. It’s what makes Open Banking work. 

So what is an API and how do they operate? 

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What is an API?

Let’s start with what API means. It’s short for Application Programming Interface and, simply put, it refers to the set of codes and protocols that connect two different online systems, making it possible for them to communicate so they can share information. 

Understandably, this is very important for Open Banking because open banking is the process of sharing user data between banks and third parties like lenders. The API allows the third party to communicate with the bank about what type and scope of data they need and receive the data they require in a standardized, simple way. 

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How does an Open Banking API work?

Once the third party, like a lender, has consent from the customer to view their banking data, the third party will reach out to the customer’s bank via an API “call.” This just means that the third party determines the information and data they need (account history, bank balance, and more) and then constructs a request to the bank using API protocols. The API request is then sent to the bank’s API endpoint. The bank processes the request and responds via API with the data in a standard format. 

APIs are essential to the process of Open Banking because they pave the way for data sharing in a safe, secure, standardized and efficient way. For more on who can use Open Banking APIs, click here.

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