APIs as Game Changers in Open Banking

Banking generally relies on communication between banks to transfer funds or between a paying party, a bank customer, and the bank to instruct the bank to either initiate a payment or verify account information or any other operation supported by the bank.

Before the advent of the internet and the widespread of Web 2.0, such communication had to be done via post, special banking networking protocols, or via circuits such as Visa and Mastercard.

One needs to understand that since its introduction in 2004, Web 2.0 added a fundamental change in the way that the internet was used, going from a simple static presentation protocol to a more interactive protocol. People and businesses could readily communicate and instruct via the protocol and be told the result of such actions.

As Web 2.0 took hold, evolved, and expanded, some service providers such as Paypal and Payconiq started using Web 2.0 to allow bank users to register themselves and initiate payments on their behalf via their interfaces.

All these operations, though, needed to be generated on the client (PayPal and Payconiq) and be rightfully interpreted by the servers (banks). This was possible thanks to APIs at the base, interactive services defined by endpoints, URLs, and methods that allow the audience (clients) to send instructions.

Open Banking relies on such protocol to build a strong framework that guarantees a business-as-usual feeling to TPPs (clients) and ASPSPs (Banks) and their end customers (PSUs).

That explains why APIs were a game changer for the realization of a massive global project like Open Banking, as it requires to be founded on a worldwide protocol readily accessible by any fintech as well as by any end customers. And that protocol is the Web 2.0 protocol, commonly known as HTTP, and the communication tools are APIs.

API adoption to drive Open Banking was so successful that eventually, Open Banking generated a family of APIs that coined the term FAPI, or Financial-grade APIs.

“Financial-grade API (FAPI) this is an industry-led specification of JSON data schemas, security and privacy protocols to support use cases for commercial and investment banking accounts as well as insurance and credit card accounts. FinTech developers can accelerate Secure Open Banking, for example: Applications using a standards-based secure data model (JSON) for levels of access to financial data stored in accounts. Applications using a standards-based program interface (REST) for sharing of financial data between banks, institutions, and third-parties. Application and User security controls and privacy settings to be consistently implemented with open standards (OAuth) and providers (OpenID Connect).”

– OpenID Website