Financial Services
Open Banking
Financial Services
Open Banking
December 8, 2023
5 min

Using Open Banking APIs to Improve Business Processes


Financial institutions are evolving with the rest of the world and embracing technologies that make businesses all the more efficient and secure. APIs are one of these key innovations that are pushing banking to new places. Especially with the rise of consumer access to financial services, APIs are more prevalent than ever. They make all sorts of apps and services available to consumers and secure to use. 

Open Banking APIs, or Application Programming Interfaces, are digital interfaces that allow automated, secure financial data exchange between software applications and financial institutions. They are rules and protocols that ultimately facilitate information access, transactions, and payments for financial institutions. This article will delve into the ins and outs of Open Banking APIs and explore just how powerful this technology is.

What are Open Banking APIs?

Open Banking is a financial practice that involves granting third-party providers secure access to consumer banking data through APIs. Open Banking APIs play a pivotal role by enabling the seamless connection of consumer bank accounts with a wide range of financial services. 

This reciprocal relationship is fundamental; without APIs, consumers would face challenges linking their accounts to various services, and financial institutions would lack the secure means to share consumer-permission data with applications and aggregators. 

Essentially, Open Banking APIs are the technological linchpin between the financial sector and its consumers, facilitating secure data exchange and fostering a more interconnected and innovative financial ecosystem.

What Are the Benefits of Open Banking APIs?

APIs enable seamless data exchange between disparate systems and have transformed the financial sector with innovation, efficiency, and accessibility. Here are some of the ways businesses, merchants, and their consumers benefit from Open Banking APIs.

Financial Institutions

Because one of the outcomes of Open Banking will be increased competition in both payments and financial services, many incumbent banks have hesitated to embrace Open Banking APIs. However, when financial institutions embrace partnerships with fintechs as a chance to explore new business models, the result is faster innovation and an enhanced consumer experience. One example is Trustly’s partnership with BNY Mellon, which marries the bank’s long-standing expertise in banking with Trustly’s Open Banking Payments solution. 

The strategic collaboration and harmonization between fintechs and banks will result in many upsides for financial institutions, including improved customer experiences, increased digital revenue, and a chance to further the value of consumer financial data beyond their proprietary solutions.  

Third-Party Service Providers and Fintechs 

Open Banking APIs help fintech companies by making them more competitive and scalable. Rather than constructing financial infrastructure from the ground up, leveraging existing APIs reduces development costs; this means that tech companies can offer more competitive pricing and greater consumer accessibility. 

As service demand increases, fintech firms can easily scale their operations by integrating additional APIs or expanding their API offerings. APIs also foster innovation within fintech companies, providing the essential tools for continuous creativity. Fintechs can stay at the forefront of technological advancements through API integration, rapidly bringing novel solutions to the market.

Merchants and Consumers

Some of the big benefits of Open Banking APIs for consumers are convenience, security, and personalized experiences. With mobile banking, budgeting tools, and various apps, consumers can constantly access their financial resources. This means real-time information is available, too, for things like consumer accounts, transactions, and investment or stock portfolios. 

APIs also facilitate personalized experiences, allowing merchants to tailor financial solutions to meet individual needs, whether it's offering personalized investment advice, budgeting assistance, or other customized tools. 

As an Open Banking Payments provider, Trustly’s APIs directly benefit merchants by significantly reducing payment processing costs and eliminating interchange fees entirely by allowing consumers to Pay By Bank easily. Additionally, our Open Banking APIs improve payment approval rates compared to online card-not-present (CNP) transactions through connection to evergreen bank accounts that don’t expire and remove the need for manual entry, reducing the risk of human error at checkout. 

How Do Open Banking APIs Work?

At their core, APIs are connectors in the digital world. Imagine them as translators that enable diverse applications to understand and communicate with each other. Here's a breakdown of how Open Banking APIs work:

  1. Initiating a Request: Users or applications start the process by requesting a specific financial service, like checking an account balance or processing a payment.
  2. API Call: The request is transmitted to the relevant financial institution through an API call, akin to making a standardized language request understood by both the requester and the financial system.
  3. Authentication and Authorization: The API verifies the requester's identity through authentication and checks for necessary permissions to access the requested financial data or perform a transaction.
  4. Data Processing: With successful authentication, the API processes the request by communicating with the backend systems, retrieving required data, or executing the desired transaction.
  5. Data Transmission: The API then transmits processed data or transaction results back to the requester in a standardized format for compatibility between different systems.
  6. Presentation to User or Application: The received data is presented to the user or application in a human-readable or interpretable format, such as displaying account information or confirming a successful transaction.

Why are Open Banking APIs Important?

Aside from the many benefits we’ve already discussed, APIs are increasingly essential for banks to operate. While physical branches are still around, digital banking is now the preferred method for consumers. Consumers not only enjoy the convenience of digital banking but merchants also need the technology to keep up with today's dynamic market. 

By leveraging Open Banking APIs via Third-Party Service Providers like Trustly, merchants can leverage data-driven decision-making and real-time updates on their consumers’ financial trends while providing enhanced security, speed, and ease of use for consumers making purchases.

Future of Open Banking APIs

In such a consumer-driven industry, adopting Open Banking APIs can be a key strategy for all businesses and merchants. APIs become the conduits through which businesses can cater to individual needs, foster innovation, and enhance overall customer satisfaction with fast, secure transactions. 

As government bodies in the United States introduce legislation to facilitate the regulation and widespread adoption of Open Banking, expect to see greater competition and more protections for consumer data. Under Section 1033 of the Dodd-Frank Act, consumers can expect greater control over their financial data, including the right to share information with third parties like Trustly.

The future belongs to those who can navigate the financial landscape, which is possible with the Open Banking API benefits that Trustly offers. Learn more about leveraging Open Banking data with our API technology.

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