Traditional banks are quickly changing to meet the needs of today’s customers, who expect all their financial transactions to be easy, fast, and secure. A key component of this change is known as API Banking or embedded finance — the backbone of embedded finance is powered by API banking or the invisible infrastructure that supports all transactions that take place on embedded finance.
According to Bain & Company’s 2023 report, the global embedded finance market by 2030 will be worth $7 trillion, up from a mere $54.3 billion in 2020. The rise of embedded finance is being driven by API banking, allowing businesses of any kind, from e-commerce platforms to logistics applications, to provide tailored financial services directly in their apps.
India’s API banking industry will grow from $2.32 billion in FY2025 to $6.35 billion in FY2033 at a CAGR of 13.41%. The growth drivers will be UPI, account aggregators, and fintech collaboration. Worldwide, the API banking market is growing at a CAGR of 24.7% through 2031, providing a foundation for embedded services such as payments and KYC used in e-commerce and SaaS.
What is API Banking?
The value of the world’s API banking industry was approximately $24.7 to $31.7 billion in 2022-2024 but will expand to approximately $131.7 to $217.3 billion by 2030-2032 with an annual growth rate between 24.2% to 24.7%. This growth is a result of both digital transformation and open banking regulations affecting all regions of the world. Open banking API calls are expected to increase from 137 billion in 2025 to over 720 billion globally, a 427% cumulative increase.
By 2030, North America is expected to have the largest market share at $47.2 billion. The Asia-Pacific region is expected to experience 24% API growth (Q2 2022). Banking APIs are used for compliance with PSD2, and 62% of banking APIs around the world are required for compliance with PSD2. In India, there are over 4,000 FinTechs using India Stack APIs, which will support an estimated 172 billion UPI transactions by CY2024.
API banking is when banks and other financial institutions make their services (payments, account information, credit, etc.) available through APIs (application programming interfaces). FinTech companies, start-ups, marketplaces, and digital platforms.
API banking is a modern approach to banking where banks and other financial institutions expose their internal services to customers using APIs so that other companies (FinTechs, start-ups, e-commerce platforms, and software providers) can integrate them into their applications.
This means that a business does not have to build an entire banking back-end from scratch (including licensing, infrastructure, and compliance) to include banking-like features such as
- Account Opening
- Fund Transfer
- UPI Payments
- Balance Checks
- Loans
- KYC Verification
…by merely using the APIs provided by a bank or a BaaS (Banking as a Service) platform.
In India, the India Stack has supercharged API banking; offering a wide array of APIs (Aadhaar, UPI, DigiLocker and eKYC) that enable practical and scalable fintech innovations to take place safely, quickly, and inexpensively.
How the Technical Process of API Banking Works?
From a technical standpoint, the process of API banking works in a manner similar to the way an airplane wing works in flight.
– An external platform, such as a fintech company, requests access to one or more of their banking API(s) by redirecting the third-party platform through a secure authentication mechanism: either OAuth2 or SAML.
– Upon receiving the request, the bank will validate the request and return a response to the external platform that contains the details on the successful request.
– As an example, if a user uses the external platform to initiate a UPI transfer, the external platform’s API will request the transaction to the bank’s API, and the bank’s API will send back either a success message containing the transaction ID; or an error message indicating that the transaction failed for a specific reason.
Typically, the successful or failure response from the banking API will contain a message in either JSON or XML format along with accompanying documentation and/or an SDK or sandbox environment for the external platform’s developer to use for testing and debugging purposes.
What makes API Banking significant?
Previously, if you wanted to offer any sort of financial service, you would need to meet one of the following conditions.
- A banking license (which is costly and heavily regulated)
- Infrastructure for data centers, security, and compliance
- Connections with interbank networks (like NPCI for UPI)
Now, by utilizing the power of bank API(s), any technology company can ‘rent’ banking capabilities in real time from an approved bank. That allows for a greater equalization of access to innovative financial services and products.
By leveraging the capabilities and reach of the India Stack through their API banking services, banks in India will be better positioned to grow the fintech innovation ecosystem within India.
API Banking in India: Supercharged by India Stack
IIndia has an advanced API banking ecosystem, thanks to India Stack being the backbone that provides identity, payments, and data services through a set of open APIs on a population scale. An example of this is the ability to authenticate more than 1.4 billion daily transactions using Aadhaar and UPI, transacting 172 billion times in CY2024, or 85% of all retail transactions.
Currently, India is probably the most developed API banking ecosystem in the world because of India Stack, as it provides public digital infrastructure that enables access to the following key API services:
| API | Function |
| Aadhaar API | Verifies identity using biometrics or OTP |
| eKYC API | Digitally verifies a user’s identity and address |
| UPI API | Enables instant peer-to-peer or merchant payments |
| DigiLocker API | Allows retrieval of verified government documents |
| eSign API | Allows users to digitally sign documents online |
Real-World Example
Let’s say a lending platform wants to approve personal loans:
- PAN & AADHAAR API for user verification
- Account Aggregator API for retrieving credit history
- Payout API for loan disbursement
- UPI or NACH API for collecting repayments
As a result, you do not need to visit your bank branch to complete these transactions because they can all be completed through secure API calls.
Impact of API Banking in India
- Over 13 billion UPI transactions have been conducted each month (NPCI, 2024)
- The Reserve Bank of India has created an Account Aggregator Framework that allows for the sharing of financial data through APIs.
- There are over 4,000 fintechs in India that utilize some form of API banking (DPIIT Registry, 2023)
- The eKYC & AADHAAR processes offer instant bank verification and onboarding in less than five minutes.
What is Embedded Finance?
When we talk about embedded finance, we are referring to the practice of providing financial products or services (including, but not limited to, payments, loans, insurance, and investments) in non-financial applications/platforms. This means that consumers can access these financial products or services from anywhere they can access the application or website of a non-financial provider.
For example, through the use of a mobile application, a consumer might be able to pay for their meal through a food delivery service using UPI rather than having to visit a bank branch or open another application to make a financial transaction..
Common Embedded Finance Examples:
- Making a payment using UPI through a food delivery application
- Selecting an EMI option on an e-commerce website at checkout
- Purchasing travel insurance when booking a flight online
- Accessing salary early through a payroll provider application
According to Statista, embedded finance in eCommerce alone could reach approximately $141 billion in global revenue by the year 2025.
How API Banking Powers Embedded Finance
Without APIs, embedded finance cannot scale. Here’s how various APIs power different financial experiences:
| API Type | Embedded Use Case |
| UPI APIs | Peer-to-peer payments, merchant QR acceptance |
| Payout APIs | Real time salary disbursals, vendor payments |
| KYC & Aadhaar APIs | Instant customer onboarding for credit or wallets |
| Account Aggregator | Personalized financial insights and loan underwriting |
| Lending APIs | BNPL, working capital loans, salary advances |
| Insurance APIs | Travel, health, trip and product protection policies |
Benefits of Embedded Finance (Enabled by APIs)
1. Increased Customer Engagement
By embedding financial services directly into their apps, companies can create more seamless experiences for users, which in turn drives greater levels of customer loyalty, usage, and satisfaction.
According to PwC India, the rate of adoption of fintech products and services by consumers is typically two times higher when those products and services are embedded into other platforms (i.e., native).
2. New Revenue Streams
Platforms can earn from a variety of revenue streams, including commissions, interest from floating balances, and cross-selling. A great example is Shopify, which offers loans to its merchants through its Shopify Capital product using API technology.
3. Operational Efficiency
Automation of payment, reconciliation, KYC, and compliance processes through APIs helps companies to reduce the amount of manual work performed, in turn reducing the number of errors and costs associated with the overhead of these tasks.
According to Accenture, use of API automation can reduce customer onboarding times by as much as 60%.
Real-World Examples of API Banking in Action
1. Zomato: Embedded UPI & BNPL for Seamless Food Payments
Zomato has more than expanded its services beyond food delivery; it has created a seamless fintech (transactional) experience for you as you enjoy a meal.
How It Works:
- To pay for your order, you can now use Unified Payments Interface (UPI) directly in the Zomato app.
- Also, through partners such as LazyPay and Simpl, Zomato provides “postpaid” (buy now, pay later) options.
- Zomato leverages Razorpay’s suite of APIs for these services, which includes:
– UPI Intent APIs,
– BNPL Checkout APIs, and
– Automatic routing of payments and settlements.
The following demonstrates why this is important:
- A faster checkout process leads to a higher completion rate for your purchase.
- Customers are less likely to abandon their shopping cart during peak shopping periods (i.e., lunch and Diwali evenings).
- Customers are more likely to increase their average order value when using the BNPL option.
Zomato may not operate as a bank, but with the help of APIs, it can provide you with a payment experience similar to an electronic payment wallet within the food delivery process
2. Ola: Embedded Trip Insurance via API Integration
Ola offers riders financial protection during their ride, not just transportation.
How It Works:
Prior to booking your ride, Ola provides micro-insurance to protect you from:
- Trip cancellation
- Injury while riding in an Ola
- Losing something during your ride
- Ola connects with insurance carriers (like Acko and ICICI Lombard) through Insurance-as-a-service (IaaS) APIs.
- The policy is automatically created in real time, meaning you will have instant access through the app to see your policy, the status of your claim, and the ability to initiate a settlement.
Why It Matters:
- It builds trust with the rider and eliminates anxiety about getting to their destination.
- This is a value-added service that will drive customer loyalty.
- Insurance will be an easy upsell when booking a ride with Ola.
Ola uses APIs to deliver insurance to the general public without requiring an insurance license or an actual operating call center.
3. Amazon: The Embedded Finance Super-App
Amazon set a new standard for implementing embedded finance at the highest level.
How It Works:
- Amazon Pay offers:
- The ability to use an online “wallet” to instantly process your payment.
- The ability to complete a purchase using UPI (Unified Payments Interface).
- The ability to pay for your credit card bill via Amazon Pay.
- The ability to pay for a purchase using an EMI (e.g., buy now pay later—BNPL) option or by using a line of credit.
- Insurance bundles (e.g., mobile phone coverage, travel coverage) are sold as part of the Amazon Pay checkout process.
- All financial services are integrated via API partnerships with:
- Non-Bank Financial Companies (e.g., Capital Float, IDFC First Bank)
- Insurance Providers (e.g., Acko, ICICI Lombard)
- UPI/Acquirer Partners (e.g., Axis Bank, ICICI Bank)
Why It Matters:
- Financial services can be accessed without ever leaving the Amazon site.
- Amazon collects data to help them develop better offers (e.g., offers of pre-approved credit, seasonal insurance).
- This will enhance the development of loyalty and increase customer lifetime value (CLV).
Instead of simply selling merchandise, Amazon is monetizing the financial side of consumption via embedded APIs.
Instantpay: Powering India’s API-Led Financial Infrastructure
Instantpay is one of the leading B2B fintech platforms in India, offering plug-and-play APIs for digital banking services.
How It Works:
Instantpay offers a unified API stack covering:
- AEPS (Aadhaar Enabled Payment System): Enables biometric withdrawals from any bank account
- Bank Account Verification APIs: Verifies account + IFSC with fraud checks
- Payout APIs: Bulk payments for salaries, commissions, vendor settlements
- Bill Payment APIs: Supports electricity, water, DTH, and other utility billers
- PAN, Aadhaar, and KYC APIs: For instant identity verification and onboarding
These APIs are white-labeled by:
- Neo-banking platforms
- MSME apps
- Travel and retail agents
- Lending and insurance aggregators
Why It Matters:
- Powers over 10,000+ offline banking touchpoints across India
- Makes banking accessible even in Tier 3 and Tier 4 towns
- Accelerates digital financial inclusion for semi-urban and unbanked segments
Challenges in API Banking and Embedded Finance
1. Data Privacy & Compliance
“APIs handle sensitive financial data—compliance isn’t optional, it’s foundational.”
What This Means:
Any financial interaction through APIs—be it KYC, payments, credit underwriting, or insurance—requires the collection, processing, and sharing of user data (e.g., Aadhaar, PAN, transaction history, biometrics). In doing so, companies must adhere to:
- RBI guidelines on digital lending, KYC, and outsourcing
- DPDP Act, 2025 (Digital Personal Data Protection Act) for lawful data handling
- Information Technology Act, 2000 for digital security obligations
- PCI DSS compliance for payment processors
The Risk:
- Misuse or leak of data can result in regulatory penalties, reputational damage, and loss of licenses
- APIs without proper encryption, authentication (OAuth2), or audit logging become attack vectors
- Cross-border data flows need specific approvals or safeguards
Real-World Impact:
In 2022, RBI penalized several NBFCs and fintechs for non-consensual data scraping and unauthorized KYC storage—highlighting the need for API-level consent and data minimization practices.
2. Fragmented APIs: Lack of Standardization
What This Means:
Every bank or NBFC often offers its own version of a payout API, KYC API, or lending API—each with different:
- Endpoints
- Authentication methods
- Data schemas
- Error codes
This fragmentation:
- Slows down developer integration
- Increases cost of switching between providers
- Creates scalability and maintenance overhead
The Risk:
- Startups must spend disproportionate effort adapting code to each partner bank
- Debugging and testing environments become inconsistent
- Time-to-market increases significantly
Real-World Impact:
To address this, initiatives like Bharat APIs, Sahamati (Account Aggregator standard), and OCEN (Open Credit Enablement Network) aim to build interoperable API standards in India—but widespread adoption is still underway.
3. Legacy Core Banking Systems
What This Means:
Many traditional banks in India run on legacy core banking systems that:
- Were not designed for real-time API connectivity
- Have batch-based processing (e.g., settlements only once per day)
- Lack microservice-based architecture
When fintechs attempt to integrate with such banks:
- APIs may have downtime, high latency, or limited endpoints
- Real-time balance checks, settlements, or reversals may fail intermittently
- Banks may restrict API limits during peak hours
The Risk:
- Inconsistent user experience
- Increased failure rates in critical use cases (e.g., payouts, loan disbursals)
- Reputational damage for the frontend platform, even though backend infra is the bottleneck
Real-World Impact:
Several private banks restrict UPI APIs or balance-check APIs during month-end processing. This affects platforms relying on them for salary disbursements, gig payouts, and working capital loans.
4. Customer Awareness: The Trust Gap in Embedded Finance
What This Means:
In embedded finance, the end user often interacts with a non-bank platform (e.g., Zomato, Ola, Amazon) for financial services—but the actual bank or NBFC underwriting the service is in the background.
This lack of visibility causes confusion:
- Who holds the customer’s money?
- Who resolves disputes?
- What if a claim is denied? Who is accountable?
The Risk:
- Loss of trust if something goes wrong and the brand has no visible financial license
- Legal liability if terms, conditions, or disclaimers aren’t clearly communicated
- Lower adoption in regulated products (e.g., credit, insurance) if users are unsure of legitimacy
Real-World Impact:
In 2021, BNPL platforms faced backlash when users misunderstood repayment responsibilities or didn’t realize NBFCs were issuing the loans. This led RBI to tighten digital lending norms, mandating clearer disclosures and audit trails.
India’s Embedded Finance Opportunity
India is uniquely positioned due to:
- The India Stack (UPI, Aadhaar, eSign, DigiLocker)
- The Account Aggregator model for consent-driven data sharing
- OCEN (Open Credit Enablement Network)
- Growing base of 100M+ digitally transacting users
Final Thoughts
API banking has evolved from a tech trend into a foundational pillar of digital business. As embedded finance becomes the norm, platforms that offer seamless, contextual financial services will command deeper loyalty, generate more revenue, and win trust.
Banks must think like platforms. Startups must think like enablers. And users? They’ll just keep transacting—without even realizing there’s a bank behind it.
FAQs
1. What is API banking in simple terms?
API banking is a system where banks expose services (payments, lending, account info) to other platforms through APIs, allowing fintechs to offer banking functions without becoming a bank themselves.
2. What is embedded finance?
Embedded finance is the integration of financial services like payments or loans directly into non-financial apps and platforms.
3. How does API banking enable embedded finance?
API banking allows third-party platforms to connect with banking infrastructure in real-time, enabling them to embed financial features like payments, lending, and insurance.
4 Which companies use embedded finance in India?
Zomato, Ola, Amazon, PhonePe, and Instantpay are key players using API banking to deliver embedded finance solutions.
5. What are the benefits of API banking?
API banking improves speed, scale, customer experience, and opens new revenue streams for platforms offering financial services.
