API Banking vs. Traditional Banking: Breaking Down The Evolution

According to Accenture, the payment systems of banks that leverage API banking models in 2024 processed transactions at 12 times the speed of transactions processed using traditional systems and onboarded customers at 7 times the efficiency of traditional systems. This growing divide in transaction processing speed illustrates a significant transformation of the banking industry as the speed, scalability, and digital experiences associated with API banking models have become key competitive advantages.

Rapid adoption of API banking is well underway: more than 80% of financial institutions are currently investing in API banking strategies, and more than 81% of banks have implemented open banking APIs to facilitate secure third-party integrations. In 2025, 137 billion open banking API calls were recorded worldwide, reflecting a substantial increase in real-time digital transactions and API-delivered financial services.

Customer expectations are one of the key drivers of this transformation. Today’s consumers expect instant payments, seamless onboarding, and personalized financial experiences — demands that traditional banks struggle to meet due to their reliance on outdated, labor-intensive processes and systems. 

API banking systems, on the other hand, enable real-time access to financial services through systems such as unified payment interface (UPI) payments in India, embedded finance, and digital lending, changing how consumers access and use financial services.

The business implications are just as significant. According to the World Economic Forum, APIs contribute 42% of revenue growth for the largest banks, and the API banking segment is projected to grow at approximately 25% per year for the foreseeable future. Meanwhile, 77% of financial technology applications are built on an API-first architecture — a clear signal that APIs have become the foundation of modern financial services innovation.

The financial services industry is rapidly evolving from traditional banking models characterized by siloed systems with limited flexibility to API-first models defined by modular, scalable, and innovation-friendly architecture.

In this blog, we present a thorough comparison of API banking and traditional banking with respect to differences in operational efficiency, customer service experience, cost structure, scalability, and degree of innovation potential. 

In this blog, we compare API banking and traditional banking across operational efficiency, customer experience, cost structure, scalability, and innovation potential. We also examine the challenges banks face when migrating from legacy systems to an API-driven model and what this shift means for the future of financial services. This business model has been utilized since the creation of modern-day banking; however, the increased digital transformation and rise of fintechs are beginning to disrupt this antiquated mechanism. 

What is Traditional Banking?

Traditional banking describes the legacy approach to delivering financial services, rooted in physical infrastructure, manual processes, and tightly controlled, proprietary technology. This model has been the foundation of the global banking industry for decades, but it is increasingly being challenged by digital transformation and fintech innovation.

Key Characteristics of Traditional Banking

1. Branch-Centric Service Model

• Physical Presence: Customers primarily interact with their bank by visiting brick-and-mortar branches.
• Face-to-Face Transactions: Services such as account opening, cash deposits/withdrawals, loan applications, and customer support are conducted in person.
• Limited Digital Access: Online and mobile banking options, if available, are often basic and serve as extensions rather than replacements for branch services.

2. Long Processing Times

• Manual Workflows: Many processes—such as loan disbursals, account openings, and cheque clearances—require multiple manual steps and approvals.
• Delayed Fulfilment: Customers may wait days or even weeks for services to be completed, due to paperwork, internal reviews, and physical document transfers.

3. Manual Paperwork and Physical Verification

• Document-Heavy: Customers must submit physical forms and documents (e.g., ID proofs, address proofs) for most services.
• In-Person Verification: Banks often require physical presence for identity verification, KYC (Know Your Customer) checks, and signatures.
• Storage and Retrieval: Paper records are stored in files and vaults, making retrieval and audit processes cumbersome.

4. Closed-Loop Systems with Limited Third-Party Integrations

• Proprietary Technology: Core banking systems are closed loop systems built using proprietary technologies that are developed internally or by a few specialized technology vendors, making it difficult for banks to connect/partner with others.
• Siloed Products: Each product (savings, loans, and credit cards) is functional and operates independently from each other while data sharing is minimal and cross-product visibility does not exist.
• Limited Ecosystem Collaboration: Fintech and service providers cannot access or build on the proprietary banking infrastructure that is provided by the banks.

5. Batch Processing and Offline Settlements

• Non-Real Time: Banking transactions for funds transfers, settlements, or reconciliations are typically processed in batches and occur at the end of each day or at scheduled intervals.
• Manual Reconciliation: Most processes, such as inter-branch and inter-bank settlements, do not occur instantaneously and are processed manually.

Implications of the Traditional Banking Model

Limited Accessibility: Customers with limited access to branch locations (rural/remote) will have significantly fewer banking service options than customers that live in urban or suburban communities where branches are easily accessible.

Customer Experience: Banking customers will find banks that rely on branch visits, heavy document requirements for loans, and slow processing times to be increasingly burdensome when compared to using newer digital-only banks.

Operational Efficiency: Banks will be experiencing increased operational expenses and risk attributed to their reliance on manual banking processes and siloed data systems.

Innovation Lag: Banks operating on legacy technology solutions will have longer product development/change cycles and will be less able to introduce new products to the marketplace or respond to changing customer preferences.

Summary Table: Traditional vs. Modern Banking

Aspect	Traditional Banking	Modern (API/Digital) Banking
Service Delivery	Branch-based, manual	Digital, omnichannel
Processing Speed	Slow, batch-based	Real-time, instant
Paperwork	Extensive, physical	Minimal, digital
System Architecture	Closed, siloed	Open, integrated
Third-Party Integration	Rare	Common (via APIs)
Customer Experience	Inconvenient, time-consuming	Seamless, user-friendly

What is API banking?

The advent of API (Application Programming Interface) banking has allowed for the opening up of the banking industry’s core services via secure and programmable interfaces (API) to create a new, modern paradigm for banks to expose their core services (i.e., account management, payments, access to data). 

The opening up of these services to third-party developers, fintech companies, or other businesses enables them to create innovative financial products and services that reside atop a bank’s core infrastructure without requiring them to interact directly with legacy banking systems and physical bank branches.

Key Characteristics of API Banking

1. Real-Time Access to Financial Services

• How to get information immediately: APIs enable banking systems and non-banking systems to communicate instantaneously and securely. For instance, banks’ systems can obtain an individual customer’s account balance or make a payment, or validate an account in “real time.” API use allows for transactions to occur without manual (human) input.
• Benefits: Customer or business has access to up-to-date transaction information and can initiate transactions instantaneously. This improves both user experience and operational efficiency.

2. Embedded Finance in Third-Party Apps

• How does it work? A financial institution (e.g., bank, insurance company, etc.) to API enable the integration of banking APIs into non-financial institutions or third-party providers (e.g., e-commerce platforms, ride-sharing applications, accounting software, etc.) to allow customers who are already spending time on other vendors (e.g., e-commerce websites) to have access to banking services.

Examples of embedded banking:

• UPI payments from shopping app directly
• BNPL available at checkout
• KYC processing (validate customer accounts to use) for onboarding to fintechs

3. Consent-Based Data Sharing

• How it works: APIs are used to share customer account information (data) with reserve funds only if customers have given explicit permission to do so. Examples are: Account Aggregation in India. Customers control who can access their data and for what purpose.

Benefits

• Customer Privacy
• Customer Trust
• Privacy and security in accordance with any regulations governing the use of customer data.

4. Modular and Scalable Architecture

• How it works: API banking applications have a modular, layered architecture with many modules for different types/functions of banking operations. Each banking function (e.g., payments, customer due diligence/KYC, analytics, etc.) is encapsulated within its own layer/module of the architecture. This enables banks to choose which banking functions they want to integrate into their systems with vendors, update banking functions they want/need to update and to scale the services they want/need to scale independently from the banks’ core business processes and information systems.

Benefits:

Scalability  – APIs allow for the banks’ ability to accommodate a wide range of service volume loads and accommodate service using banks with both small and large enterprise implementations.

Banking Process/Function Flexibility—Banks can quickly add and/or update bank services/functions without requiring a substantial re-implementation of their core banking system.

5. Rapidly Innovative Service and Product Introductions

• How it works: By providing banking application developers a technical specification (API documentation—standardized) describing the use of the API to build a rapid test and deploy a new service or product.
• Benefits:
  • Reduced Development Time (from several months to a few weeks)
  • Improved Maintenance of Individual Service Components Without Impacting the Entire System.

Implications of the Traditional Banking Model

• Customer Experience: Banking customers will find banks that rely on branch visits, heavy document requirements for loans, and slow processing times to be increasingly burdensome when compared to using newer digital-only banks.
• Operational Efficiency: Banks will be experiencing increased operational expenses and risk attributed to their reliance on manual banking processes and siloed data systems.
• Innovation Lag: Banks operating on legacy technology solutions will have longer product development/change cycles and will be less able to introduce new products to the marketplace or respond to changing customer preferences.
• Limited Accessibility: Customers with limited access to branch locations (rural/remote) will have significantly fewer banking service options than customers that live in urban or suburban communities where branches are easily accessible.

How API Banking Works (Process Overview)

1. Selection of API: Developers or businesses select the appropriate APIs from the bank’s development portal based on which banking services are required (e.g., Payments, Account Information).
2. Integration & Testing: A secure integration is performed using standard protocols (e.g., JSON/XML or OAuth). The bank will test the API in its sandbox environment.
3. Go Live: Once the API has been tested, it will move to production, where it will be used to carry out live transactions in a secure manner between the bank and third-party platforms.

What is API banking?

The advent of API (Application Programming Interface) banking has allowed for the opening up of the banking industry’s core services via secure and programmable interfaces (API) to create a new, modern paradigm for banks to expose their core services (i.e., account management, payments, access to data). 

The opening up of these services to third-party developers, fintech companies, or other businesses enables them to create innovative financial products and services that reside atop a bank’s core infrastructure without requiring them to interact directly with legacy banking systems and physical bank branches.

How API Banking Works (Process Overview)

1. API Selection: Developers or businesses choose the relevant banking APIs (e.g., payments, account info) from the bank’s developer portal.
2. Integration & Testing: Secure integration is established, often using industry-standard protocols (JSON/XML, OAuth). Testing is performed in a sandbox environment.
3. Go Live: Once tested, the integration is moved to production, enabling real-time, secure transactions between the bank and third-party platforms.

Use Cases of API Banking

Use Case	API Banking Example
Payment Processing	E-commerce platforms use payment APIs to enable instant, secure checkouts from customer bank accounts
Account Information Access	Personal finance apps aggregate balances and transactions from multiple banks in real time
Lending and Credit	Fintechs access credit scores and transaction data via APIs to automate loan approvals
Financial Analytics	Businesses connect accounting software to bank APIs for automated reconciliation and reporting
Embedded Finance	Ride-hailing apps offer micro-loans or insurance at the point of booking, powered by banking APIs

Benefits of API Banking

• Improving the Customer Experience: Accessing financial services in real-time and seamlessly through on-the-go preferred apps.
• Operational Effectiveness: Automating a process reduces the number of manual processes; thus reducing the cost of operations and speeding up the delivery of service.
• Security: Using built-in authentication, encryption and consent management provides protection of sensitive data and transactions.
• Customization: The use of APIs opens the opportunity of creating products or services specific to customer needs such as example custom lending offers or providing investment advice.
• Compliance with regulatory agencies: Automated monitoring and reporting provides support with compliance from regulatory agencies.

API Banking vs. Traditional Banking: Key Differences

Feature	Traditional Banking	API Banking
Speed	Slow due to manual processes	Real-time transactions and onboarding
Flexibility	Rigid systems; limited customization	Modular services via plug-and-play APIs
Customer Experience	Branch visits, long wait times	Instant, app-based, personalized
Cost Structure	High overhead (branches, manual ops)	Lower cost through automation and scale
Innovation Cycle	6–12 months per product release	2–6 weeks with agile development
Integration	Proprietary systems with limited APIs	Open ecosystem with fintech collaboration
Compliance & Transparency	Manual audit trails and reporting	Automated logs, consent capture via APIs

Comparison table of API Banking vs. Traditional Banking

Use Case / Feature	API Banking Example	Traditional Banking Example
Account Opening	Customer opens an account online via a fintech app using bank’s API; instant KYC	Customer visits branch, fills forms, submits documents; manual verification
Balance Inquiry	Real-time balance fetched in a budgeting app or e-commerce platform	Customer checks balance at ATM, branch, or via delayed SMS/IVR
Fund Transfer/Payments	Instant UPI/IMPS transfer via third-party app using bank’s payment API	NEFT/RTGS transfer initiated at branch or via net banking; may take hours/days
Loan Application	Customer applies for a micro-loan in a ride-hailing app; eligibility checked via API	Customer submits physical application and documents at branch; manual processing
Personal Finance Management	Aggregator app pulls data from multiple banks via APIs for unified dashboard	Customer manually tracks finances using passbooks or statements from each bank
Expense Tracking	Real-time transaction data feeds automated expense categorization in fintech apps	Customer reviews monthly paper or PDF statements
Third-Party Integration	E-commerce site offers instant credit at checkout using bank’s credit API	No direct integration; customer must separately apply for credit card/loan
Customer Support	24/7 chatbot or in-app support powered by API access to account info	Customer calls or visits branch during working hours for support
Data Sharing & Consent	Customer grants/revokes consent to share data with fintechs via Account Aggregator	Data remains siloed; sharing requires manual intervention and paperwork
Processing Speed	Transactions and updates are real-time, 24/7	Many processes are batch-based, with delays and limited to business hours

API Banking Advantages for Banking Institutions and Companies

For Banks:

• Additional Income Streams: Generate income from APIs by providing premium access or co-branding.
• Faster New Product Development: Create and adapt new products at a quicker pace.
• Ecosystem Expansion: Work with other businesses such as FinTechs, retailers, and developers to create an expanded network of services.
• Improved Operating Efficiency: Decrease reliance on branch locations, and automate back-office operations.

For Businesses:

Ability to Scale: Utilize APIs to increase financial operations in multiple locations.

Improved Time-to-Market: When launching financial offering (payout systems, wallets, etc.), there is no need to create the underlying infrastructure.

Improved User Experience (UX): Provide an integrated payment processing solution, or credit access, or account management within an existing application.

Flexibility in Usage of APIs: The ability to only use the APIs necessary to facilitate a custom financial workflow.

Transition Challenges: From Traditional to API Banking

Transitioning from traditional to modern banking models built on application programming interfaces (APIs) represents a transformational change that will create new opportunities in the financial services industry – however, it also presents many challenges. Key challenges to address include technology, security, organizational culture, and operational complexity.

1. Legacy Infrastructure

• Monolithic Core Systems—Most banks have large monolithic core banking systems, which make it very challenging to have services that can be separated from the core system for use through APIs. 
• Limited Real-Time Capabilities—Most banks operate with batch processing capabilities, which can cause significant delays in reconciliations and/or settlements. Additionally, banks that use their legacy core systems are unable to provide real-time data access, which is a key enabler of API banking models. 
• Cloud-Readiness Issues—Large banks typically have core banking systems that were never developed for use in cloud environments, which prevents banks from taking advantage of newer cloud-native, scalable, and resilient architectures. 

Upgrade Complexity—Banks must either retrofit or replace their monolithic core banking systems—this is costly, time-consuming, and requires specialized engineering resources—thus making upgrading their systems very difficult for smaller banks or banks with limited resources.

2. Security and Compliance

• Increased Attack Surfaces – Banks must ensure the confidentiality, integrity, and availability of customer data as all APIs are exposed. 
• Authentication & Authorization – Banks need to deploy solutions (e.g., HTTPS, OAuth, JWT, and strong access controls) to ensure that no unauthorized access can occur to their APIs. 
• Regulatory Compliance – Banks must comply with all regulations related to data protection (e.g., GDPR, PCI DSS, etc.) and therefore must document how they use customer data, obtain customer consent, and maintain transparency in how they handle customer data. 
• Continuous Monitoring – Banks must continuously monitor and assess the security of their APIs and must do so using automated tools rather than manual processes. 

3. Change Management

Customer Education – Customers must be educated about data privacy and the benefits of open banking so that there is no loss of trust in a bank’s ability to provide safe and secure digital experiences (this is especially true in many underdeveloped markets). 

Cultural Shift – Banks will need to transform from product-centric organizations to platform-centric organizations. Banks need to recognize that APIs are not just technical tools but rather business strategies to help generate new revenue streams and to develop partnerships within the digital ecosystem. 

Stakeholder Aligning – In order to achieve success with their digital transformation initiatives, banks must ensure that all stakeholders are aligned, including executive leadership, organsations, compliance, product, and customer experience. Banks may require training and/or redefining roles and creating an environment for innovation and collaboration. 

4. Integration Complexity

• Mapping Traditional Services to APIs – Mapping traditional banking functions to modular, standards-based APIs will require an in-depth analysis of traditional, historical processes with significant documentation and significant reengineering of the processes. 
• Standards & Governance – Banks need to establish policies and procedures for API design, API documentation, and API security/compliance by adopting common industry standards. Banks should also establish a library of API documentation, an effective version control process, and an effective API lifecycle management process to ensure Banks are building consistent, reliable APIs for their customers. 
• Third-Party Management – Banks must develop standard services that they can use to manage their relationships with multiple fintechs and/or partners so that they have the ability to ensure that all integration partners meet appropriate security, compliance, and performance levels. 
• Operational Overhead – The continued need for Banks to support and maintain their API portfolios and external integration environments will require the addition of new tools to provide the necessary level of support to their customers.

Summary Table: Key Transition Challenges

Challenge	Description	Example Impact
Legacy Infrastructure	Monolithic, outdated systems not designed for real-time or cloud	Slow product launches, high upgrade costs
Security & Compliance	Increased risk of breaches, complex regulatory landscape	Need for advanced security, continuous monitoring
Change Management	Cultural and organizational shift from product to platform mindset	Staff retraining, stakeholder resistance
Integration Complexity	Standardizing, governing, and supporting multiple APIs and third-party connections	Increased IT workload, risk of inconsistent integrations

Ways to overcome obstacles in transitioning from traditional to API based banking

Moving from a traditional banking platform to a modern API based banking environment is a complex undertaking; however, banks are capable of meeting these challenges through the introduction of modern technologies, compliance with regulations, strong security, support for developers, and modification of their corporate culture.

Below, each strategy has been outlined in turn:

a) Adoption of Microservices and Middleware

• Introduction of Middleware/APIs – Banks must implement an API management layer (middleware layer) to interface between the legacy core banking systems and external consumers (fintechs, mobile applications, etc.). Through this middleware layer, the complexities of the legacy core banking systems will be masked, and their functions will be expressed as modern, standardized API endpoints.
  • Benefits of the Middleware Layer:
    • Provides real-time access to the banking functions without having to completely replace the entire core banking system.
    • Provides a standard, consistent interface for developers.
    • Allows gradual modernization, reducing both risk and cost in transitioning through modernization.
• Adoption of Microservices Architecture:
  Supporting the development of a microservices architecture will allow banks to break down their monolithic applications (the core banking system) into modular, independently deployable applications (microservices), where each microservice exposes its own API, making the system flexible, scalable, and easier to enhance.

• Benefits of Microservices Architecture :
  • Releases new functionality to the bank’s customers at a faster rate.
  • Easier to scale and maintain.
  • Enhanced reliability—failure of one microservice will not fail all microservices in the architecture resulting in an unplanned outage.

b) Regulatory Alignment

• API Design for Compliance:
  APIs should be designed from the ground up to meet applicable regulations (GDPR, PCI Data Security Standard, and Indian Data Protection (DPDP) law), including:
  • Data minimisation (only collecting what is necessary) 
  • Data sharing explicit consent 
  • Data access and transaction audit trail 
  • Data localization as required 
• Consent Management Layers:
  Consent management modules that allow users to give, see, or revoke their permission to share data should be implemented. Consent management modules will capture consent artifacts (e.g. opt-in personal data) and only permit processing data based on current and valid user consent. 
• Continuous Monitoring:
  API and data flow audits will be regularly completed in order to verify continued compliance, in addition to quickly determining if there has been any change in regulations.

c) Secure API Gateways

• Authentication & Authorization:
  APIs will require the authorization and authentication of users and applications to ensure that only authorized users/applications can access the API. They will enforce strong authentication protocols such as OAuth 2.0 and OpenID Connect as part of the authorization and authentication process.
• TLS Encryption:
  Transport Layer Security (TLS) will encrypt information that is in transit so that it is protected from being intercepted.
• Rate Limiting:
  Restricting the number of API calls a user/application can make to the API will help reduce the likelihood of abuse, and will also help minimize the potential for DDoS attacks through the use of rate limiting.
• Anomaly Detection:
  Machine learning or rule-based systems will monitor API traffic to look for anomalies and will trigger alerts or automatically defend against anomalous traffic.
• Benefits:
  • High availability/uptime
  • Protection against attacks commonly used to gain unauthorized access, such as credential stuffing, brute force, and injection attacks.

d) Support for Developer Communities

• Documentation for APIs – Thorough, easy-to-follow and comprehensive documentation of the API along with code samples, use-case scenarios, and instructions for error handling will help developers integrate the API into their applications.
• Sandbox Testing Environment – Provide test environments for developers to use/mock test data with the API in order to safely test an API prior to going live.
• SDK and Development Tools – Provide SDKs, clients, and libraries in commonly used programming languages to assist developers in completing their development faster.
• Building a Development Community – Create a robust development community for developers and encourage interaction with one another through forums, events (such as seminars), etc., and through contests. This will improve developer experience and allow for innovation and development opportunities.
• Benefits:
  • Reduce time to integrate and the number of errors when integrating with the API.
  • Increasing the number of development partners as well as increasing the number of third-party developers will expand the banks’ development ecosystem.

e) Culture and Talent Transformation

• Team Skill Development—Develop and implement ongoing employee training on API Development, Security, Platform   and Agile Practices.
• Agile/Platform Mindset—Change the company’s focus on product development to a platform-based strategy, thereby enhancing interdepartmental cooperation and innovation through fast iteration.
• Reward Innovation – Encourage experimentation, teamwork across the organisation and use of newer technologies.
• Benefits:
  • Providing knowledge, ability and confidence for internal improvements through digital transformation. 
  • Increasing the speed of change and innovation.

Summary Table: Strategies for Overcoming API Banking Transition Challenges

Strategy	What It Solves	Key Benefits
Middleware & Microservices	Legacy system rigidity	Flexibility, scalability, gradual modernization
Regulatory Alignment	Compliance & data privacy	Trust, legal protection, global readiness
Secure API Gateways	Security threats, uptime	Safe, reliable, resilient API access
Developer Ecosystem Support	Integration complexity	Faster adoption, richer partner ecosystem
Culture & Talent Transformation	Organizational inertia	Sustained innovation, digital-first culture

Case Study: From Legacy to API-First – A Comparative Journey in Banking Transformation

Background

The regional bank, which has been around for many years, offered both retail & SME clients has had limited success with the adoption of digital channels via mobile and internet banking as a result of the online experience being slow, clunky and disconnected. They also experienced a decrease in customer retention and increased competition from nimble fintech’s and therefore decided to analyze the operational differences between the legacy banking model and a new API-first digital banking model. 

The bank executed a pilot program to compare the two models with the legacy model operating as the primary way of handling the banks core operations while the other model will test/make use of modular API stacks to perform onboarding, payment and lending work streams. .

The Traditional Banking Model: Operational Challenges

Prior to transformation, all of the bank’s operations were conducted via branch-based facilities and legacy software applications :

• Account Opening – Could take anywhere from 3 to 5 days and required physical verification of KYC. 
• Loan Disbursement – Typically took at least 10 to 15 days to process loans manually and receive approval.  
• SME Pay-outs – The only way to process a pay-out would require the submission of a form and visiting a bank branch. 
• Integration with Fintech’s/3rd Party Platforms or Application – Integration would take several months to complete typically due to the requirement to develop custom solutions and share data between systems via manual methods. 

The way the bank conducted business successfully in the past has become more perceived as inflexible, expensive, and customer unfriendly, particularly by younger digital native consumers or platform-first businesses. 

Transition to API Banking: Pilot Rollout

To assist in the move from the traditional model to an API-based model, the bank formed an innovation team to develop an API layer using microservices commencing with the following:

• KYC APIs for Automating Identity Verification (Aadhaar, PAN, Video KYC)  
• Payment APIs (UPI, IMPS, NEFT, Auto-payment)  
• Loan Origination APIs, Including Integration of Alternative Credit Scoring Models  
• Integration of Account Aggregator (AA) for Sharing and Consenting for 3rd Party Data  

These APIs were used to create a digital mobile app and/or integrate with 3rd party marketplace/payroll applications.

Results: API Banking vs. Traditional Banking (Measured Outcomes)

Metric	Traditional Model	API-Driven Model
Account Opening Time	3–5 business days	<10 minutes via eKYC API
Loan Approval & Disbursal	10–15 days	24–48 hours with alternate data APIs
SME Payout Processing	Manual, 2–3 days	Instant via payout API
Customer Acquisition Cost (CAC)	Rs.1,800 per user (branch-based)	Rs.500 per user (via digital platforms)
Developer Integration Time	2–3 months per partner	2–3 days with API sandbox

Practical Examples Of Use Cases

1. E-commerce businesses are now able to include “buy now, pay later” financing using the bank’s digital loan API’s to quickly offer consumer loans at checkout. The end result of adding this new channel resulted in a 27% increase in completed sales due to conversion from cross-selling.
2. Logistics companies that use a logistics aggregator can now make driver payments through the bank’s payout API’s instead of using manual processes and saved Rs,15 lakh annually in administrative costs.
3. Gig workers using a gig economy app can instantly obtain a linked bank account with the bank’s account opening API’s instead of waiting 4 days to obtain an account. The result is that it now takes under 30 minutes for these workers to become active delivery partners through the app.

Lessons Learned

1. Bank APIs are More than Just Technical Upgrades 

By decoupling the services provided by the bank, they were able to use API technology to effectively reduce processing time (32% average) as well as costs, while also enabling them to scale their services up through the increased availability of the company’s head-count.

2. Developer Experience is Important 

Having access to well documented API’s along with the ability to use the API’s build a sandbox environment enabled the bank to develop more rapidly into partnerships with FinTech companies, providing the bank with the ability to integrate into those FinTech companies is an average of less than 10 days from when they started until the time that they had access to the API’s.

3. Hybrid Coexistence is A Reality 

Although the bank did not replace their current core systems immediately, they utilized middleware to assist them in providing customers with access to both their legacy systems as well as their new API’s, demonstrating that transformation can occur without being disruptive to the existing customers or having to happen at the same time.

4. Customers Select Experience vs. Brand 

The bank’s digital customers preferred using the new API powered solution instead of the standard service offered by the same bank, which further emphasizes the importance of speed and transparency, as well as a good user experience.

Frequently Asked Questions (FAQ’s)

1. What is the main difference between API banking and traditional banking?

Banking using APIs permits instant, digital capabilities to banks via connection to other applications and platforms. Traditional banks serve their customers by utilizing service centers and banking centers, which rely on manual processes and are subject to delays in fulfilling requests for service because banks fulfill requests using a batching or periodic operation.

2. How does API banking improve transaction speed compared to traditional banking?

Banking with an API processes transactions in real-time with little or no manual intervention, which is very different from the standard banking process that has always used a batching method; with that process taking hours, days, weeks, or longer.

3. Why is API banking considered more efficient than traditional banking?

API banking eliminates manual labor, processes regular workflows automatically, and allows all parties to have access to shared data in real-time, resulting in customers being on-boarded quickly, lowering the cost of on-boarding, and enhancing efficiency in the delivery of services.

4. What are the benefits of API banking for businesses?

Businesses can take advantage of rapid time-to-market opportunities by seamlessly incorporating payment processing into their existing businesses, growing their financial operation as their business grows, and adding the ability to embed financial services, such as lending or payments, into their existing applications.

5. How does API banking enhance customer experience?

Integrated with available resources, such as their bank or payment processor and customers’ applications, customers can expect to have rapid-service on-boarding, real-time payment processing, personalized services, and access to financial products and services without visiting a bank branch.

6. Is API banking secure for sharing financial data?

There are many methods of securing sensitive data within APIs; however, the most commonly used methods are OAuth, encryption and data sharing via user consent prior to accessing customer information, which ensures that customer information will only be accessed after expressly granting permission and that the customer’s information will remain safe and secure.

7. What are some real-world examples of API banking?

Common examples of using an API to conduct banking transactions include UPI transactions for 

payments, Buy Now, Pay Later (BNPL) for payments made at checkout, approval of loans via financial technology apps, and the aggregation of accounts into a single place to view total financial assets, whether for a business or consumer.

8. Why are traditional banks struggling to meet modern customer expectations?

In contrast to banks that utilize legacy systems to operate, traditional banks utilize manual processes with limited digital capabilities, making it challenging to offer the instant and seamless services and the individualized services expected by consumers today.

9. What challenges do banks face when transitioning to API banking?

Some of the challenges banks face in order to conduct API banking include modernizing their existing operating systems, maintaining data security and regulatory compliance, managing the change of culture within the business, and integrating the use of third-party applications with the banks operations.

10. What is the future of banking: API or traditional?

API banking has been the future of banking for many years, and it will continue to be the future of banking as open banking, embedded finance, and real-time services continue to be adopted as the standards and existing banking institutions evolve and incorporate APIs into their operations.