What is API in Banking?

Jocelyn Hu, Marketing
Dec 18, 2020
 Min Read

API Banking Is Changing the Future of How People Pay

Whether it is an ecommerce platform like Shopify offering financing to its merchants, or tech giant Apple branching out into providing credit cards, embedded finance is likely to be the next revolution in fintech.

API banking is powering this integration of financial capabilities with nonfinancial services. One of the most important uses of APIs is in banking, where middleware companies help tech brands embed financial services in their products.

What is API banking?

API banking allows the users of these tech companies to access whatever part of the financial ecosystem they need, whether it is payments processing capabilities, microloans to merchants, or “Buy now, pay later” services for customers. Tech companies are able to do all this without having to obtain expensive banking and payments licenses.

With the recent launch of our Privacy Issuing API, let’s take a deeper look into the evolution of API banking. We delve into its benefits for both the companies looking to integrate fintech into their offerings and the underlying financial institutions, and see the workings of API banking using a case study.

API Banking - the ins and outs

API banking helps different companies, fintech or otherwise, provide banking capabilities to their customers through open APIs. It can help any company provide their customers with financial services that aren’t necessarily that company’s core product.

API banking takes a stack-based approach: the banks, their customer data, and their financial infrastructure form the base. On top of this is the middleware provider, which acts as a technological interface between a company looking to integrate fintech capabilities into their offering and the bank’s infrastructure. On the top is the company that provides the financial service to its customers, thereby controlling the final user experience.

Take, for example, Finix, a US startup that helps companies process online payments in-house. Finix acts as the middleware provider that partners with financial institutions such as Visa, and  companies looking to add payments processing capabilities to their offerings. The final stack on top is the technology of Finix’s clients, that the final customer interacts with.

This kind of banking enables tech companies embed fintech functions in their products without having to undertake regulatory and compliance procedures that come as part of building a banking infrastructure. As a result, API banking is projected to be a market worth $3.6 trillion by 2030.  

API banking is attractive to both banks and companies

API banking helps brands provide more intuitive financial services to their customers while helping banks increase their revenue and customer base. For businesses and brands that are leveraging API banking, it is an opportunity to provide their customers with the best fintech innovations without investing in building out expensive banking infrastructure.

While API banking is an attractive proposition for all parties involved, the lack of standard regulations for the development and use of APIs may prove to be a hurdle in operations. Every bank or financial institution that provides the basic infrastructure and data has different back-end systems. This dilutes the power of open APIs, as developers then need to tailor their fintech product to a specific bank’s API that they may be working with.

Open banking, in its true sense, would allow a single application developed on one bank’s API to operate seamlessly on another bank’s API. For this to be a reality, banks need to ensure that there are some common rules dictating their open APIs.

Even as concerns around the security of customer data online remain, API banking allows companies to access financial infrastructure at a lower regulatory cost.


API banking allows for brands to provide the required financial services to their customers quicker than if companies were to build out the infrastructure for those services themselves. For example, our Privacy Issuing API allows businesses to issue virtual and physical debit cards within hours, with an easy onboarding process and quick integrations.

In the traditional banking process, a company would take at least a few days to issue a card, after taking care of a strict underwriting process, and secure a sponsorship from the bank to issue its cards. Our Privacy card-issuing API helps remove these barriers to entry for small-business owners.

Lower regulatory costs

For companies looking to integrate financial products into their offerings, API banking helps circumvent the need for expensive banking licenses and compliance with financial regulations. For example, Apple’s tie-up with Goldman Sachs has allowed Apple to bypass regulatory concerns and focus only on the branding and technology behind their credit card.

Similarly, our Privacy Issuing API focuses on simple pricing to help developers at tech companies integrate their services with Privacy’s API. This will allow tech companies to start issuing cards instantly to integrate their service with our Privacy issuing API.

Our Privacy API adopts a plug-and-play approach, with pricing listed on our web page. This helps businesses lower regulatory costs and remove legacy contract minimums, which allows small businesses to make interchange fee immediately.

APIs are also useful in integrating regulations technology into fintech products. Since any financial transaction requires confirming a user’s data before a payment can go through, regtech APIs such as Trulioo can help verify customers’ identities and the data they enter.  

Increased Revenue

For businesses, API banking means more revenue because it enables cross-selling of different products. Banks benefit from API banking because it increases their revenue by giving the banks access to a new customer base.

U.S. community bank Evolve Bank & Trust has partnerships with many fintech startups, including Synapse and Mercury. For example, for Synapse, Evolve underwrites its lending products and acts as the deposit holder for its payments offerings. As of February 2019, deposits as part of Evolve’s fintech partnerships increased by over 200% month on month, making the vertical one of Evolve’s fastest-growing parts of the business.

Companies often need to increase expenditure on boosting cybersecurity measures when deploying API Banking. Open APIs attract increased risk of cyberattacks; therefore, concerned parties need to spend more on encryption measures for customer’s data and financial information.

API banking and Finix help startups process payments in-house

San Francisco-based startup Finix has helped startups create a new revenue stream by allowing them to process online payments in-house. The middleware provider helps companies develop their own ecommerce payments infrastructure. Some of Finix’s clients include point-of-sale software maker Lightspeed, online lender Kabbage and transportation software company Passport.

Finix’s platform forms a link between the brand seeking to set up payments processing services and payments processors, such as Visa. Finix takes care of developing a unique merchant identity, which allows these companies to accept payments. It then creates a payments instrument, which tokenizes the banking or credit card information multiple times to protect their identity. From here, Finix is involved with authorizing the payment and then with transferring it from a customer’s account to the tech company's account. And finally, it ensures the transaction is settled for both the tech company and the customer.

The success of Finix’s business, and of API banking, can be gauged from the fact that the startup raised $30 million in an extended Series B round in August 2020, in the middle of the COVID-19 pandemic. Finix’s transaction volume went up by 4.5X in the second quarter of 2020, compared with a year ago.

By helping companies embed payments offerings into their core products, Finix removes the need to build expensive APIs, or partner with third-party providers. The up-front cost to build these APIs from scratch would normally be $3 million to $5 million, and it can take a company about two to three years to finish a build, according to Finix’s chief executive officer Richie Serna.

Processing their own payments also helps startups save costs that they would otherwise spend for each transaction. If the startups partner with a third-party payments processor, the startups pay them a transaction fee. For Stripe, that fee can be between 2% and 4.3%, in addition to $0.30 for every successful transaction.

By processing payments themselves, startups forgo the need to share a cut from their transactions with third-party payments processors, thereby increasing their revenue. Finix charges companies a software fee, as well as a fee according to the number of payments processed through its API.

What does API banking do?

API banking helps companies better serve their customers.

If providing better consumer services is the key to growth for a startup, embedding fintech services powered by API banking can help. Opting for API finance services provided by middleware providers like Finix, Bloom Credit, and Razorpay also allows companies to save costs and therefore increase their revenue.

Open Banking API Key Takeaways:

  • API banking is a convenient way for companies to offer payments services to their customers without investing in expensive infrastructure for these services.
  • While speedy deployment of financial offerings is an upside for companies when using API banking, they may need to be careful with cancellation of transactions. Since different banks and financial institutions have different formats to report transactions, it becomes difficult and time-consuming to identify and reconcile transactions that customers have canceled.
  • With API banking, companies do not need to get banking licenses and therefore, forego the need to complicated compliance regulations.
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