Behind every great web site is an API.
When you ask a travel site for flights and get the answer, it was an API. When a road map app includes restaurants, it was an API. When someone builds an app and needs information from a third party, they use an API.
API stands for Application Programming Interface. If you’re unfamiliar with this technology, but want to know how it can help your business, this basic overview is for you.
Each API is like a researcher working behind the scenes to find data. It is a virtual pathway that can connect you to new functionality and sources of data and enable you to use that functionality or data within your software solution.
Rise of the API Economy
APIs have existed for decades. They allow two or more pieces of software to talk with each other -- without knowing each other, or being connected.
In the past 15 years, however, there has been a shift from internal use to external use. Historically, APIs were used for libraries of software within a program. More recently, APIs have been shared over the internet for access "outside” of a program and outside of companies thanks to network reach, speed and security standards.
Fast, secure internet access makes data and services available for automated (vs. direct human) access. This opens up innovative ways for others to plug into the software apps and databases of multiple sources. The results include new and interesting services, giving rise to the “API Economy.” Examples include:
- PayPal was one of the pioneers of open APIs in 2004 as developers quickly spread the online payment capability around the web.
- Apple Pay launched in 2014 and instantly expanded its market by integrating with API-based Braintree and Stripe to provide online and in-app payment options.
- Google Maps allows anyone to embed locations and/or serve details into its own products thanks to its many open APIs.
- Fidor Bank of Germany is a pioneer in banking, offering APIs for startups and non-banks that want to offer banking services to customers.
- Capital One in 2016 launched a developer portal and three new open APIs. The portal provides testing, documentation and sample code for developers.
The Age of Open Banking
The influence of open APIs in financial services is growing rapidly. Just like digital-only banks, chip cards and real-time payments, the U.S. can look to Europe for the next big thing in this industry.
December 2017 is the deadline for European Union countries to enact the revised Payment Services Directive (PSD2). Combined with the EU’s General Data Protection Regulation, this law requires banks to make data shareable with designated third parties and allow new players into the market.
Open banking, and the new law in Europe, shows the growing sentiment that customer data belongs to the customer and not to the institutions.
Whether in Europe or the U.S., the banks and fintech firms that embrace open banking will have big opportunities to innovate, create new ways to serve customers and control their own destiny.
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