What on earth is an Open API for payments?

Featured Image

An Application Programming Interface(API) is a means of communication between different software applications to strengthen interactions between different players in the financial ecosystem.

With the market wide open for third-party payment providers, fintechs and other non-financial service participants, banks are forced to connect to other players and the key enabler for making these connections is open APIs.

API challenge for banks

With a plethora of use cases for open banking in healthcare, insurance, investment management, and others, banks are deliberating potential use cases that could leverage open APIs. With legacy cores offering limited APIs or posing cumbersome integrations with new cloud-based technologies, banks are unable to take advantage of the immense potential that APIs can bring to monetizing their payments infrastructure. Many banks are abandoning efforts to modernize legacy systems and moving towards enabling API-based platforms like FinzlyOS that can run alongside the core, without tearing the core apart.

In the recent past, banks like Mascoma Bank, Midwest BankCentre, Lead Bank, Coastal Community Bank, First Internet Bank and First Bank, to name a few, are moving towards API-based platforms for various needs including onboarding, payments and lending.

API and payment hubs

Rather than having to toggle between different APIs for different payment rails, payment hubs come with a single, future-proof API, offering an integrated solution for real-time, domestic and cross-border payments. The APIs can enable sending, receiving and tracking payments in real-time with complete visibility of all the transaction data.

Why are fintechs and other ecosystem players attracted to payment hubs?

A single payment API for all the rails requires one simple API integration. Moreover, these APIs offer instant payment notifications and intelligently route the payments between rails based on speed, cost or acceptance. Backed by cloud-native platforms, they also offer scalability and the responsiveness that other ecosystem players demand from banks as against being supported by batch-based legacy systems.

Banks and fintechs are riding on a symbiotic vehicle. While fintechs can leverage bank partnerships to drive forward payment innovation to their customers, banks can benefit by offering APIs to fintechs. Speed, flexibility, ease of integration and consistency are the main determinants of forging the relationship.