What is an Application Programming Interface (API) and why is it so important in Fintech?

An Application Programming Interface (API) is the principal tool used by banks and Third-Party Providers (<a href="/glossarycollection/third-party-provider" style="color:#48277C;" target="_blank" title="Third-Party Provider">TPP</a>) to access and share banking data. It is the technology which allows Open Banking to exist. 

Banks which embrace the Open Banking API economy might use them to enhance and transform their offerings to customers, perhaps by partnering with a FinTech developing an innovative offering. However, they might also see the Open Banking API as a threat; after all this same API enables another innovative FinTech to tap into the bank’s financial data and develop services, potentially making the bank's own offering less relevant or competitive. 

Ultimately, a bank can choose whether to view Open Banking APIs as a threat or an opportunity but most of the biggest banks are mandated to offer them due to the EU's revised Payment Services Directive (<a href="/glossarycollection/the-second-payment-services-directive" style="color:#48277C;" target="_blank" title="The Second Payment Services Directive">PSD2</a>).