Are APIs the Power Source for Open Banking’s Rise?

As open banking takes root in the United States, the role of application programming interfaces (APIs) will become more widely known and appreciated. That’s one of the predictions and insights stemming from a recent PYMNTS interview with Seth Perlman, global head of product at payment facilitator i2c.

An API, he said, as part of the “What’s Next in Payments” series, “is really just the interface to whatever’s ‘underneath’ it in terms of financial services or processing or commerce. So ultimately, an API is a scalable and rapid way to integrate to an underlying service, but it doesn’t take the place of whatever processing infrastructure, or other capabilities, lie underneath it.”

But for those APIs to be embraced fully, they also need to demonstrate the ways in which firms can harness them to change financial services — and they also need to be broadly available to the developer community itself.

Against that backdrop, and in pursuit of scale, said Perlman, the key is to design those APIs with interoperability in mind — to have at least some level of abstraction or commonality tied to the information that’s put “into” the API. Card-level data, for example, should be formatted in standardized fashion so that APIs can connect and pass that data to a broad range of underlying services.

Security and Scalability

“There’s an art,” said Perlman, “to API design to ensure there’s interoperability for a single type of input on the front end, being able to be passed to a number of downstream backend product services companies, no matter where they’re plugged into.”

That need for standardization has given tailwind to a number of providers, including i2c, offering expertise in streamlining how that information is captured and passed to processors, middleware providers and anyone else who could be sitting in the “middle” of financial interactions.

Perlman added that i2c has been “API centric from day one,” and has helped client firms in the midst of developing payment or a banking application to pick and choose the components that are most relevant to them and only do the work that’s necessary to integrate for that purpose.

“There have been cases where our clients have integrated to debit processing capabilities and are using our fraud engine, but potentially maybe using someone else’s mobile app. That mobile app,” he continued, “and that mobile app developer can call our APIs to get transaction information, transaction history and ‘trigger’ other products and services that they need.” The FinTech that strives to offer point-of-sale financing can embed those options in a merchant’s checkout page in streamlined fashion, he said.

The security protocols governing APIs also have strong security features in place, noted Perlman. Rules and so-called “keys” governing access ensure that the individuals and firms “calling” an API have the right to do so.

“You can design APIs and design access rights so that you can give one party access to read information and another party access to ‘write’ the information to an underlying service,” said Perlman. Several API architectures are also highly scalable, he said, and are able to take inputs from several systems simultaneously and process those inputs with high throughput and low latency. But, he added, APIs are less adept at batch processing — and will find wider embrace as real-time payments and real-time access to data power a slew of new open banking use cases.

“The benefit of APIs,” said Perlman, “is to break us free from that batch processing architecture that the banking and payment system was founded upon.”

He noted that a single real-time API can be used to help move money between parties or initiate a request for payment. New API architectures, tied to artificial intelligence and machine learning, do more than just the basic call and response or call and update a system, but, as Perlman noted, trigger a set of downstream data queries or potentially even a query to an AI engine to generate an outcome that may not be “sitting” in a database.

Those advanced technologies, said Perlman, can help tailor customized services to be delivered to individual users across banking and FinTech apps.

APIs, he said, “are a great tool to facilitate the consumer experience … if you’re developing, let’s say, a personal finance app” or a credit underwriting service. The API allows third parties to pull in information from disparate data sources to show personal finance info on consumers’ screens, while ensuring that the data flows are compliant with ever-changing regulations.

As he told PYMNTS, “APIs are absolutely the future for the financial services industry.”

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