They are the technical foundation for every Open Banking or Open Finance application: banking APIs. These are the technological interfaces that enable banks and financial institutions to make their core functions, such as payment processing, account management, or data sharing, accessible to external partners and third-party providers.
What is a Banking API?
A banking API (Application Programming Interface) is an interface that allows developers to communicate directly with a bank’s systems. It provides a standardized way to access banking data, initiate payments, retrieve account information, and perform many other financial transactions.
By using APIs, banks can open their services to third parties, enabling innovative FinTech companies and other developers to create new applications that enhance the user experience and enable new financial products.
How companies can use banking APIs in practice
Banking APIs are not merely technological infrastructure – they are a practical tool for optimising products and processes. Companies can use them to integrate payment functions directly into their platforms, automatically analyse financial data, accelerate digital lending decisions, or provide multi-banking dashboards.
Whether in e-commerce, marketplaces, the insurance sector or the SME environment: banking APIs make it possible to embed financial services seamlessly into existing applications, automate manual processes and develop new data-driven business models.
This is how Open Banking becomes a genuine competitive advantage.
Roles & stakeholders in the Open Banking ecosystem
In the context of banking APIs, certain technical terms frequently arise. The key roles at a glance:
ASPSP (Account Servicing Payment Service Provider)
The ASPSP is the account-holding bank. It provides the technical infrastructure as well as the regulated banking APIs and manages customers’ payment accounts.
TPP (Third Party Provider)
TPP is the umbrella term for regulated third-party providers that access bank data or initiate payments via APIs – always with the customer’s consent. Two main types are distinguished:
- AISP / KID (Account Information Service): An AISP (Account Information Service Provider), in German KID (Kontoinformationsdienst), is authorised to retrieve and aggregate account information.
Typical examples include multi-banking apps, financial dashboards or creditworthiness analyses. - PISP / ZAD (Payment Initiation Service): A PISP (Payment Initiation Service Provider), in German ZAD (Zahlungsauslösedienst), is authorised to initiate payments directly from a bank account on behalf of the customer – for example during an e-commerce checkout.
Open Banking vs. Banking as a Service (BaaS)
Open Banking enables regulated third-party providers to access account data and payment functionalities in a standardised manner via APIs – based on PSD2.
Banking as a Service (BaaS) goes further: here, a licensed bank provides its entire banking infrastructure (e.g. accounts, cards, IBANs) via APIs, allowing companies to offer their own financial products under their own brand.
Open Banking vs. screen scraping
Before PSD2, many providers used screen scraping: this involved using online banking login credentials to automatically extract account data from the user interface. Open Banking replaces this approach with:
- standardised APIs
- token-based authentication
- clear regulatory requirements
This is more secure, more stable and more transparent for all parties involved.
Benefits of Banking APIs
- Enhanced User Experience:
Banking APIs enable the integration of financial services into user-friendly apps, offering a better and simpler user experience. - Fostering Innovation:
By opening up the market to third-party providers, new financial products can be developed, offering customers more choices and better prices. - Increased Efficiency:
The automation of processes such as payments, account management, and lending becomes significantly more efficient through the use of APIs. - Improved Data Security:
APIs provide a safer way to manage financial data, as they are typically equipped with modern security protocols and authentication methods.
Regulatory requirements for banking APIs in the EU
In the EU, banking APIs are clearly defined not only technologically but also from a regulatory perspective. They are subject to PSD2, RTS and eIDAS certificates, to name just a few. These standards create security, transparency and trust for banks, third-party providers and end customers.
The key framework conditions:
PSD2 – The legal foundation
The Payment Services Directive 2 (PSD2) obliges banks to provide licensed third-party providers (TPPs) with standardised interfaces. The objective: greater competition, innovation and consumer protection.
BaFin licensing & EU passporting
- Companies offering account information or payment services require regulatory authorisation – in Germany, this is granted by BaFin.
- With an EU licence, so-called passporting is also possible: providers may offer their services across Europe without having to apply for a new licence in each individual country.
RTS of the EBA – Technical security standards
The Regulatory Technical Standards (RTS) of the European Banking Authority further specify PSD2 requirements. Among other things, they regulate:
- Strong Customer Authentication (SCA)
- Secure communication between banks and third-party providers
- Protection against fraud and misuse
eIDAS certificates
For secure identification, third-party providers use qualified eIDAS certificates. These officially confirm to the bank the provider’s regulatory authorisation and role (e.g. account information service or payment initiation service).
Customer consent & consent flows
Explicit customer consent is central to Open Banking. Consent flows ensure that:
- Users are transparently informed about the type and scope of data access
- Access is time-limited
- Consent can be withdrawn at any time
- No access may take place without valid consent.
How Do Banking APIs Work?
Essentially, APIs act as a “bridge” that allows third parties, such as FinTech companies, to access certain functions and data from banking systems – like account balances, transactions, or payment initiations. This is done through a secure, encrypted connection, ensuring that only authorized parties have access to the data.
The process begins only when a customer gives consent for a third party to access their banking data. The bank then provides an API that allows the third party to perform specific functions, such as displaying account information or initiating payments.
In other words, a banking API works by having an app or external system send a request to the bank’s API, for example, to query the account balance. The API then checks if the request is authorized, often through user authentication, such as two-factor authentication. After successful verification, the API retrieves the requested data from the bank’s database, such as the account balance, and securely sends it back to the app.
Thanks to Open Banking initiatives and regulations such as PSD2 (the EU Payment Services Directive), banks are required to open their APIs and ensure secure data exchange.
Technical architecture of banking APIs – simply explained
Behind banking APIs lies a clearly structured architecture that ensures security, stability and scalability: technically, a banking API consists of a secured gateway, token-based authentication, standardised data formats, modular services and continuous monitoring – forming the foundation for secure and high-performance Open Banking applications.
API gateway as the central component
The API gateway is the central entry point for all external requests. It verifies authentication and permissions, enforces access limits, logs requests and forwards them to the appropriate backend systems. In this way, it protects the core banking system from direct access.
OAuth2 & token-based authentication
Modern banking APIs use OAuth2. After the user has given consent, the third-party app receives a time-limited access token, which is sent with every request.
The app does not store any banking credentials – authorisation is carried out exclusively via secure tokens.
Standardised data formats
Communication takes place in structured formats such as JSON (today’s standard) or XML. This ensures uniform, machine-readable and cross-system compatible data transmission.
Modular structure
Banking APIs are usually modular in design, for example divided into:
- Account information services
- Payment initiation
- Identity or analytics services
- This allows individual functions to be integrated, further developed and scaled flexibly.
Monitoring & performance
High availability is essential. Therefore:
- API calls are monitored in real time
- Response times are measured
- Errors are detected automatically
- Systems are scaled during peak loads
Particularly in embedded payments or multi-banking applications, stable performance is crucial.
Typical use cases of banking APIs
Embedded Payments (e.g. checkout without media disruption)
- Embedded Payments enable payment functionalities to be integrated directly into digital platforms or applications – without redirecting users to external bank pages or requiring separate login processes.
- This means the entire payment process takes place seamlessly within an app or online shop. As a result, media disruptions are avoided, conversion rates are increased and the user experience is significantly improved.
Multibanking & financial dashboards
- Banking APIs make it possible to consolidate account data from different banks and display it within a central interface. This so-called multibanking provides users with a complete overview of their finances – regardless of how many banks they hold accounts with.
- Typical applications include financial dashboards, budgeting apps or business finance tools for companies.
Digital credit assessment & credit checks
- Banking APIs enable fast and automated analysis of account data to assess creditworthiness. Instead of submitting documents manually, relevant financial data – with the customer’s consent – can be evaluated directly in digital form.
- This significantly accelerates lending decisions and reduces risks for lenders. Such solutions play a central role in modern credit risk management.
Subscriptions & recurring payments
- APIs simplify the management of recurring payments, for example for streaming services, software subscriptions or memberships.
- Through automated payment initiation, account verification and real-time status queries, providers can reduce payment defaults and make processes more efficient. At the same time, customers benefit from transparent and secure payment procedures.
E-commerce & marketplaces
- In e-commerce, banking APIs enable direct payment processing between buyers and merchants. Particularly in platform and marketplace models (e.g. platforms with multiple vendors), APIs are essential for splitting payments, automating payouts and verifying transactions in real time.
- Topics such as identity verification (KYC) and fraud prevention can also be efficiently implemented through API-based processes.
Insurance, factoring & SME use cases
APIs also unlock new opportunities beyond traditional banking:
- Insurers can use financial data for risk assessment and premium calculation.
- Factoring providers gain insights into payment flows in order to better evaluate receivables.
- SMEs benefit from automated liquidity planning, digital credit assessments and integrated financing solutions directly within their accounting or ERP software.
Current trends & the future of banking APIs
Banking APIs are evolving from a regulatory requirement into a strategic innovation platform. Four trends are shaping the future:
- SEPA Instant Payments: Real-time transfers enable payments within seconds – ideal for checkout, payouts and liquidity management.
- Open Finance: Beyond account data, insurance, investments and other financial sectors will increasingly be integrated via APIs in the future.
- AI & automation: APIs provide structured financial data, which AI uses for credit assessments, fraud detection and personalised services in real time.
- Regulatory sandboxes: Protected testing environments foster innovation and accelerate the market launch of new API-based financial products.
In short: Banking APIs form the foundation for real-time financial services, data-driven business models and the next evolutionary stage of Open Finance.
Conclusion
Banking APIs are crucial for the Open Banking movement, enabling third parties to securely access banking data and integrate financial services. They foster innovation, enhance the user experience, and increase the efficiency of processes such as payments and account management. By opening up banking systems, new products are developed that better meet customer needs, while maintaining high security standards.
