Bank API Fundamentals: The What, How and Why of Bank APIs

APIs have enhanced the connection between treasury teams and their banking partners. While API technology is not new, it’s a relatively new concept for corporate treasury departments. Traditional methods of bank connectivity are via host-to-host connections, and by sending messages through the SWIFT network.

Bank APIs allow the office of the CFO to obtain never-before available data like the status of a payment, detailed payment tracking, and bank fees – all in real-time. No more stale data or best guesses. No more waiting for an acknowledgement for a critical M&A payment.

What can you do with Bank APIs?

Once your organization has connected to bank APIs, you can leverage them for a number of things including:

  • Minimize risk of fraud, increased security through end-to-end encryption
  • Real-time available balances
  • Instant, end-to-end payment tracking just like a package tracker
  • Greater transparency of bank fees
  • Faster issue resolution: same day, automatic reconciliation, automated alerts for exceptions, machine learning-assisted issue resolution
  • Reduce your need for IT resources: no more broken connections to repair, no waiting on IT to correct message structures

And enhancements to APIs are being made every day! All of which allow you to make better and more timely business decisions.

Types of Bank APIs

API Classifications: there are different types of classes of APIs. Internal APIs connect two systems inside the same company and cannot be accessed without permission. Open APIs, also called External or Public APIs, can be connected to with the help of software developers.

Bank APIs are classified as Open APIs – they can be connected to with the help of software developers, but you must first obtain permission and instructions, called documentation, from the bank.

Banks offer different types of APIs based on the category of data. For example, most banks will have an API for each of the following:

  • Balances
  • Transactions
  • Payment Initiation
  • Payment Status
  • Account Entitlements
  • …and many others

The connection to each must be purpose-built for that particular API – you cannot simply copy and paste the connection for Balances to setup the connection for Payment Initiation. Each API requires its own set of instructions.

How to Connect to bank APIs

Creating connections to multiple banks via bank APIs has been a notoriously challenging task that leaves many providers and treasury teams feeling defeated. Many will simply say ‘the banks just aren’t there yet.

But in reality, most banks either already have APIs available, or are actively creating them — especially now that open banking regulations are taking hold in Europe and expected to spread around the globe.

It is true, though, that connecting to a bank API hasn’t historically been easy.

Because bank APIs are designed and created by each individual financial institution, they are built in different ways. Different formats, different languages, and each containing different levels of detail. Efforts to standardize bank API protocols have gone nowhere fast.

Each bank can have 10 or more unique API streams – transactions, balances, payments, payments status, etc. And the instructions on how to connect to a single bank API are typically hundreds of pages of documentation. That’s why building your own connections in-house requires a great deal of internal IT resources, an army of super-specialized software developers and a great deal of budget. And that’s just if you’re building a single API connection, much less links with multiple banks and multiple types of APIs. Then there’s the ongoing maintenance to consider.

The easier solution is to leverage a bank connectivity provider with a robust catalog of pre-built and pre-tested API connections because the hard work of harmonizing the bank APIs has been done for you.

With an API-based bank connectivity provider like FinLync, the responsibility for ongoing maintenance is off your plate, and bank API connectivity goes from being highly complex to plug and play.