What’s the difference between API Banking and Open Banking?

There is a lot of confusion about what open banking is, especially when it comes to banks making APIs available to fintechs and others. Many seem to think that API banking is the same as open banking; it’s easy to get both confused, after all, they are both about APIs and banking.

What is API banking?

API banking, a rapidly evolving aspect of digital banking, is when banks provide APIs as a channel for customer interaction and actively seek fintechs to integrate and layer their own products and services on these APIs. It goes beyond just the provision of simple APIs to transfer and check customer balances, it’s a real business model for driving transactions and revenue via APIs.

What then is Open banking?

While banks actively push fintechs to use API banking for integrations and product development, nothing stops each bank from promoting different API protocols. In fact, practically every single bank implements the same functionality, say getting a customer balance, differently. This becomes a pain for fintechs and integrators. Open banking is the standardization of API protocols for banks so they all can speak the same language.

So what then is the confusion?

Having engaged with most of the top banks in Nigeria regarding open banking, I have come to the conclusion that the common misconception about open banking comes from equating provision of APIs to open banking. In fact, many think the likes of Okra and Mono are doing open banking. This isn’t correct because Okra and Mono APIs speak different languages and their taxonomies are proprietary.

However, with the work that Open Banking Nigeria and a number of top organizations are doing with the Central Bank of Nigeria, a standard for banking APIs would be defined and published. It would mean that a fintech company who has written integration codes for bank A, can use the exact same code for bank B, saving itself tons of time, and money.

Open banking is the steroids that API banking needs to succeed

API banking is arguably the next future for banking where banking services are transparently woven into the everyday fabrics of our lives. But without a common taxonomy that open banking provides, API banking would struggle to scale for a mass adoption.