What we’ve noticed: Application programming interfaces (APIs) are growing in importance as banks seek to diversify and modernize their tech offerings:

• APIs are the connections between various software programs, and they support important industry technologies like banking as a service (BaaS) and other “as a service” offerings.
• BaaS is the infrastructure for banking products and services. It encompasses the tools and capabilities to take financial products and services built upon a bank’s platform and embed them in experiences offered by fintechs and consumer brands.
• For just one example, innovations within APIs may foster “risk as a service” offerings for compliance, per PYMNTS, which interviewed FISPAN’s Matt Naish, its head of product strategy.
• Banks and credit unions are prioritizing APIs: PYMNTS data shows that the proportions that have developed or invested in them increased from 35% in 2019 to 47% in 2021.
• An additional 25% plan to do so in 2022.

The rationale: The value proposition of BaaS—much like that of platform as a service (PaaS) for tech companies—is to make it quicker, easier, and cheaper to launch, operate, and scale products and services in different ways.

• APIs layering services on top of a bank’s existing core technologies would offer more data for integration and analytics, bolstering compliance processes like know your customer (KYC) and know your business (KYB).

The challenges: Only 30% of financial institutions (FIs) were actually using APIs as of early 2021, according to PYMNTS.

• Naish said that FIs have challenges with running APIs with their older tech infrastructure.
• He added that they can respond by acquiring new technology, building it internally, or partnering with outside companies like his own.
• There isn’t an interoperable API standard, which we note helps with sharing data while keeping banks’ technology stacks secure and stable. An industry consortium called the Financial Data Exchange (FDX) is trying to fill the gap.
• Banks are also worried about including what they view as proprietary data in API-enabled sharing.

The big takeaway: Banks that collaborate with developers to advance API usage can take advantage of BaaS and open banking solutions and participate in the wider fintech ecosystem.

• They need to decide how APIs fit into their legacy tech stacks: as a software layer or as a replacement for core banking systems.
• To exchange data with fintechs, banks need to offer a suite of APIs that are straightforward and integrate via a developer platform. We recommend creating a single point of integration into a platform by establishing API marketplaces. These should encompass analytics that can be used for testing and quick deployments of features and simulation suites and sandboxes.

For a deeper dive into APIs, BaaS and open banking, read our newly released report, The Bank in 2025.