API and Use in Banking

An API (Application Programming Interface) acts as a bridge that allows two software systems or applications to communicate with each other. In the context of Banking, an API connects a bank's system with a company's ERP system (e.g., SAP), enabling real-time data transfer. ?This ability of API Banking helps the customer to perform banking transactions in an easy manner without having to toggle between his Enterprise Resource Planning (ERP) platform and bank.

During Integration with Bank the customer can select different API’s services based on customer needs. Bank may provide API’s like below

Key Components of APIs

1. Endpoints Endpoints are the specific URLs or points where APIs interact with a system. Example: A bank may provide an endpoint like https://api.bank.com/getEBS to fetch bank statements.
2. Requests and Responses The client (e.g., ERP system) sends a request to the API to fetch specific data. The API processes this request and returns a response (usually in JSON or XML format).
3. Authentication APIs use secure methods like API keys, OAuth tokens, or user credentials to ensure only authorized systems can access data. Example: Before fetching Banking Transaction, the ERP system must authenticate using a token.
4. Data Format APIs exchange data in structured formats like: JSON (JavaScript Object Notation) — lightweight and widely used. XML (eXtensible Markup Language) — more verbose but still common.
5. Methods APIs use specific methods to interact with data:

GET: To retrieve data (e.g., bank statements, Balance fetch, Loan request process etc.).

POST: To send or upload data.

PUT: To update existing data.

DELETE: To remove data.

How APIs Work Step-by-Step

1. Authentication The client (e.g., ERP system) requests access to the bank's API using an authentication mechanism (e.g., API key or OAuth token). If authenticated successfully, the API allows access.
2. Sending a Request The ERP system sends a GET request to the bank's API endpoint to fetch the Bank Statement. The request may include parameters like: Date range (e.g., startDate=2024-06-01&endDate=2024-06-17). Account number.

Example Request:

GET https://api.bank.com/getEBS?account=123456&startDate=2024-06-01&endDate=2024-06-17?

Authorization: Bearer <access_token>

1. API Processes the Request The bank's API validates the request and retrieves the requested data from its database.
2. Returning a Response The API sends the response back to the client system (e.g., SAP), usually in JSON or XML format.

Example Response (JSON format):

{

? "accountNumber": "123456",

? "transactions": [

??? {

????? "date": "2024-06-10",

????? "description": "Payment received",

????? "amount": 5000,

????? "currency": "USD",

? ????"balance": 15000

??? },

??? {

????? "date": "2024-06-15",

????? "description": "Vendor Payment",

????? "amount": -2000,

????? "currency": "USD",

????? "balance": 13000

??? }

? ]

}

1. Data Integration The ERP system receives the data and processes it. For example, in SAP, the data is automatically updated in the Bank Reconciliation, Treasury, Loan etc. module for further processing.
2. Real-Time Updates APIs can fetch new data continuously or at defined intervals, ensuring real-time updates.

Benefits of APIs

1. Real-Time Communication: No delays, as data is fetched instantly.
2. Automation: Eliminates manual effort of downloading/uploading files.
3. Scalability: Handles high volumes of transactions effortlessly.
4. Accuracy: Minimizes errors by using structured, machine-readable formats.
5. Security: Ensures secure and authorized data transfer.