Banking APIs are ready-made connections that let a company's software use India's public financial systems, such as UPI, the account aggregator, bill payments and electronic signatures. An API is a fixed format in which one company's software asks another company's software for data, or gives it an instruction. A company that sells banking APIs has already built the connection to each system, so that its customers do not have to.
Take, for example, a lending app that wants to see six months of bank statements before it lends ₹3 lakh to a furniture maker in Chandigarh for new machines. India's account aggregator system lets him approve this on his phone. His bank then sends the statements digitally, straight to the lender. But to connect to the account aggregator system, the lender must follow its technical rules, pass its certification and record each customer's consent. A banking API company has already done this work. The lender's loan origination system calls one API, and the statements arrive in a format that bank statement analysis software can read.
The same company offers APIs for other systems. For instance, one API lets a business collect money over UPI. It sends a payment request to the customer's UPI app. Another API lets a business accept payments through a bill payment platform, such as Bharat BillPay. A third lets a borrower sign a loan agreement electronically, using an OTP sent to the mobile number linked to Aadhaar.
Why is this useful? India's public digital systems are open to many companies. But each system has its own rules, formats and approvals. A banking API company connects to each system once. Then hundreds of companies can use the systems through that one connection.
Banks offer APIs of their own as well. Through a bank's APIs, a fintech company can open accounts for its customers and move money through the bank. This is part of banking as a service.