API Banking Market Expected to Reach $217.3 Billion by 2032—Allied Market Research

According to a new report published by Allied Market Research, titled, “API Banking Market," The API banking market was valued at $24.7 billion in 2022, and is estimated to reach $217.3 billion by 2032, growing at a CAGR of 24.7% from 2023 to 2032.

Application programming interface (API) banking makes use of API (XML/JSON codes) for communication between bank and client servers, making data transfer between these two systems seamless, ensuring seamless and secured integration between the customer’s and bank’s systems. This ability of API banking helps the customers to perform banking transactions in an easy manner without switching between the enterprise resource planning (ERP) platform and the bank.

Furthermore, API banking allows banks to offer personalized and tailored experiences to their customers. By integrating with customer relationship management (CRM) systems and marketing platforms, banks can leverage customer data to provide personalized recommendations, targeted offers, and timely notifications. This enhances customer engagement and satisfaction.

Open banking regulations, such as the Revised Payment Services Directive (PSD2) in Europe, have mandated banks to open up their data and services through API. This has opened new opportunities for banks to collaborate with third-party developers, FinTech companies, and other financial institutions. Increased competition and innovation resulting from open banking initiatives have fueled the growth of the API banking industry.

Furthermore, enhanced security and compliance have played a significant role in driving API banking market growth. In addition, API provides a secure and controlled way of sharing data and accessing banking services. Banks can implement robust authentication and authorization mechanisms through API, ensuring that only authorized entities can access sensitive customer information or initiate transactions. In addition, API provides a standardized and efficient way to connect systems and applications. They further enable banks to rapidly develop and deploy new services by leveraging existing API, reducing development time and costs. This agility is crucial in the fast-paced digital banking landscape, where time-to-market for new products and services is a competitive advantage. Therefore, agile development and time-to-market drive the API banking market growth.

However, regulatory compliance and security concerns are significant barriers to API banking market growth. Furthermore, the banking industry has traditionally been conservative and slow to adopt new technologies. Embracing API banking requires a cultural shift within the organization, along with a willingness to adapt to new business models and strategies. Resistance to change from within the organization can slow down the adoption of API banking and hinder its growth. On the contrary, technological advancements and customer demands are the API banking market trends that are expected to provide lucrative opportunities for the growth of the API banking market in the upcoming years.

By component, the solution segment acquired a major share in 2022. This is attributed to the open banking initiatives, driven by regulatory mandates in several regions, that are reshaping the banking landscape and promoting the use of API solutions. However, the service segment is attributed to be the fastest-growing segment during the forecast period. This is attributed to increasing demand for open banking, growing emphasis on digital transformation, rising FinTech ecosystems, and improving customer experience.  Furthermore, the service segment focuses on regulatory compliance and security aspects. With stringent data protection regulations such as General Data Protection Regulation (GDPR) and Payment Services Directive 2 (PSD2), banks require robust security measures and compliance frameworks when exposing their APIs to external parties. Service providers offer security audits, API access controls, and encryption mechanisms to ensure data privacy and protect against unauthorized access. Therefore, these factors are driving the growth of the service segment.

Region wise, North America dominated the market due to digitization of banking, regulatory initiatives, FinTech partnerships, and customer-centric solutions. In addition, companies in this region are adopting strategies such as API marketplaces, developer outreach programs, standardization efforts, and secure API management to capitalize on the opportunities offered by this evolving landscape. However, Asia-Pacific is considered to be the fastest-growing region during the forecast period. This is attributed to the initiatives taken by regulatory authorities in Asia-Pacific, such as the Monetary Authority of Singapore (MAS) and the Reserve Bank of India (RBI), to promote open banking and encourage the use of API in the financial sector. These regulations have facilitated the development of API banking services and increased market adoption.

The COVID-19 pandemic had a significant impact on various sectors, including the API banking market size. With lockdowns and social distancing measures in place, customers turned to online and mobile banking to fulfill their financial needs. APIs enabled banks to provide a seamless and secure banking experience by integrating their systems with third-party platforms, fintech apps, and digital wallets. This integration allowed customers to access their account information, make transactions, and manage their finances remotely. Furthermore, open banking, which promotes the use of APIs to securely share customer data between banks and third-party providers, gained momentum during the pandemic. APIs facilitated the secure exchange of financial data, empowering fintech companies and other service providers to offer innovative solutions. Therefore, these factors accelerated the growth of the API banking market during the pandemic.     

Key Findings of the Study

• On the basis of component, the solution segment accounted for the highest API banking market share, in terms of revenue in 2022.
• On the basis of deployment, the on-premise segment attained the highest market share in 2022.
• On the basis of region, North America generated the highest revenue in 2022.  

The key players operating in the API banking market analysis include Infosys Limited, IBM Corporation, BankProv, FidyPay, Razorpay, Google LLC, Oracle Corporation, Salesforce, Inc., SAP SE, and Cloud Software Group, Inc. These players have adopted various strategies to increase their market penetration and strengthen their position in the industry.