What is a financial API integration and how does it work?

An exploration of the technology that powers the new connected financial ecosystem

February 01, 2022

Tom Sullivan Pic
Tom Sullivan

Tom is a fintech industry writer who creates whitepapers and articles for Plaid. His work has been featured in publications like Forbes, Fortune, and Inc. He's passionate about the freedom that the union between financial services and technology can create.

Over the last decade, a new financial ecosystem has been built using API integrations. This ecosystem is a connected, open, and transparent array of new financial services that offer people the ability to do more with their finances—and in turn achieve more financial freedom. 

In this article, we’ll examine what financial API integrations are, how they work, and how they benefit both businesses and consumers. 

What is a financial API integration?

Application programming interfaces (APIs) are sets of protocols and tools that allow software programs to communicate with each other. An API integration connects two or more applications for a bidirectional exchange of data. 

Financial APIs are most often built to integrate a financial institution’s core banking platform with third-party data networks or applications. This enables safe and secure consumer-permissioned third-party access to account information such as account and routing numbers, balances, and transaction history. These integrations enable these trusted third parties, whether financial technology applications, mortgage and auto lenders, or other financial institutions, to build innovative, data-driven financial solutions. 

→ Need a financial API solution? Core Exchange enables financial institutions to quickly execute Financial Data Exchange (FDX) APIs they can use to connect with Plaid, other aggregators, and organizations.

How does a financial API integration work

Depending on the use case, financial API integrations can work in different ways. 

Partner API (one-to-one)

When financial API integrations are built directly between a financial institution and a financial app or service, they’re called ‘partner APIs’. These types of APIs are often built when a financial institution hires a third-party vendor such as Jack Henry or Q2 to build a fintech solution for them. These solutions are usually for the customers of a single financial institution, rather than open to the general public. 

Open API (many-to-many)

Open APIs are typically built by data networks, rather than by a financial institution or third-party vendor. By building API integrations with numerous financial institutions, the data network creates an open API that can connect many financial institutions to many fintech apps and services. 

In this scenario, when a fintech app wants to enable customers from numerous financial institutions to connect their accounts to the app, they simply integrate with the data network’s open API. The work of building API connections to each individual financial institution is already carried out by the data network. 

Open APIs can be the foundation of an open finance ecosystem where people have greater access and choice over the financial services they use. By opening up data beyond just their primary financial institution, open APIs enable consumers to obtain products and services from a broader range of providers.  Plaid, for example, offers Plaid Exchange—an open API that financial institutions of any size can use to offer their customers the ability to connect with the over 6,000 financial apps and services that use Plaid.

Partner APIs connect one app to one financial institution, while open APs connect one app to many financial institutions

Types of financial API integrations

Financial API integrations create many possibilities for new financial services. Listed below are some, but not all, of the financial APIs that prove useful for fintech apps and services. 

Account verification 

Whenever a user wants to link their financial institution account to a new fintech app or service, the existing financial account must be verified. This is the first step towards funding a new account on a trading app or connecting a bank account to a peer-to-peer payments platform. 

The account verification process certifies that the person using the account actually owns it—a critical step in preventing fraud. When creating an API integration-based verification between a fintech app and a financial account, OAuth is the industry standard process. 

Oauth prompts the user to verify that they’re the account owner by entering their bank account credentials (username and password), but does so using the financial institution’s domain rather than the fintech app. If the credentials are correct, Oauth creates an API token that links the account to the fintech app without actually storing the credentials themselves—hence reducing fraud risk. Once the API token is created, the account and the fintech app are integrated for ongoing use.

→ Need a faster account opening and onboarding flow? Plaid Auth provides instant bank account authentication when users connect with their bank account credentials.

Plaid’s Auth product utilizes Oauth to enable consumers to securely connect financial accounts to fintech apps and services


Once consumers authenticate their accounts, they can grant permission to different types of account data to the digital financial tools they want to use.

One of these is account balance data: By verifying that a user has sufficient funds in their account, a fintech app can protect that user from incurring non-sufficient funds (NSF) fees before making a transfer. 

For example, financial health app Brigit uses a balance-check API to send $250 interest-free cash advances on paychecks to users who are in danger of overdrawing their account. Doing so has helped save users an average of $500 per year on NSF fees and interest from payday loans that they’d have needed without the advance.  

Balance-check API integrations also enable pre-funding. If a new customer wants to load $500 to a new fintech app for trading stocks, for example, they’ll typically use an ACH transaction, which can take several days to complete. If the fintech app can check their account balance and see that there are more than enough funds in their account to cover the initial transfer, they can choose to front them the $500, rather than making the customer wait several days. While this still involves some risk, it can greatly increase initial spending when the user has faster access to funds. 


A transactions API integration allows a fintech app or service to access consumer-permissioned transaction data going back months or years, in turn making several types of financial services possible. These include budgeting tools (such as YNAB), automatic savings and investing tools that invest the spare change from every transaction (such as Acorns), or rewards programs that help people earn points for purchases across multiple vendors (such as Drop). 

→ Want to help your customers improve their financial health? Plaid Transactions enables you to access transactions data for up to 24 months so you provide insights on users’ expenses and help them meet their financial goals. 

Account aggregation 

Most people have multiple accounts for checking, savings, loans, investments, credit cards, and more. Bringing this information together into one ‘dashboard’ where users can see all their data at once is helpful across several use cases. 

For example, for someone who wants to see all their investments in one place and have them automatically updated to reflect changes in their portfolio, an API integration between their investment accounts and a fintech app could provide a solution. 

Likewise, when someone applies for a substantial loan, such as a mortgage, they’re often asked to manually provide all their information from various accounts. An API integration that can automatically connect all this information and share it with a lender during the loan application process can greatly reduce timelines and paperwork.

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The benefits of financial API integrations

Financial API integrations make it possible to fill the gaps left by traditional financial services. This means that private companies can create new financial services more easily, which in turn produces faster and better financial options for consumers. 

The benefits of financial APIs can be broken down into four different groups: financial institutions, fintech companies, consumers, and non-financial businesses.

Financial institutions

API integrations give financial institutions the ability to do more with data that was once harder to access and deliver value from. Whether integrating with external fintech partners or building their own digital solutions, API integrations enable financial institutions to build valuable new financial services. 

These services not only keep existing customers from going elsewhere, they also solidify financial institutions as the ‘hub’ at the center of consumers’ financial lives. That’s because the same account can now be connected to a large number of API-integrated apps and services, making it more crucial than ever to customers. In fact, when consumers link a financial account to a fintech app or service through Plaid, for instance, their monthly average card spending increases by up to 28% and the frequency of their transactions increases by up to 7% from that linked account.

Fintech companies

Financial API integrations have helped fintech companies develop innovative financial services that expand access to millions of consumers. By safely and securely gaining real-time access to financial account information through APIs, an entire ecosystem of fintech apps and services has modified consumer expectations around managing their finances. 

This access to large new markets benefits many companies by enabling them to generate new value and capture market share. As of 2021, there were 79 fintech unicorns (companies with a valuation greater than $1B) around the world. The fast rise of fintech has put incumbent financial institutions on edge, as 81% of banking CEOs are concerned about the speed of technological change—more than any other industry. 


Financial services built on APIs lead consumers to expect faster access to their funds in more convenient ways. They also provide consumers with more options when it comes to investing, saving, budgeting, and lending. 

In turn, consumers have taken a liking to fintech. In 2021, the percentage of US consumers using technology to manage their finances rose to 88%, up from 58% in the previous year. That makes fintech even more popular than social media in the US.

Innovative financial services that bring convenience, speed, and empowerment to consumers include peer-to-peer payments apps (such as Venmo and CashApp), investment platforms (such as Wealthfront and Coinbase), budgeting tools (such as YNAB and Dave), neobanks (such as Chime and Varo), and thousands more. 

These fintech services, along with the innovative new services that traditional financial institutions have released (such as mobile banking apps and Zelle), make up the modern financial ecosystem that gives consumers much more power and freedom over their financial lives.  

Non-financial businesses

Financial API integrations have created numerous possibilities for non-financial businesses, as well. Through embedded finance (also referred to as banking-as-a-service), non-financial companies can now offer financial services within their own shopping experiences. Examples of embedded finance include ‘buy now, pay later’ options, insurance on higher-priced goods, and even branded checking accounts. 

The market for innovative embedded financial products is huge, with an estimated $230B in net new revenue expected by 2025. To learn more about embedded finance, see our article on the topic.

How to build a financial service with API integrations

With the financial account integrations that open APIs offer, more new fintech companies are able to provide innovative financial services that fill a variety of needs. If you or your company have an idea for a new financial service or app, here’s how you could build it with an open API integration. 

Please note: these steps do not include technical details such as writing code, but instead focus on conceiving a business strategy for building a financial tool through API integrations. 

Step 1: Create your vision 

Is your new service a financial management tool, a lending platform, a peer-to-peer payments app, or something entirely different? The first step is to map out exactly what needs you fill in the marketplace and how you fill them. 

Step 2: Understand what financial data you need to deliver your service

For every fintech app or service, there are specific API integrations with financial accounts that make it possible. Now that you’ve mapped out your vision, figure out what user-permissioned financial data you need to retrieve through an API integration. 

Do you need to authenticate financial accounts for ACH payments? Do you need to access balance and transaction history to build a financial management tool? Or do you need a complete view of a user's assets, liabilities, and income in order to streamline loan applications? Whatever the case, it’s crucial to understand what financial data you need. 

Step 3: Integrate with an open API data network

Once you’ve determined what financial data you require, it’s time to connect with a data network that fosters a safe and secure open API integration to retrieve that data for your users. The data network will facilitate the API integration between your financial app or service and your users’ financial account data (with their permission). 

When choosing a data network, several factors must be considered, including performance, options, security, consumer safety, and transparency. Plaid helps businesses seamlessly connect with user-permissioned financial account data using API integrations for endless possibilities of financial apps and services.

The center of a connected ecosystem

Financial APIs are the glue that holds the ecosystem of financial institutions, fintech apps, and consumers together. They usher in new possibilities that financial institutions and fintech apps alone could not, and have created a whole new realm of financial services that have increased convenience, security, and the ability to create financial freedom. 

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