API vs REST API: Key Differences Explained

The api vs rest api debate comes up constantly in fintech and software development — and understandably so, because the terminology is genuinely confusing. Both terms refer to ways that software systems communicate with each other, but they are not the same thing, and the distinction matters when choosing how to integrate financial services into your platform.

In this article, we explain what an API is, what a REST API is, what the key differences are between api vs rest api, and when each approach is used – with a focus on what this means for businesses integrating financial solutions.

What is the difference between API and Rest API?

An API (Application Programming Interface) is a broad term for any software intermediary that allows two applications to communicate. It is a set of protocols and definitions that enables different software components to exchange data. APIs can use many different protocols and architectural styles — they are the category, not a specific technology.

A REST API is a specific type of API. REST stands for Representational State Transfer, an architectural style defined by Roy Fielding in his doctoral dissertation in 2000. A REST API is an API that adheres to the principles of REST — meaning it uses HTTP methods, follows a stateless communication model, and provides a uniform interface for interacting with resources.

So when comparing api vs rest api: every REST API is an API, but not every API is a REST API.

A brief history of APIs

What might be termed proto-APIs were born in the 1950s, yet the name and broader real-world applications only emerged in the late 60s and 70s, at which time “API” was understood to be the interaction of a single application with the rest of a computer system.

In the 1980s, with computer networks becoming more widespread, APIs enabled programmers to access libraries stored not just on their own computers, but also on those located elsewhere in the network. 

The first web APIs – which is what most people mean by the term “API” today – began showing up in the 1990s, following the birth of the Internet, and then exploded onto the scene commercially in the early 2000s. APIs were behind numerous revolutionary business models, including those of tech giants like Amazon, Salesforce, and eBay.

In the 2010s, applications linked to social media platforms, which started their rapid ascent just a few years prior, set the stage for new-generation APIs. These made it easy for companies to integrate their IT systems with third-party services and cloud platforms, as well as to extend the reach of their applications globally.

Finally, in the 2020s – and especially since the pandemic, which increased our reliance on web services dramatically – the popularity of APIs has continued to grow. Today, the Internet of Things (IoT), advanced AI solutions, cloud-native applications, and much else depends to a large extent on APIs. In fact, developers are now often choosing to build the API first, and only then proceed to the application itself.

What is a REST API?

A REST API is an API that follows the six architectural constraints of REST:

1. Statelessness each request from a client contains all the information needed to process it. The server does not store session state between requests. This is one of the most important REST API vs traditional API differences, and it is what makes REST APIs highly scalable.
2. Client-server architecture – the client and server are decoupled, meaning they can evolve independently. The clien-t handles the user interface; the server handles data storage and business logic.
3. Uniform interface – REST APIs use a standardised interface (HTTP methods: GET, POST, PUT, DELETE) that simplifies integration and makes interactions between clients and servers predictable.
4. Cacheability – responses from a REST API can be cached by clients, reducing the number of requests to the server and improving performance.
5. Layered system – a REST API can be designed so that the client does not know whether it is communicating directly with the server or through an intermediary layer.
6. Code on demand (optional) – servers can optionally deliver executable code to clients, extending client functionality.

Because REST APIs use HTTP, they integrate naturally with web browsers and modern web applications. They typically use JSON for data transmission, which is more lightweight than the XML used by older API protocols like SOAP — resulting in faster data processing and better performance at scale.

What are the 4 types of API?

When discussing api vs rest api, it helps to understand where REST sits within the broader API landscape. There are four main types of API:

1. REST API

The most widely used type of API today. REST APIs use HTTP methods and are stateless, scalable, and flexible. They are the standard for web services, mobile applications, and fintech integrations. When most developers and businesses talk about APIs, they typically mean REST APIs.

2. SOAP API

SOAP (Simple Object Access Protocol) is a highly structured, XML-based protocol often used in enterprise systems where strict security and transaction compliance are required. SOAP APIs are more rigid than REST APIs but offer built-in error handling and are still common in legacy financial and government systems.

3. GraphQL

GraphQL is a query language that allows clients to request exactly the data they need from a single endpoint, rather than being constrained by the fixed data structures returned by a REST API endpoint. It is useful when working with complex, interrelated data structures where over-fetching or under-fetching from REST API endpoints is a problem.

4. WebSocket APIs

WebSocket APIs are used for real-time, bidirectional communication where a constant connection is maintained between client and server. Unlike REST APIs, which follow a request-response model, WebSocket APIs push data to clients as soon as it becomes available — making them suitable for real-time applications like live market data feeds, chat, or transaction monitoring dashboards.

The api vs rest api comparison is really a comparison between REST and these other API types. REST API vs SOAP, REST API vs GraphQL, and REST API vs WebSocket each involve genuine trade-offs depending on the use case.

Why do we call an API a REST API?

The term REST API distinguishes APIs that conform to REST architectural principles from those that use other protocols — SOAP, GraphQL, WebSockets, or earlier RPC-based approaches. In the early days of web APIs, SOAP was dominant. REST APIs emerged as a simpler, more flexible alternative that worked naturally with HTTP, and they gradually became the default.

Today, REST APIs are so prevalent that the distinction is often implied. When a company says it offers “API integration,” they almost certainly mean a REST API. The “REST” qualifier is used to be explicit — and to distinguish from older SOAP-based integrations that some enterprise systems still rely on.

REST API vs SOAP: key differences

For most modern fintech and financial services integrations, REST APIs are the correct choice. SOAP remains in use where legacy systems require it or where strict transactional compliance and formal contract-based messaging are mandated.

REST API security

Security is a critical consideration in any api vs rest api evaluation, particularly for financial applications where sensitive data is being transmitted.

REST API security typically involves:

• HTTPS – all REST API traffic should be transmitted over HTTPS to ensure encrypted communication between client and server
• OAuth 2.0 – the standard authorisation framework for REST APIs, allowing secure delegated access without exposing credentials
• JSON Web Tokens (JWT) – used for authentication, JWTs are compact, self-contained tokens that verify the identity of the requester
• Rate limiting – REST APIs can be vulnerable to denial-of-service attacks where clients send large volumes of requests per second; rate limiting caps this to protect server stability
• API keys – used to identify and authenticate the calling application

For financial REST API integrations – such as those used by payment platforms, BaaS providers, and fintech applications – additional layers including PCI DSS compliance, AML/KYC checks, and transaction monitoring are layered on top of these standard security measures.

REST API scalability and performance

One of the most significant practical advantages of REST APIs – particularly relevant in the api vs rest api debate – is scalability. REST APIs are highly scalable due to their stateless nature: each request is self-contained and processed independently, which means the server does not need to track session state across requests. This allows REST APIs to handle large volumes of concurrent requests and scale horizontally across multiple servers with minimal friction.

The stateless design also reduces server overhead, leading to better performance — particularly in serverless environments where REST APIs can handle millions of requests per second. For financial platforms processing high transaction volumes, this scalability is non-negotiable.

REST APIs also benefit from caching: responses that do not change frequently can be cached at the client or intermediary level, reducing unnecessary server calls and improving response times for end users.

Benefits of integrating financial solutions via REST APIs

For businesses integrating financial services – payment processing, multi-currency accounts, card issuance, or compliance infrastructure – REST APIs are the standard mechanism. Here is why they are well suited to financial integrations:

Continuity with existing systems

A REST API integration allows businesses to embed financial services directly into their existing platform interface. There is no need to switch to a separate third-party dashboard — the financial functionality is available within the system your team already uses. This saves development time, reduces training requirements, and maintains a consistent user experience.

Centralised financial management

With a REST API, businesses can manage all accounts, funds, and transactions from within their own system. For platforms managing payments on behalf of multiple parties — marketplaces, gig economy platforms, crowdfunding sites – this centralised control is operationally essential.

Full front-end control

REST API integration means the business retains full control over the visual and functional design of its customer-facing interface. Customers interact with the brand, not the underlying provider — which is the foundation of embedded finance and white-label financial products.

Flexibility and adaptability

REST APIs support multiple data formats and can adapt to changes in data structures over time. This flexibility means that as a financial platform evolves — adding new payment methods, expanding into new markets, or integrating additional compliance tools — the underlying REST API infrastructure can accommodate these changes without requiring a complete rebuild.

Real-time communication

REST APIs enable real-time communication between a business’s application and the financial infrastructure behind it — instant transaction confirmations, live balance updates, real-time fraud alerts, and immediate payment status notifications are all delivered through REST API calls.

Conclusion

The API technology is immensely powerful, flexible, and versatile, which explains its popularity that continues to grow decades down the line. That being said, not everything touted as new and revolutionary actually is what it claims to be. As you’re probably well aware – the tech world is not beyond the occasional reliance on hype, which should always be kept in mind when learning about new developments therein.

Finally, it also bears repeating that, despite the undue hype, RESTful APIs, which are now standard, provide arguably the best way of integrating financial services into your system. If you’re ready to put that into practice, explore ConnectPay’s API-driven financial infrastructure and see how quickly integration can go.

FAQs: API vs REST API