There is as yet no Venmo or Zelle for the $38 trillion global business-to-business (B2B) payments sector. That’s surprising for several reasons, and here’s a good one: nearly 70 percent of accounts payable (AP) professionals say suppliers value payments speed above all. Contrast that with the fact that well over 40 percent of B2B invoices are still paid by paper check.
It’s a situation that has gone from inconvenient to insufferable in just a few years, and 2020 appears to be a tipping point. To leapfrog slow legacy systems and overloaded information technology (IT) departments, financial institutions (FIs) and FinTechs are innovating with application programming interfaces (APIs) that move B2B funds faster. The robust activity in B2B API development points to a highly configurable world of faster payments, greater transparency, and the flexibility markets now demand.
Out with the Old
Corporate treasurers are in the vanguard of API fans, as they stand to benefit from the time savings and error reduction from older manual and batch methods. For one thing, APIs automate and organize the pulling of information from different databases into manageable dashboards. APIs are also very useful for bank customers in defined verticals like real estate and healthcare, that perform specialized transactions frequently. Cincinnati-based Fifth Third Bank, for example, has been creating customized APIs for its vertical business customers.
Perhaps most importantly, APIs process payments digitally and so cut out friction between trading partners by design.
A slew of current projects illustrates the trend. Citi recently made 50 APIs available to business clients, designed to connect easily with treasury software. Western Union’s trio of new APIs can perform a P2P transfer function, as well as send money to business accounts or Western Union agents in local currency. HSBC’s new bank guarantee app is designed to clear a number of cross-border payments hurdles. The Central Bank of the Philippines is replacing a manual regulatory data process with a set of APIs that perform cross-validation, reconciliation and more.
These are some of the most ambitious and visible projects underway, but that number grows daily as the potential of real-time and instant payments remake entire markets.
Making Money Faster with APIs
Banks and FinTechs aren’t doing all this programming and integration work for altruism. Banking APIs are themselves a moneymaking opportunity because they make possible a new wave of faster solutions and digital products that customers will pay for. Many FIs are now building out or enhancing API-powered platform offerings that provide access, transparency and of course, real-time transfers. Some FIs are even creating “sandboxes” — online environments where developers can test APIs before they go live — to encourage API creativity and function.
Risk-averse treasurers may shudder when they picture a half-dozen programs conversing and transacting with their digital banking platform. But achieving fast payments ubiquity means that FIs have to rethink a traditionally overcautious posture and evaluate open-source banking based on today’s demands. Widespread use of APIs and automation will mean more proactive risk management, a hard pivot to tokenization, and sunsetting the paper and batch world.