API’s Rise In Open Banking And Cross-Border B2B Payments

Changing regulations are redefining the obligations of financial institutions, forcing them to rethink their strategies and implement new technological approaches. New legislation, such as PSD2, is raising the bar for FIs by allowing organizations like FinTechs to provide financial services. Such rules require traditional FIs to securely open up their customer data and require new levels of transparency from service providers, which must reveal everything from fees and exchange rates to liabilities and transaction time frames.

This month’s Deep Dive explores how tech firms are creating solutions in this changing ecosystem, helping traditional financial services providers satisfy these new requirements and using application programming interfaces (APIs) as key tools.

The Role of APIs in Open Banking

There are several options allowing FinTechs and FIs to connect their systems and offer new services to end customers, but they are increasingly turning to APIs to do so. While APIs may require a significant amount of work to design and implement, they ultimately save time and money. Without them, FIs would have to create custom solutions for each FinTech they want to integrate with.

APIs are proving particularly useful as banks seek to comply with new open banking laws. They allow third parties to connect and more quickly develop and launch offerings, and banks can use them to provide new services, such as allowing central access to balances, querying banks to make payments and offering instant transfers.

APIs and Cross-Border Payments 

APIs can also be particularly powerful tools in the cross-border payments realm, as transactions across borders multiply the challenges of transferring payments. Such payments are expected to become more and more important for banks to handle smoothly and conveniently, too. According to Nielsen, cross-border payments were expected to grow from $105 billion in 2013 to $307 billion in 2018, and APIs can allow financial services providers to more easily and efficiently facilitate these transactions.

The market has been quick to recognize APIs’ transformation potential, too. Visa and Mastercard, for example, were embroiled in a recent bidding war to acquire cross-border payments company Earthport, and the space is rife with similar instances of firms striving to get a leg up in the API game.

Another recent API-based cross-border payments effort arose from a collaboration between Visa and Chain Inc., a firm that partners with companies to build and operate blockchain networks. The pair are developing a solution to provide FIs with rapid, streamlined and secure B2B payments for large-value international transactions. The new platform will allow banks and corporations to make direct payments to one another by using Visa as a central clearing house, and APIs are the keys to connecting these companies. Mastercard quickly followed Visa’s footsteps, as well: After the latter announced its B2B pilot, the former also added blockchain APIs to its developer site.

FIs and other financial players are adjusting their strategies as fast cross-border payments services become more important and open banking changes the financial ecosystem. They are seeking to stay flexible and meet new customer demands, and they are increasingly turning to APIs to help connect them with partners and work together to give end customers smoother and faster financial experiences.