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Why Banks Must Upgrade Their API Strategies For SMBs

Small to medium-sized businesses (SMBs) need more support from their banks than ever to handle today’s increasingly fragmented global economy. Companies must manage increased data processing and transaction volumes for their clients, and the stress pushes many to rely on multiple banks to keep operations running smoothly.

The complexity of global business means SMBs need to look for synergies with the products they use to lower costs and cope with more demanding data speeds and volumes. Application programming interfaces (APIs) comprise one way to speed up services, as they can quickly connect multiple parties while securing transactions and data exchanges. Financial institutions are only beginning to explore how APIs can support the commercial banking world. Some already handle issues such as payments and collections, foreign exchange (FX) support and liquidity management.

APIs are also changing as global regulations shift to support platform or open banking, and the most prominent developments came courtesy of Europe’s revised Payment Services Directive (PSD2). Banks and SMBs in the EU are already operating under an ecosystem that provides more open data exchange to a robust online intersection of players, granting them advantages over merchants that do not support that same transparency. Banks therefore need to rethink how they use APIs within the commercial space if they wish to serve SMBs that require real-time solutions for data, payments and other business pain points. It is less clear which banks will emerge as those providers, however.

The Changing B2B API World

Open banking is alive and thriving in the U.K., which will celebrate the second anniversary of this banking initiative in January. Such technology was used 17.5 million times in November 2018 alone — an increase from 13.9 million in October 2017. This development was driven by a regulation put into place by the country’s Competition and Markets Authority (CMA), which sought to innovate the U.K.’s banking ecosystem. The shift gave British SMBs and startups the ability to “shop” for their financial partners — which were all utilizing APIs as a result of the new mandate — in the hopes that healthy competition between these entities would spark economic growth.

Other regions, including the U.S., have not sponsored open banking with regulatory initiatives, and many SMBs remain unaware of the benefits of API-driven services, despite increased API usage within Europe and other affected areas. This represents both a challenge and an opportunity for their partner FIs, which will need to educate the businesses relying on them for cutting-edge financial services.

Many SMBs have at least heard of open banking, but nearly half do not fully understand the term. Additionally, 48 percent of these businesses do not believe that open banking technology will impact their operations, putting them at risk of missing APIs’ benefits completely. This information deficit puts the impetus on partner FIs to fully explain the ecosystem’s perks.

Connected APIs could help SMBs with account aggregation, overall financial flexibility and speed and improve access to real-time payments and data transfers. Low awareness is only part of the reason why more businesses and startups are not connected to such platforms, however. The other issue is that SMBs may not know which banks offer such APIs, so FIs need to shift their commercial approaches in response.

Open Banking Fuels API Strategy Shifts

Some banks have started to promote APIs that can better integrate SMBs into the open banking world. Britain’s HSBC has developed APIs that allow businesses to directly apply for accounts within its corporate banking division through the bank’s digital platform, for example. The FI is planning to expand these APIs so clients can quickly open cross-border accounts. Other banks that operate within Europe have been steadily refining their APIs since 2017, when Singapore’s DBS Bank offered an API developer platform to boost innovation in the space.

Other FIs have moved slower, especially in the U.S., where banks are not mandated to make such shifts. U.S. financial institutions are watching how open banking APIs impact European banks, noticing how increased data transfer speeds and more robust banking capabilities are changing banks’ relationships with SMBs. U.S. and European banks that do not experiment with innovative APIs in the commercial space will soon find themselves shunted off to the side in favor of FIs that have upgraded their approaches, regardless of the presence of a mandate.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.