B2B application programming interfaces (APIs) aren’t just for large enterprises anymore — middle-market firms and SMBs now realize their potential for enabling low-cost access to real-time payments and account data. But those capabilities are only the tip of the API iceberg, says HSBC global head of liquidity and cash management Diane Reyes. In this month’s B2B API Tracker, Reyes explains how the next wave of banking APIs could fight payments fraud and proactively alert middle-market treasurers to investment opportunities.
Large enterprises are demanding greater access to banking APIs to ease their treasurers’ workloads and help them make more informed decisions, but big companies with robust technological infrastructures are not alone in requesting APIs from their banks. Middle-market players — those that generate $10 million to $1 billion in annual revenues — are becoming more educated on and interested in such solutions’ benefits, particularly as they struggle to use their more-limited resources to compete against larger competitors.
Many middle-market enterprises thus seek APIs to support treasurers with quick transactions and rapid access to account statements and payment statuses. This is only the tip of the iceberg regarding how the technology could help businesses of all sizes, according to Diane S. Reyes, global head of liquidity and cash management for HSBC, and Nadya Hijazi, its head of eCommerce for global payments and cash management and global trade and receivables finance.
“The next frontier — and it’ll be a bit of time before this becomes mainstream — is the ability to provide customers with insights,” beyond that which FIs were originally able to do, Reyes noted.
In a recent PYMNTS interview, Reyes and Hijazi discussed businesses’ growing demands for API-based services, as well as their potential future applications in better fighting real-time payment fraud and alerting customers to investment opportunities.
Fighting Payments Friction
Companies are looking for simple technologies to improve visibility into their cash positions, which would enable them to better manage investment opportunities. Many have thus begun connecting their enterprise resource planning (ERP) systems with bank accounts via APIs for detailed, real-time financial status information. Plenty of business customers of different sizes are becoming interested in the technology — a trend Reyes attributes to rising awareness of its potential.
“The vendors and the software houses are educating … customers,” Reyes said. “Now the technology is much more widely known and discussed across a range of sectors, so we increasingly see clients asking for it.”
Banking services integrated into ERP platforms via APIs can offer solutions for payment confirmation, initiation and up-to-the-moment tracking as well as instant payments and on-demand account balance checks. Each can help treasurers instantly assess their cash positions and compete in markets where real-time payments are becoming the norm, Reyes and Hijazi noted. APIs can also allow treasurers to better capitalize on emerging opportunities.
“If I, as a treasurer, can see real-time data, I’m making decisions on where to sweep my money based on what my balance is now, rather than end of day,” Hijazi explained.
FIs can advance their API usage to unlock additional client conveniences as well, leveraging them to smooth payment journeys for companies that make automatic deductions from customers’ accounts. Direct debit requests often fall through if the accounts from which they pull payments have closed or lack sufficient funds, Reyes said, but APIs could help FIs confirm whether this is the case before they attempt to collect.
Enabling Real-Time Payments While Combating Fraud
Businesses want banks to help them swiftly receive payments and issue funds, and APIs can assist corporate clients in connecting with real-time rails, Reyes and Hijazi explained. The technology also enables those clients to better compete for customers.
“A case we’ve seen is firms taking mutual funds [via] direct debit from their customers or wanting to be able to pay out to those customers when those funds mature,” Hijazi said. “They want to be able to pay out in a way that creates a real-time experience for their own customers because they feel that is a value-add, and it allows them to sell a different kind of proposition: You get your money back instantly into your account when you want it rather than in two days.”
Real-time payments more quickly get funds to clients, but they can also expose businesses to new risks. Scammers are adept at masquerading as legitimate payees, and fraud is accelerating to match or exceed transactions’ speed — meaning companies must detect perpetrators before initiating payments. It may be too late to recover funds once they are headed for recipients’ accounts.
Regulators in some countries are using APIs to combat fraud, and banks are integrating these applications into their offerings through features such as API-enabled push notifications. Reyes said such notifications can ask a customer, “Do you really want this to happen?” before the payment is out of the bank.
“Otherwise, by the time they realize that they shouldn’t have done it, it’s two days later and the money is gone,” she explained.
Banks are often best equipped to detect red flags, and API-based messaging services help them quickly alert clients to potential risks. Some FIs use APIs to insert messaging channels into their online platforms or apps so customers can directly receive notifications or texts. Such messages could ask customers if they intended to send unusually high-value payments or funds to new recipients. HSBC hopes to leverage such models to alert customers of possible fraud and receive confirmations before initiating potentially risky real-time payments.
Insights To Open Revenue Opportunities
APIs can also notify account holders of potential windfalls. They are already helping treasurers access real-time bank account information through their preferred accounting platforms, Hijazi said, thereby enabling them to rapidly make informed decisions. The technology can still do more to keep customers informed, however.
Reyes suggested that banks take inspiration from their consumer notification programs and develop ways to offer such services to business customers. They can detect when business clients’ accounts contain more than enough funds to handle their usual expenses, for example, then alert these corporate customers to investment opportunities by providing high-level insights into their typical deposit and payments behaviors.
“We can push a note to them saying, ‘The systems that will process payments shut down in an hour and you have an extra $400,000 or $1 million or $5 million, and we don’t see any payments coming due. Do you want to invest overnight?’” Reyes said. “It’s like what you’d see in consumer app notifications in which messages might say, ‘You’re going to overdraw now.’ We want to do that service for wholesale customers. The value there is very high because there’s larger amounts of money that they could get earnings on.”
FIs’ business clients are increasingly warming to APIs as they recognize that the can make their treasurers’ and customers’ lives easier. Keeping ahead of the pack with quick data and payment flows requires a progressive approach, and major banks are already envisioning how APIs could unlock added ease and investment opportunities. The traditional conveniences APIs enable are just the tip of the iceberg, though. Competitive FIs must explore additional applications if they want to get ahead.