The revised Payment Services Directive (PSD2) revolutionized European banking when it was rolled out in the EU in 2015. It mandated open banking and APIs for Europe’s 6,000-plus banks, requiring financial institutions (FIs) already investing in APIs to redouble their efforts and forcing those coasting on legacy systems to reexamine their technological futures.
This massive investment in APIs was especially important for B2B transactions. Businesses’ existing payment protocols were often friction-filled as they required data entry in each organization’s platform to complete transactions — a redundant setup with the potential for human error, inaccurate data and a host of other issues. Stockholm-based Skandinaviska Enskilda Banken AB (SEB) is leveraging APIs to avoid such B2B payments hurdles.
“[APIs] enable [banks] to focus on building a few standardized solutions that we deliver broadly, independent of the use case,” Robert Pehrson, SEB’s head of business development, told PYMNTS in a recent interview. “[They] also allow us to standardize our internal processes. [We use] more and more internal APIs over time, putting together components into offerings for our customers or partners.”
Developing these systems is only the first step in frictionless B2B payments, Pehrson and Paula da Silva, the bank’s head of transaction services, explained. The APIs used to facilitate them require constant performance monitoring to ensure they are working as intended and creating smooth payment experiences throughout the entire payment lifecycle.
Enabling Smooth Transactions
APIs are crucial to enabling seamless B2B transactions, especially when the companies on either side of the payment use different processing solutions. Such technologies allow developers to work toward the same compatibility targets, reducing friction for both parties.
“We [once] worked with [a power tool manufacturer] to build [its] payment platforms to facilitate [its] network of customers, suppliers, partners and so on,” Pehrson noted. “We based that on APIs to integrate payments into [its] products so customers could pay per square meter of grass cutting, for example. That helps [the company] sell more and be more effective [for its] suppliers and customers.”
Processing these transactions without APIs will result in a substandard customer experience going forward, da Silva added, as they are required to use multiple payment portals and enter the same information into each — a needless step that only exists because the portals do not share information. Adding more features to this experience without seamless integration makes the process more convoluted. Operational excellence in this area will be key for banks and customers, something that has been well recognized by authorities, da Silva said.
“For example, if you’ve tried connecting Sonos [speakers] to Google [Home], only a couple of services [will] function well,” she explained. “The rest of the time, you have to enter the Sonos app, the Spotify app and then Google Home. That’s an example of a bad integration [without APIs]. You’re not solving anything, you’re just adding complexity on top of it.”
APIs alone do not solve these functionality and compatibility issues, however. Constant monitoring and performance testing is required during development and after launch to ensure that they continue operating as intended.
Keeping an Eye on APIs
Banks like SEB leverage several performance monitoring metrics to determine whether their APIs are working well. Studies have shown that technical issues and glitches can result in 88 percent of app users abandoning apps altogether, making it incumbent on bank development teams to catch issues before consumers do.
“We measure our systems in terms of downtime, errors, processing time and capacity,” Pehrson said. “For payments with larger firms, for [example], we clearly need our performance to be [excellent. We ask ourselves], ‘How big are the files that can be sent? What response time do we have?’”
Government authorities, meanwhile, largely evaluate APIs in terms of accessibility and compliance, with oversight agencies regularly testing them to ensure that they meet PSD2 requirements. Their top priority is not necessarily the performance quality of the APIs in a vacuum, but instead their ability to integrate with systems that other banks, FinTechs and developers have created.
“The authorities are looking into the banking community to gauge how accessible we are,” da Silva said. “It’s really helping us to understand what [our goals] should be. We are on top of what is required compliance-wise, but also keen on what our customers demand from us. Authorities would like us to take the next step in [accessibility], so that even if [someone] wants to start their payment via a completely different interface than the banks own, that should be possible.”
One of the goals of PSD2 is to create seamless API-based payments experiences, no matter the channel. Ensuring frictionless processes is impossible without constant performance monitoring from government agencies, ratings institutes, API developers and banks, however. FIs will need to continue this cooperation and level of attention to ensure that technical errors will not undo B2B payments’ interoperability.