Until very recently, the tenor of the relationship between financial services startups and mainstream banking was contentious at best and adversarial at worst. The primary narrative about the future of financial services contributed to a majority of that — the banks were the old way of doing things and up-starts with streamlined business models were threatening to disrupt them right out of the water.
However, the story has very much started to change over the last 12 to 18 months, according to Clayton Weir, co-founder and head of Partnerships & Strategy at FI.SPAN.
“It would be fair to say that among the financial institutions we talk to, they all have some kind of FinTech partner program or digital innovation initiative. Everyone is involved in the conversation,” Weir told Karen Webster of PYMNTS in a recent conversation.
FI.SPAN is something of an expert — pairing banks with those innovators is very much what they do as a connector platform. FI.SPAN allows banks to integrate open APIs from B2B banking and payment FinTechs.
What those services are varies — different banks of different sizes and customer profiles “lean into different partner services and use cases.”
“We don’t want to tell a financial institution what their roadmap is. They each have different capabilities today and different priorities for tomorrow.”
There are general areas where the power of open APIs is particularly well-tuned though, Weir notes. For instance, when it comes to payments and financing for corporate clients.
The B2B payment scene, with its persistent reliance on checks, provides an interesting opportunity to not just update a method, but also to change the tenor of the customer experience and the banks’ relationship to its corporate customers.
“Historically, all business payment is payor directed. As the system becomes more bank-directed, the financial institution can insert themselves one notch up on the value chain and can leverage payments onto any rail that is desirable to them.”
Right now there is the check, but opportunities are opening to move payments to the ACH rails or commerce card capabilities. The point, Weir notes, is to allow banks to move customers from the less profitable to the more profitable rails — then, to share some of those savings with the corporate customer.
“It’s a win-win for everyone,” Weir noted. “If you swap a payor-directed payment system to one that is much more dynamic, you (as an FI) have the chance to process these things … much more efficiently. This allows both the customer and the bank to benefit.”
Other notable areas according to Weir? “Trade financing has some of the biggest potential,” he said. It gives banks and their third-party partners the best solution for leveraging API capabilities.
“If a bank has a deeper relationship through their client’s ERP system, they ultimately have a better vision of their business client. The bank can make more compelling offers based on a better understanding of their business, cash life cycles, inventory management and customer base.”
The ins and outs of the use cases vary, notes Weir. In some cases, the relationship between the bank and the third-party FI is mostly focused on customer acquisition. The bank can’t underwrite to the consumer whose profile doesn’t fit their balance sheet, but through an API relationship with a third-party lender, the customer can be smoothly handed off.
Alternately, Weir mentions that in some cases, the bank and the FI are working collaboratively together to underwrite directly using the bank’s capital.
There are some very interesting scenarios, particularly related to third-party trade finance solutions or third-party unsecured lending, says Weir:
“There are a lot of permutations; this is a wide-open space. I think that is why the API has become the buzzword it has — the flexibility it creates, as well as the new business model and opportunities that are yet to be discovered.”
Making the Right Connections
The trick is not to hand banks a roadmap that dictates where they are going, but rather to provide a sufficient platform. This supports the banks and allows them to pick what they need to write their own map, Weir says.
There are some universals, of course: security is a non-negotiable demand for institutions that are focused on providing maximum value for clients while maintaining unnecessary risk at an absolute minimum.
For banks, Weir notes, the goal is to keep as much of their business with a client as in-house as possible — from financing to payments to the entire universe of services that improve a business’ life cycle. The goal isn’t to pick those services for them, but rather to provide a curated platform that provides businesses with a robust selection to pick the APIs they need.
“It can be overwhelming to navigate the world of partners and vendors, but we work to cut the selection down to a manageable group. We don’t want to prescribe any of the vendors, but we want it to be easier for banks to execute proof-of-concept and product versions of these new products once they make the commercial decision to do so.”
There are no perfect solutions to partnering, but there must be good ones that add value for banks, FinTechs and the businesses they serve. The good news, Weir notes, is that there are a lot of those, in the way of value-added solutions. Leveraged collectively, they can be a powerful tool for those who tap into them.
“The opportunities are endless,” Weir said.