An application program interface (API) ecosystem is growing to transform the financial services (FinServ) sector, and small business (SMB) banking won't be left out of the shift. APIs offer third-party FinTech firms new opportunities to make use of valuable data stored within traditional bank accounts.
In some instances, these systems deploy this data to create a solution that banks haven't developed themselves, often due to restricted investments in small business product development. In other scenarios, FinTech firms are hoping to use APIs to fill market gaps left by what bank account data alone can't do — as initiatives like PSD2 and Open Banking have, in some ways, highlighted the shortcomings of bank data.
"Your traditional bank technology only works on what's happened," Lyons told PYMNTS in a recent interview. "It works on something called a complete record. All banks process information they've already received. They present yesterday's information. So, even when they receive an instant payment, as soon as it's received, it's already historical data."
It may be no surprise, then, that a lack of adequate cash flow forecasting and management solutions may be contributing to small businesses' negative perception of their banks.
In the U.S., more than 40 percent of small businesses reported to WePay in a 2017 survey that they experienced a cash flow problem during that past year. Separate analysis, published just last month from J.D. Power, found the majority of small business owners feel their banks underappreciate them, and even fewer said their banks understand their businesses. Overall, J.D. Power described small businesses' satisfaction with their banks as "lackluster," and pointed to a lack of specialized services.
It's in this environment that third parties have been able to address small businesses' FinServ product gaps as a result of the API ecosystem.
While data stored within bank accounts can be applied to many use cases, either by FinTech firms or the bank itself, cash flow forecasting is not always one of them. According to Lyons, the financial services industry's shift to open up account data for deployment among third-party app developers has also allowed for the industry to explore ways to use that data in combination with other sources for enhanced solutions. While open banking initiatives have allowed for FinTech firms to launch products that the banks themselves wouldn't develop, they are also creating an opportunity to launch tools that the banks couldn't develop.
"The evolution that has taken place is that, for the first time ever, there will be an API ecosystem within the banking industry," Lyons said, adding that regulation has pushed this development across the U.K. and Europe, while Australia and the U.S. are headed in this direction, too. Now, FinTech firms are able to collect bank data and add it to the mix of information from other sources, like accounting platforms, invoicing, sales, upcoming bill payments and more.
The ability to collect data on what financial transactions are coming up is key to cash flow forecasting, but has historically been the biggest hurdle to developing such a solution for small business owners, Lyons noted. The Slide App offers small businesses a chance to have this ability to look at both what has been and what will be, all on their mobile devices.
Collecting and presenting this insight in a mobile-friendly format is another way that open banking is filling in gaps left by traditional banks. While J.D. Power's survey found that nearly half of small business owners are not yet users of mobile banking solutions (on grounds that they believe a mobile platform offers no additional value), it may be because traditional financial institutions (FIs) have not focused their product development efforts on creating value-added mobile solutions.
Lyons said he believes mobile remains a key part of small business financial management, as banking services overall shift away from the desktop model.
"I need a snapshot, a quick decision; I need information at my fingertips," he said. "The phone offers the customer the instant answers they need to see, and if there are more complex matters they need to deal with, they'll revert back to the traditional web."
Now that The Slide App has made its market debut, Lyons said the company is looking at other sources of financial data and ways to predict cash flow for small businesses, including tax-related payments and other high-value expenditures like payroll. By mixing a variety of financial data sources — not just the bank account — and enabling access to analysis of that data on a mobile device, Lyons said small businesses can address some of their biggest financial pain points, even if they don't know they have them.
"We want to take data within the bank account, use other forms of data and make it relevant to the business so they [can] get a quicker, instant view of exactly what their financial health is," he said.