B2B Payments

How Businesses Drive Unexpected Open Banking Innovation

Open banking regulations across Europe kicked open the door for a wave of FinTech competition, with consumer-facing personal finance management (PFM) right in the crosshairs of innovators’ efforts.

Yet as open banking and data sharing adoption grows, FinTechs have found a new motivation to apply the framework in ways some might not have expected at the onset of the regulations. Small businesses and corporate end-users have emerged as powerful drivers of exploring new use-cases for open banking and PSD2 regulations.

“Initially, people were thinking about open banking with a focus on benefits for retail only,” said Stefano Vaccino, CEO of open banking FinTech Yapily, noting the primary focus on PFM solutions. “People were not believing in open banking so much as a big evolution. When they started thinking about the small business and corporate space, I think they saw much bigger opportunities.”

Like consumers, small and medium-sized businesses (SMBs) and corporates present a strong market for financial management apps. Indeed, FinTechs that offer capabilities like cash flow management and financial analytics as a result of being able to loop into a business’s bank account data have fueled the emergence of open banking for the business end-user.

But in a recent interview with PYMNTS, Vaccino dove into some of the unexpected ways open banking has disrupted the business financial services market for the better.

Connecting Accounting to Payments

Increasingly, accounting platforms are exploring how looping into business clients’ bank data can streamline data collection, reconciliation and analytics. Open banking enables these platforms to obtain information more quickly and securely, explained Vaccino. Further, APIs can facilitate collection of this data in real time throughout the day, rather than overnight or at periodic times during the month.

For larger corporates with multiple bank accounts around the world, another interesting use-case is the ability to more efficiently aggregate bank account data into a single accounting portal for automated reconciliation.

But it’s not the only use-case for open banking. The framework’s payments initiation capabilities offer accounting solutions to expand their capabilities beyond number-crunching, particularly in areas like payments and accounts receivable (AR).

Vaccino pointed to accounting platforms’ ability to issue an invoice with integrated payment instructions and acceptance capabilities to accelerate and digitize B2B payments as one example of how data sharing can proliferate accounting’s functionality within the enterprise.

Even outside of the accounting realm, open banking’s opportunity to enhance the efficiency of payments initiation for businesses large and small is vast — especially when it comes to payment acceptance. Rather than force merchants and other sellers to absorb the fees of card processing, open banking can enable integrated payments into solutions via application programming interface (API) the same way a user can initiate a bank transfer from within their online banking portal, making transactions nearly free in many use-cases, said Vaccino.

“The payments space for [SMB] and corporate will be disrupted significantly, both in the way that they operate a payment, but also in the way they receive a payment,” he noted.

Optimizing Business Lending

The current situation of market volatility and the race for SMBs to access capital has also shone a spotlight on the ability for bank data connectivity to drive significant efficiencies in business lending that can benefit both borrower and lender.

Traditionally, lenders rely on one or two months of historical bank statements that are sent manually to a lender when an SMB applies for financing. Open banking connectivity not only means that the information is integrated much more quickly, but it also allows lenders to expand the scope of their underwriting process beyond a few months of transaction data.

But one area that Vaccino said he sees as an up-and-coming use-case for open banking in the business arena is in the area of customer onboarding.

The ability for a financial institution (FI) to onboard a new SMB borrower using business identity data from that SMB’s existing banking relationships can be highly valuable in the areas of anti-money laundering (AML) and know your customer (KYC), particularly today, when SMBs are scrambling to access government financial aid that may only be offered through FIs with which they don’t have an existing account.

It’s a conundrum that has already emerged in the U.S., where Bank of America recently secured a legal win in a case that accused the bank of unfairly prioritizing its existing SMB customers when processing and issuing Paycheck Protection Program (PPP) loans.

“Today, having access to loans in a fast way is more important than it was in the past,” said Vaccino. “A lot of the time, it’s easier for a bank to give a loan to an existing client rather than onboard a new client. Open banking can be used to onboard those new clients faster.”

With new funding, Vaccino said Yapily will continue to focus primarily on the U.K. and European markets with its open banking technologies, but he said the company is watching closely the dozens of other jurisdictions in which open banking frameworks are in place, or soon will be. As the world continues to learn from Europe’s experience, FinTechs are also likely to build on top of existing innovations and find even more use-cases for open banking to enhance the business banking experience, from accounting to payments to lending and beyond.

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