Simple but Sophisticated APIs Hold Promise for B2Bs to Embed Banking Services

In an increasingly connected economy that’s laser-focused on profitability and rapid, digitized transactions, anything that can improve efficiency, agility and the customer experience is sure to be well received.

If those digital upgrades can also pay for themselves — and even generate additional revenues along the way — all the better.

In a growing number of cases, the upgrade just happens to be Banking-as-a-Service (BaaS), and B2Bs are taking a closer look at how these once-outsourced financial features can now be brought in-house to handle a range of tasks, including everything from payments, to loans, to credit, collections and more.

Read more: Banking as a Service Emerging; CFOs Drive Change and Ensure Resilience

BaaS Meets B2B

At its core, BaaS is a model that uses application programming interfaces (APIs) to enable FinTechs to connect with bank systems in order to provide efficient and optimized financial solutions. While still new to B2B, in the broader financial industry BaaS is expected to impact 85% of financial institutions (FIs) around the globe in the next 12 months.

In the BaaS structure, banks provide their regulatory licenses, payments infrastructures and institutional trust, while FinTechs offer their ability to develop new capabilities for sending and receiving payments and managing data in order to improve internal financial operations.

The Banking As A Service Playbook by PYMNTS explores the potential of FinTech and technology service providers to constantly develop new financial solutions to address B2B payment pain points while FIs can focus on preserving and enhancing value for their customers.

See also: How Banks Are Leveraging APIs to Improve Both Digital and in-Person Banking Services

While BaaS is expected to become the central business model for the banking sector within five years as consumers and businesses want instant, digital financial services, it is also seeing uptake on the user side as well.

For example, technology companies are already leading the way in providing sophisticated and advanced API capabilities that offer smooth service digitally or in person while improving efficiency, competitive agility and customer experience.

Small BaaS

The potential of BaaS is not just for large companies. A PYMNTS study showed that 42% of U.S. small- to medium-sized businesses (SMBs) surveyed noted that their online transaction volumes increased during the pandemic, underscoring the likelihood that adding built-in financial functionality could make sense.

See more: SMBs Should Tap Banking-as-a-Service the Same Way B2Cs Did

Already, some SMBs are starting to leverage the power of BaaS and enhance their growth even more. Minuscule brick-and-mortar retailers have incorporated tools to enable digital payments since the beginning of the pandemic.

If the financial industry’s embrace is any indication, then the future of BaaS for B2Bs could also be enormous. PYMNTS research revealed that BaaS has become a global market of $1 trillion that is projected to quadruple in demand to become a $3.6 trillion industry by 2030. It’s also worth noting that U.S. lenders that offer BaaS already generated 200% to 300% greater returns on assets than other banks by providing these back-office services to their business customers.

In fact, 81% of FIs consider BaaS as a way to increase business, shorten time to market, improve distribution channels and streamline operations.

Read more: How Banking As A Service For Consumers Could Foreshadow B2B Payments’ Future

Understanding the API-Powered Financial Model

Modern tech companies are emerging with the latest APIs to aid banks in simplifying their digital transitions and allowing them to connect seamlessly with both businesses and customers. Here’s how it works.

APIs are capable of handling a series of specific tasks. They run on an architecture that uses containerized applications built as a collection of loosely coupled objects that interact to create an application that can be reused and upgraded per needs. Developers at tech companies can build, connect and integrate applications quickly and at scale to extend the reach of the bank’s financial ecosystem.

APIs have an ability to interact and communicate with existing systems, making it simple to integrate new services and applications, delivering the promise of digital-first without the need for a massive capital expend to develop a specific in-house application.

APIs hold the key to making digital transformation simple, fast and affordable. Banks can deliver more services and retain satisfied and profitable customers simply by nurturing a resourceful partnership with FinTech and tech service providers. The Digital-First Banking Tracker by PYMNTS revealed that 67% of financial services leaders plan on investing in APIs within the next year.