CareCredit - Women's Health April 2024

Growing Digital B2B Payments With Open Banking and APIs

b2b payments, open banking, API

All the complexity and complications inherent to B2B payments have one, simple solution: going digital.

But despite a sea of change in the payments world, change that is made up of relentless waves of digital transformation, B2B payments are still overly reliant on 19th century methods such as cash, lockboxes and paper checks.

Fortunately, as banking goes, so too does money movement — and banking is growing increasingly digital and embedded, offering new hope for B2B payment modernization.

That’s because advances like open banking and application programming interfaces (APIs) are revolutionizing the way financial services are delivered and accessed, and their impact on developing and accelerating the usage of digital B2B payments could be profound. 

The root of B2B payments’ complexity boils down to the fact that they are more about workflows — accounts payable (AP), accounts receivable (AR) processes including invoice generation, approval workflows, reconciliation and reporting — and data — invoice details, payment terms, transaction history and vendor information, even financial reporting and forecasting — than they are about the payments themselves.

The actual B2B payment transaction, whether it’s a bank transfer, credit card payment, or electronic funds transfer, check, or other vehicle is just one component of the broader payment process.

And the momentum behind open banking and APIs is increasingly well positioned to positively transform both the workflows and the data capture, supporting B2B payments. 

Read moreThe Role of Banks in Scaling B2B Payments Innovation

Enabling Efficient and Effective B2B Payment Operations 

APIs allow different systems and platforms to communicate seamlessly with each other. In the context of B2B payments, this means that financial institutions, payment processors and business software platforms can easily integrate payment functionalities into their existing systems. This streamlined integration reduces barriers to entry for businesses looking to adopt digital B2B payment solutions.

Crucially, open banking and APIs enable real-time access to financial data and transaction processing. This facilitates faster, more efficient B2B payment processes, eliminating the need for manual intervention and reducing errors associated with traditional payment methods like checks or wire transfers. Businesses can automate payment workflows, saving time and resources. 

As Shawn Cunningham, managing vice president and head of Capital One Trade Credit, told PYMNTS, “the amount of paper that is still passed around in the B2B space continues to stun me, and it’s somewhat by choice, but more and more, I think businesses are looking for a better way.”

What’s more, APIs facilitate secure data sharing between authorized parties, ensuring that sensitive financial information is protected during B2B transactions. Additionally, open banking frameworks often include robust authentication and authorization mechanisms, further enhancing security and fraud prevention in digital payments 

That is something that traditional methods like ACH wires and checks cannot offer. 

See also: B2B Selling Platforms Come of Age With Embedded Payments

Investing in B2B Payments Innovation Pays Off

The availability of open APIs encourages innovation in B2B payment solutions. Financial institutions, FinTech startups and developers can leverage APIs to create tailored payment products and services that meet the specific needs of businesses. This customization enables greater flexibility and scalability in B2B payment processes. 

Open banking initiatives promote competition and collaboration within the financial services industry, leading to increased access to innovative payment solutions for businesses of all sizes. This democratization of financial services enables small- to medium-sized businesses to access the same level of payment efficiency and sophistication as larger corporations.

At a granular level, by digitizing B2B payments and leveraging open banking APIs, businesses can reduce the costs associated with paper-based processes, manual reconciliation and transaction fees. Automated payment workflows and real-time access to financial data help optimize cash flow management and minimize unnecessary expenses.

And the marketplace isn’t standing still, either. As PYMNTS reported this past fall, BNY Mellon teamed with payments company Trustly to launch Bankify, an open banking payments solution that allows businesses to make payments directly from their bank accounts.

The advantages of open banking — especially in terms of permissioned data and direct account-to-account (A2A) payments — sound impressive. Transaction costs go down, benefiting all parties involved, Ross McFerrin, vice president of enterprise growth at Trustly, told PYMNTS.

Elsewhere, A2A payment solution Dwolla at the end of February launched its own open banking service, adding services like instant account verification, check balancing and fraud mitigation to the company’s offerings, letting mid- to enterprise-sized businesses offer fast and secure A2A payments through Dwolla’s API.

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