Traditional banks and other financial institutions are undergoing tremendous pressure right now to compete in an environment where they are faced with enormous scrutiny from government regulators looking to mitigate risk. At the same time, they are facing new competition from smaller, nimbler financial technology upstarts that are, in some cases, able to move on a dime to reach customers that traditional banks are often unwilling – or unable – to do business with.
In the wake of the global banking collapse of 2008, regulators have enacted reforms that put barriers around some of the risks that traditional banks have been willing to take, but can no longer risk. New technologies have opened up many underbanked customers to faster and more responsive entities, which are able to engage and react to financial requirements with technologies that use application program interfaces [APIs] to conduct payments, tracking, processing and other types of financial transactions with speed and simplicity.
Among traditional players, some of the more innovative companies are leveraging their large customer bases to incorporate this technology into their portfolios, thus allowing customers to engage in transactions that would otherwise become out of reach, both for the customer and the financial institution.
American Express, the world’s largest card issuer based on purchase volume, has moved ahead with the latest in a series of blockchain agreements that it hopes will position the company as a leader in this new transaction technology.
The company filed with the U.S. Patent and Trademark Office earlier this month for a blockchain-based proof of payment technology. The patent allows Amex, for example, to use blockchain to make a payment and receive a merchant identifier using the same secure, encrypted technology that would store the information on the same device.
In another example, Santander U.K. entered into an agreement late last month with Infosys Finacle in order give corporate customers access to a platform that works across accounts and is compatible with any device.
Using API technology, customers can integrate Santander’s cash management solutions into existing ERP systems.
In the banking sector, legacy players are increasingly embracing APIs to partner with new FinTech companies in an effort to speed the path to both faster transaction capabilities and rapid authentication of identity.
These efforts are among the latest by legacy players to use new technologies in order to scale up rapidly in the face of new competitors.
The latest B2B industry tracker shows that these types of transactions are critically important to banks and other legacy financial institutions. Newly released data shows that 87 percent of banks report having a clear API development strategy, while just during the month of June, more than $200 million was raised by B2B startups in VC investment rounds.
The report shows that 11 percent of B2B transactions are made using credit cards, and that blockchain will have 10 percent share of projected global GDP by the year 2027.
The U.S. banking sector is demonstrating uneven financial performance in the recent quarter, while investor interest continues to see new disruptive engines in the FinTech sector. As banks streamline legacy costs and embrace mobile and new payment systems, consumers can expect to see additional advances in API, blockchain and legacy players embracing disruptive technologies.