Legacy Banks Embrace APIs To Counter Competitive Cycle

Legacy banks around the world have been under tremendous pressure in recent years to transform their business models, as upstart FinTech companies are removing the barriers to entry and credit access that have kept large numbers of growth businesses and consumers out of the market.

The development of new technologies is threatening to disrupt the business models of many of these traditional players, as fast, efficient and low-cost platforms are providing access to capital that traditional banks are either unwilling or unable to deliver to the marketplace.  

In a new report, Renee Schuurman, global market manager of Citi’s channel services division, makes an argument that by using application program interfaces (APIs), traditional banks are able to disrupt the marketplace by developing highly scalable solutions, and not fall victim to being disrupted themselves by new entrants. At the same time, banks can help these new entities gain immediate access and distribution at a scale that might normally be considered an uphill climb for many.

Banks Looking Ahead

According to the new report that examines how APIs are transforming B2B commerce and financial transactions, 87 percent of banks report having a clear API strategy.  

Citi, HSBC, Deutsche Bank and U.S. Bank, among others, are giving financial institutions access to API developer portals. These portals give FIs the ability to pursue API goals without having to send “big email attachments,” according to Schuurman. The sandbox environment allows FIs to test APIs in a secure way prior to deployment.  

Late last month, Santander U.K. entered an agreement with Infosys Finacle to provide corporate customers with access to a platform that allows them to work across accounts and is compatible with any device.

Chasing Unicorns 

The report showed that B2B startup firms raised about $200 million during a single week of June, demonstrating the high level of interest that investors have in this sector.  

A study released earlier this year by CB Insights showed that investments in FinTech firms in the U.S., U.K. and India hit a new record in 2017, and noted particular interest in targeting B2B startups. The report showed that investments hit a record $27.4 billion last year, with the value of deals in the U.K. market, for example, quadrupling to $3.4 billion.  

In recent weeks, U.K.-based PaySend, which has expanded its consumer payments business to enable corporate customers to move payments across 60 countries, raised $20 million in a round of financing led by MARCorp Financial.

Blockchain Disruption

Blockchain is projected to own 10 percent of global GDP by the year 2027. Traditional banks and other financial institutions are embracing blockchain as a means of disrupting traditional movement of funds across borders and doing business with clients in emerging markets.

Just this week, Barclays filed two applications with the U.S. Patent and Trademark Office, including one that would allow consumers to more quickly register for cryptocurrency accounts without requiring a large amount of documentation. The other would streamline the Know Your Customer process, which could reduce the cost and amount of processing required to maintain a system of record.

Earlier in the week, American Express filed for blockchain-related patents that involve using the technology to provide proof of payment. 

Lingering Fraud Risk

The report shows that 90 percent of surveyed executives say their companies have been targeted by fraudsters. Financial institutions have increasingly become the targets of cyber criminals and other bad actors, and banks have been forced to take steps to protect their customer data and maintain a high level of oversight and prompt reporting to remain in compliance with regulatory authorities.  

Switch, Inc., a Seattle-based FinTech firm, announced in May that it developed an API called CardSavr that would allow card issuers to make sure all of their cards were immediately put back into circulation on thousands of eCommerce sites following activation. The company cites data showing that the average consumer carries 3.2 cards in their wallets, and that the average email address is associated with more than 130 online accounts.  

B2B Card Payments

The study also shows that 11 percent of B2B transactions were conducted using credit cards. The ability to obtain credit is particularly difficult for small to medium-sized businesses, and technology to allow companies to use virtual cards has been under development in recent years.  

Earlier this year, Visa announced an agreement with NovoPayment to develop technology that would enable B2B transactions in Latin America and the Caribbean. The first project in Columbia was announced to allow real-time payments – using a suite of APIs – to allow courier fleets to electronically procure payments from merchants.


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.