Open banking and its promise of more elasticity in finance is enabled by application program interfaces (APIs) — lines of code that execute everything from simple peer-to-peer (P2P) transfers to industrial-sized B2B real-time payments. But many small and medium-sized businesses (SMBs) are missing out on API breakthroughs that could enhance operations — improving cash flow, for example — and part of the reason may be lethargic legacy banks.
The PYMNTS January 2020 B2B API Tracker, done in collaboration with open source leader Red Hat, probes the blossoming API ecosystem with SMBs in mind. Responses show that legacy financial institutions (FIs) and FinTechs are collaborating to make services and capital more accessible to SMBs. Enterprises also have as much to gain as SMBs do from less overall friction in finance, but the focus over the past year has been more on mid-market and tinier SMBs.
As the industry marks two years since open banking’s U.K. debut, it’s ironic that roughly half of SMBs recently surveyed don’t believe that it can or will impact them. After all, the open banking initiative was largely designed to help level the playing field for SMBs in a global digital economy.
Open Banking Opens Up
Some large banks got onboard the trend when it was nascent. Wells Fargo embraced an open banking architecture three years ago, after realizing that its formidable capabilities are made more valuable the more accessible they are to more businesses, regardless of size.
Other FIs are also busy with data connectivity projects, using APIs to integrate with software typically used by small businesses. For example, startup Revolut has an API that accesses clients’ financial data on the Intuit QuickBooks accounting platform and adds banking connectivity, giving SMBs new transparency and control over liquidity, cash management and more.
Integrations are also improving from a technological standpoint, so that repeated logins and switching between systems and views is being simplified with dashboard views and APIs that specialize in only in certain types of data or transactions. The keyword for much of this activity is “contextual” in that customers increasingly expect to access bank services wherever they are.
So much of the excitement at present is around instant payments and the ability to settle invoices faster than ever before. That idea understandably has immense appeal to SMBs, and APIs are the conduit. Yet the speed and flexibility of real-time and instant payments are just the beginning of what API-powered open banking can do, especially for smaller operators.
Get Ready for Instant Everything
The final frontier for many SMBs is cross-border trade — and payments — both logistical nightmares until relatively recently. APIs are getting it done, with a cascade of FinTechs making announcements like cloud accounting platform AccountsIQ and its deal with B2B payments firm TransferMate, enabling streamlined cross-border payments. Similarly, Rho Technologies’ new platform also works with popular back-office systems among SMBs, making same-day ACH and cross-border payments possible, along with an impressive array of accounting features.
Despite the fact that so many SMBs haven’t yet heard of (or possibly understood) the concept of open banking, the picture will be substantially different a year from now. For their part, banks need to upgrade infrastructure and get ready for an avalanche of integration and innovation. That day is fast approaching, and all parties will need to be prepared.