Commercial banks look to open APIs, FinTechs to enhance and expand client services

The retail side of financial services – especially payments – is no stranger to open banking, but commercial banks have been somewhat cautious. Lately, however, the spectrum of commercial banking specialties such as liquidity management, foreign exchange, payments and collections, working capital, and treasury are spurring exploration of open application programming interface (API) solutions.

Moreover, there is a strong regulatory push from authorities in certain geographies to adopt open-banking standards to increase industry competition and openness. The availability and increased acceptance of cloud and its related services are enabling quick provisioning, agility, and scalability.

Why adopt open APIs?

Data sharing is often accomplished through an API, an intelligent conduit that enables data flow between systems in a controlled, yet seamless, fashion. So, it makes sense that within an increasingly competitive industry, more and more commercial banks are turning to FinTech API developers to transform operations to remain relevant. Open APIs can help to update legacy infrastructure to address corporate clients’ flagging satisfaction and high churn.

While increased competition and data aggregation among banks have led to improvements in bank services, many corporate clients rely on different services from multiple banks. It’s no wonder they seek better integration and harmonization.

And it’s why commercial banks are adopting new API-based business models that include web development platforms and innovation hubs that enable interaction with both clients and third-party developers. General uses include data exchange and virtual payments transactions such as API-enabled bank data being pushed to corporate treasury operations so that CFOs and treasurers can quickly determine cash positions for tactical and strategic planning.

The potential benefits of open banking are enormous: improved customer experience, new revenue streams, and a sustainable service model for traditionally underserved markets. Compared with retail banking, corporate banking has been somewhat less vulnerable to competition from BigTechs and non-financial firms. That’s why now is a good time for commercial banks to proactively mitigate potential threats.

For example, HSBC is rolling out APIs to empower its corporate banking division. At first, these APIs will enable businesses to directly apply for accounts when using the bank’s digital platforms. In the future, additional functionality will allow clients in select markets to open cross-border accounts.[1]

Banks moving to open APIs

To fuel innovation and closely work with FinTechs and corporate clients, commercial banks have begun to open their API developer portals. In fact, Singapore-based DBS Bank launched an API developer platform in late 2017 to create innovative and customer-centric experiences by enabling a wide array of APIs for other brands, FinTechs, corporations, and developers to plug in. The platform consists of 155 APIs in more than 20 categories including funds transfers, rewards, and real-time payments. The bank plans to add categories as demands rise.[2]

Open banking can significantly affect small- to mid-size businesses, enabling them to connect with innovative FinTech services via their bank to streamline processes and improve efficiencies. For instance, BBVA Compass Bank partnered with New Zealand-based Xero to leverage the FinTech’s cloud-based accounting software platform for small and medium-sized businesses. The integration enables data from BBVA Compass accounts to stream into the Xero platform, which provides bank clients with a consolidated, real-time view of their cash positions.[3]

What’s next?

While open banking may benefit the retail and corporate customer, as well as foster innovations, it may encourage a new financial services ecosystem in which banks take on new roles. As more banks start to share APIs with FinTechs and third-party developers and move from sandbox to production data, they will need a comprehensive API strategy that aligns with their overall business strategy.

As banks undertake to develop a robust strategy, they must acknowledge that working with FinTech developers will require managing – and respecting – two different cultures, which may not be easy. It also makes sense to get input from corporate treasurers who seek standard approaches to API consumption to gain flexible workflow advantages.

To learn more, feel free to get in touch with me on social media.

# # #

[1] PYMNTS, “HSBC Enhances Business Banking With API Suite,” October 16, 2018, https://www.pymnts.com/news/b2b-payments/2018/hsbc-api-fintech-collaboration-business-banking.

[2] BankInnovation.net, “Singapore’s DBS Bank Launches ‘World’s Largest API Platform,’” Tatjana Kulkarni, November 3, 2017, https://bankinnovation.net/2017/11/singapores-dbs-bank-launches-worlds-largest-api-platform.

[3] Pymnts.com, “Xero Connects to BBVA Compass Accounts Via API,” June 12, 2018, https://www.pymnts.com/news/b2b-payments/2018/xero-bbva-api-small-business-accounting-open-banking.