Open Banking APIs Meet B2B Payments

Steady digitization in stale B2B payments and the open banking movement are two closely related and increasingly exuberant expressions of money’s digital makeover. While much of the legal framework has come from European Union (EU) regulators, it is a loose alliance of financial institutions (FIs), heavy-duty tech players and nimble FinTechs making breakthroughs.

The B2B API Tracker® done in collaboration with Red Hat, takes stock of parallel developments in both B2B payments and open banking that promise liberating new payments experiences.

“Digitizing B2B payments is a top priority for both the businesses that conduct them and the banks that process them, but digitization comes with numerous hurdles to navigate, including the challenges of integrating disparate banking software and ensuring fraudsters cannot intercept payments mid-transfer,” the new Tracker states, adding, “Open banking’s advent is set to be another evolution in B2B payments, expanding the concept of APIs to encompass entire financial markets.”

Laggard No More

Impacts expected from open banking on the laggard B2B payments space are hard to understate. A lot of smart venture capital is betting on open banking to speed up notoriously slow and inefficient B2B payments, easing cashflow shortages and the pressure on suppliers.

Application program interfaces (APIs) are both connective tissue and all-knowing neuron in the brain of open banking. And as for all the press they get, APIs have an awareness problem to overcome. By handling that, the exciting possibilities of APIs for B2B payments will materialize.

“Many customers were unaware that the government in the United Kingdom mandated banks to allow safe and secure access of their data with third parties. Early surveys indicated that only 22 percent of customers were aware of the concept,” Alessandro Petroni, head of financial services strategy at Red Hat told PYMNTS.

“Banks that are offering services through APIs should first focus on tangible benefits that their customers will receive. This includes early recruitment of third-party applications and services that demonstrate concrete value for their customers. They will need to build awareness through both promotion and education,” Petroni said.

It’s worth the effort, as the growing number of B2B payments use cases prove. “Issuing invoices and processing B2B payments can be simplified through open banking. APIs enable accounting platforms to accelerate payments by issuing invoices with integrated payment instructions and acceptance capabilities, saving payers from having to figure out their own means of conducting transactions. B2B payments can also have their processing fees reduced to nearly zero with APIs that integrate payment data to minimize card processing fees,” the Tracker states.

Prevailing Winds Favor APIs

No one doubts that the combination of digital-first open banking and B2B payments is a good match. Perhaps never in finance have challenge and solution seemed so well suited.

“There are a multitude of benefits that open banking brings to B2B payments. Payments providers can automatically access payment data to seamlessly transfer funds between banks without building custom software for each bank with which they connect. Corporate accounting software can use open banking to automatically access bank information rather than rely on outdated and insecure practices like screen scraping,” according to The B2B API Tracker®.

Such are the prevailing winds as firms look for new opportunities in a post-pandemic terrain.

“Only 45 percent of companies report being completely satisfied with their firms’ payments and banking capabilities,” the Tracker states. “Open banking is poised to dramatically improve that number as it continues to gain usage and provide a faster, smoother and less expensive B2B payments experience for corporations the world over.”