While limited business-focused applications and aversion to change have held back adoption of open banking by corporates, there are tentative signs that treasurers are increasingly coming around to the potential of APIs.
The potential of open banking services is undeniable. A November 2020 report published by Allied Market Research suggested the market would be worth more than US$43bn by 2026, a CAGR of almost 25% from 2019. More immediately, research commissioned by Finastra in August 2020 showed that 72% of banks across the Americas, APAC, Europe and MEA had seen an increase in the integration of corporate banking APIs since the outbreak of coronavirus.
In excess of two thirds (68%) of the banks surveyed had started work on moving to corporate banking open APIs as part of their payments strategy. Only half said open APIs were a priority in their strategy for working capital finance, cash management or lending, although 36% said they planned to start moving to open APIs for cash management within the next two years.
These are encouraging numbers, but why has it taken a global pandemic to inject some urgency into the corporate open banking market?
According to Jack Wilson, Head of Policy and Regulatory Affairs at TrueLayer, the complexity of corporate accounts and the existence of legacy systems for managing these accounts are two factors that could account for slower take-up among corporates.
Francois Masquelier, former Senior Vice President & Head of Treasury and Enterprise Risk Management at Luxembourg-based international media company RTL Group and CEO of Simply Treasury says a cautious approach to working with newer service providers is a significant reason why corporate-focused open banking solutions have been slow to develop. “The way forward lies in solutions that are developed jointly by fintechs, established banks and corporates,” he adds.
ABN AMRO has launched five new commercial APIs this year and upgraded its developer portal. “Our first commercial API went live in November 2019 and we have learned a lot since then,” says Pelin Dumans, Product Owner at the Dutch-headquartered bank. “Corporates vary widely in their ability to implement APIs – in some cases we are explaining what an API is and its benefits, in other cases we are having in-depth discussions on coding and content.”
Corporate services developing
According to Sander de Vries, Senior Manager at treasury consultancy Zanders, there has been more focus on products catering to consumers than corporates but he adds that since the second payment services directive went live banks have started to offer more open banking-enabled products and services for corporates. He also observes that slow take-up by corporates probably relates to lack of internal innovation and aversion to change, along with the lack of API standardisation.
Apart from increased interest in the use of APIs by corporates and some vendors for bank connectivity and to accelerate real time visibility and payment processing – and more collaborative/strategic investments between the major banks and some fintechs to bring new functionality to market faster – for the most part activity around open banking under PSD2 has been taking place in the consumer banking space.
“The entry of new banks and payment service providers isn’t really going to be of much interest to corporates since their bank relationships are predicated on credit provision/balance sheet support – especially at the moment,” says de Vries. “From a corporate governance perspective, services provided need to be robust, proven, dependable, stable and appropriate to the scale of flows involved.”
The uneven pace of open banking innovation across the globe was highlighted in a May 2020 Finastra survey, which found that financial institutions in the US and UK were much more likely to leverage open APIs than their counterparts in France or Germany.
“The major US banks are well aware of the strategic importance of open banking and are developing API-based offerings in partnership with fintechs to attract new customers and maintain or gain competitive advantage,” adds de Vries.
Other factors in why some banks have moved at a slower pace in adopting open banking for the corporate market are that it is considered more of a relationship-based service and that it isn’t accompanied by the same regulatory pressure as PSD2. But corporates are looking for a slick user interface and a smooth and seamless experience across the various touchpoints with their bank, plus the ability to bank whenever they want through multiple channels – all of which is enabled through the use of open APIs.
Banks pushing APIs
“Increasingly, banks are rethinking their business model and embarking on digitisation projects where they free up functionality via open APIs and modernise their systems through partnership with third parties,” says Finastra’s Senior Vice President and General Manager Corporate Banking, Torsten Pull.
It is true that so far interest has been concentrated in retail banking rather than the corporate side, acknowledges Mario Benedict, Executive Director in Wholesale Payments at J. P. Morgan. “We see massive potential in the latter area and are focusing on how open banking and APIs will help to address some of the pain points for our corporate, multinational and financial institution clients,” he says.
As a result of the economic turmoil caused by coronavirus, corporates have understandably been focused on having real time visibility of their bank data. APIs should enable them to address some of the challenges in treasury operations and speed up innovation.
“There is also the benefit of intelligent automation, where manual processes of payment status tracking and reconciliation can be reduced, shrinking the room for manual error and increasing operational efficiency,” adds Benedict. Masquelier refers to trade finance as an area where open banking has particular potential to reduce costs for corporates, particularly in relation to facilitating access to historical financial data. In addition, he says the emergence of payment service providers has led to increased transparency around bank fees.
“We are already seeing cost benefits in regard to standard payment services,” agrees SAP’s head of solution management, treasury and working capital, Christian Mnich. “Given the widespread availability of cloud technologies this trend will only become stronger in future, but most importantly the API technology that comes along with open banking will lead to more choice for corporates.” Open banking solutions also give corporates the opportunity to move in the direction of a more plug-and-play environment for their treasury infrastructure.
Change of attitude required
One potential product is rich data for automatic reconciliation purposes related to both ERP systems and cash flow analysis within a treasury management system, suggests Richard Blokland, Corporate Treasurer at NewCold Advanced Cold Logistics in the Netherlands. “Banks are afraid of opening up so this will require a change of attitude as well,” he says. Blokland also hopes that corporate open banking solutions will introduce greater efficiency and flexibility into the global economic system, particularly in relation to increasing KYC demands. “Hopefully financial regulators will participate in the sense that it will help them optimise their demands from banks and corporates and still receive the desired but reasonable information they need in line with current and future legislation,” he continues.
Rune Mai, CEO & Co-Founder of API developer Nordic API Gateway in Denmark says his firm is now focused on business account access and payments. “We have more than a dozen accounting systems consuming our API, providing huge automation and cost reduction benefits,” he says. “More importantly, we are also powering cash management and FX solutions for both large corporates and treasury teams within large banks. We started out as a consumer-focused personal finance management service before moving into open banking API aggregation but once we did we knew that open banking for business has a much stronger use case in terms of cost reduction and business process optimisation.”
When asked whether all markets will eventually reach the same level of maturity, Masquelier suggests that the approach of banks and cultural factors on the part of customers will influence the extent to which corporates in different countries embrace open banking. “Global banks with a strong cash management business may be motivated to provide more detailed and better quality information, although they may not develop solutions in every market,” he says.
All corporates are interested in reducing their banking costs, but this is not the major motivation behind the adoption of open banking services according to Masquelier. “The trend towards treasury-on-demand or real time treasury services will drive demand for better quality information that can enrich reporting and dashboarding at corporate level,” he says.
The coronavirus pandemic will inevitably have affected the pace of roll-out and adoption of open banking solutions worldwide this year. Lockdowns, combined with uncertainty in the business environment have served as yet another reminder that it is critical for businesses to have real time visibility of their cash position across multiple bank accounts and to have better control over their treasury, as well as their payables and receivables.
Alternatives remain appealing
But while this environment should create opportunities for developers of corporate open banking solutions, it must also be recognised that there are proven mechanisms (such as SWIFT, the Electronic Banking Internet Communication Standard (EBICS) and Host2Host connections) that enable corporates to connect with their banks securely and access data to manage their payments and cash efficiently suggests Marcus Hughes, Head of Strategic Business Development at Bottomline. “The availability of APIs for corporates is still too fragmented and not yet sufficiently global to provide that capability to large corporates,” he says. “At some stage in the future we may see wider adoption of APIs for corporate treasury and cash management, but we are not there yet.”
Hughes reckons that for large organisations such as multinational corporations with a requirement for global payments and cash management, using a SWIFT service bureau to access their multiple banks will remain the optimum choice for the foreseeable future. However, he does accept that the corporate open banking corporate market is maturing.
Differentiation between service providers is already shifting from pure connectivity with multiple banks to capture account data or initiate a payment, to a new phase where value-add applications do something beneficial for the user, solving a pain point and delivering value.
“This value might relate to artificial intelligence-driven cash flow forecasting solutions using data from accounting ledgers and real time bank statements, or invoice finance using machine learning and predictive analytics to assess the likelihood of sales invoices being paid on time, late or never,” says Hughes. “So instead of mere cash visibility and payment initiation, a solution provider’s next generation of open banking solutions will need to do more to help customers manage their business better in areas such as optimised working capital management and getting paid faster with automated cash allocation,” he concludes.
The kind of solutions traditionally demanded by large corporates – such as automated sweeping of accounts to maximise investment income and minimise borrowing costs – may also become an expectation for small and medium-sized businesses.
