Subrato Bhattacharya, Senior Consultant, TCS BaNCS

The emergence of disruptive technologies is helping corporate banks to re-imagine their transaction banking services to fulfill the unmet needs of their corporate clients. Open banking and B2B APIs will prove to be a game-changer for the banks and their corporate clients. A bank's B2B APIs are usually offered in a closed network, unlike the retail/TPP APIs. This article talks about the transformation that B2B APIs can offer.

Current State of Affairs between Corporate Banks and their Clients

The digitally savvy millennials and Gen Z have redefined human behavior. The generation which lives in the world of now and instantaneity is forcing new business models to embrace this reality. Whether it is booking a flight ticket, cab or ordering food, or provisioning a storage space on the cloud, “instant” and “now” have been two defining themes in consumer behavior. Some studies show millennials would comprise 75% of the global workforce by 2025, which would mean even in B2B interactions, corporate executives would expect similar experiences as in their personal lives. Thus, Corporates clients are battling on both the dimensions 

  1. Rapidly developing business models to meet the needs of the changed consumer behavior
  2. Changing profiles of the modern workforce, who expect similar “instant” and “now” experience as in their personal experiences

A globalized & connected economy is adding to the challenges for corporates’ finance value chain. Corporates need to manage liquidity, fund cross-border trade, optimize working capital, and monitor risk. Despite its strategic importance, many a corporate treasury or CFO organization is still stuck in the dark ages of tech, dependent on manual practices, tools, and techniques. The emerging needs of an instantaneous and immediate force the corporates to look for alternate avenues and Fintech solutions.

Corporate Banks traditionally support these needs of their corporate clients through a range of global transaction banking (GTB) services. Corporate Banks should ready themselves for the dynamic needs of their corporate clients on the above dimensions.

Need for Speed

Over the years, corporate banks have relied on legacy systems and technologies, such as host-to-host file transfer, to integrate their services with clients’ systems. SWIFT, TWIST, EDBICS have also worked with the corporates and their banks. While most of these work well for single-step transactions such as payments, but corporate clients are more in terms of real-time functionalities such as reconciliation, trade services, collections, and supply chain finance.

But now, the contexts are changing. Corporate client executives expect “instant” and “now” -ness in their interactions with the bank. Global transaction banking services should fulfill the needs of their corporate clients to transform their finance function into an "Instant Treasury".

Instant treasury enables everything from instant payments even across borders, real-time tracking & reporting, just-in-time liquidity mgmt., leverage open banking to harnessing AI for improved decision-making. It’s also about integrating all these initiatives to create smooth processes and maximize the value of your data.

Disruptive technologies available in the digital age make the construct of "Instant Treasury" achievable.

The Case for Bank B2B APIs

Application programming interfaces (APIs) have been talked about for a long, but the emergence of styles like REST or GraphQL has catalyzed many use cases across industries. These connective technologies offer clients easier access to GTB services from their platforms and enable seamless interaction with third parties. By effortlessly connecting to bank APIs, treasury teams open a range of capabilities light-years beyond the status quo.

Thus, banks can use B2B application programming interfaces (APIs) to move closer in the value chain to their clients, and effective integration through B2B APIs should be a GTB priority. The clients can transact and see real-time banking data directly from their own enterprise systems, giving them an edge in the hyper-connected and always-on economy.

According to a survey by McKinsey, cash management and trade finance APIs would drive such B2B APIs for the next three years. Over 85 percent of respondents to the survey plan to invest in cash management APIs in the next three years, and almost 50 percent want to expand their trade finance APIs.

How B2B APIs can help realize an "Instant Treasury"

  1. Just-in-Time Liquidity -With payments happening round the clock, the need to manage liquidity on a real-time basis becomes paramount for corporate treasuries. Visibility to transactions in a bank account on a near-real-time basis has become the ask by many corporate treasurers. The potential integration of APIs with existing treasury technology will bring real-time functionality and enhanced visibility. Typically, APIs are replacing old-school ways of building up balances based on MT940/942. Open banking /finance is leading to a more fluid and innovative systems landscape. Real-time visibility and immediate settlements will also create newer models for pooling and liquidity management requirements of corporates.
  2. Instantaneous Reporting–“My bank still does not know where my payment is” will be a thing of the past. APIs are carrying back the status of the transactions. SWIFT’s gpi (global payments innovation) is one such step in the direction. With the gpi capability, visibility and predictability of the cross-border payments have helped corporates significantly when the banks can expose these as APIs. APIs carrying the statuses enable faster responses to Exception/Error Handling. Similarly, APIs are facilitating Reconciliations Reporting like Invoice Reconciliations.
  3. Customer Centricity–Banking-as-a-service APIs from the Corporate Banks will help the corporates to fast-track fulfillment of transactions and help offer superior customer experience and build lasting relationships. While Instant payments are real-time transactions–BaaS & open banking APIs represent a move towards capturing the magic moments in their customer’s journeys.
  4. Just-in-time credit decisions–Integration of the B2B APIs into the ERP or Treasury Management Systems means that the bank (s) will access the AP/AR positions, Sales Ledger data and advise the corporate appropriately. For the bank, the credit decision becomes stronger.
  5. Instant Cross-border Payments - Instantaneity is now not only limited to just the domestic payment settlement schemes. The partnership between cross-border payments and domestic instant payment schemes is creating the network effect for global eCommerce. Instant settlements of funds across multiple banks will become a reality soon.
  6. Supply Chain Finance–B2B APIs will help bring in further optimization in working capital position by embedding bank APIs in procure-to-pay or order-to-cash cycles. Thus simplifying the supply chain finance cycle.
  7. Improved security by removing files and the overall interaction with the bank–APIs provide the much-needed security within the overall interaction, embedding e-signatures instead of wet signatures
  8. Banks can partner with ERP & TMS vendors to embed their API functionalities into their core products. This will help to create vertically integrated platforms for the ERP & TMS vendors as well and a new business model for the banks.

Other evolutions Set to Re-imagine the Corporate Bank & Client Relationship

Banks have been leveraging technology for their purpose and such technologies have helped them to adopt real-time infrastructure. Now corporate banks should explore ways to extend such technologies to their corporate clients to have a win-win situation.

  • Standards such as ISO 20022 allow a rich set of structured and standardized data from the corporate to the bank, which the bank can consume and provide further contextual information/action back to the corporate.
  • Banks’ investments in artificial intelligence (AI) and automation can help corporate with improved fraud, risk, and liquidity analytics and forecasting
  • BaaS and Embedded Finance will help corporates stay relevant to their customers, while it adds a revenue stream for the corporate bank
  • Blockchain and distributed ledger technologies are supporting the digitization of supply chain finance

Disclaimer: Views or opinions represented in this blog are based on the author’s own research and do not represent TCS BaNCS.