Open Banking Expands Into SMB Lending, Smaller Banks

Open Banking Expands Into SMB Lending

Open banking and bank-FinTech collaboration can be an effective way for financial institutions (FIs) to launch new digital products. But the latest initiatives reveal a growing interest in transforming internal processes, particularly among smaller banks looking to upgrade their core infrastructure and elevate small business lending operations.

Below, PYMNTS rounds up the latest tie-ups and data sharing efforts as institutions explore how open banking models might accelerate their modernization efforts.

Bectran Augments Cash Application With API

This week, Bectran, which provides a B2B credit management solution, announced enhancements to its Cash Application automation capabilities. Among the new features is an open application programming interface (API) designed to address the variety of formats that FIs use to provide payment data. The API enables businesses to collect payments as part of their accounts receivable (AR) processes to do so in a more seamless and integrated way, regardless of payment data format, so that transaction information can be applied to AR records, the company explained.

Equiniti Eyes APIs for Risk Management

Equiniti Group recently revealed its adoption of Codat’s accounting integration API for its Equiniti Riskfactor solution, a tie-up that will see Equiniti’s risk management operations embrace API technology to promote automatic data sharing from small businesses. The API will reduce friction related to manual data sharing and entry, the company said, enabling lenders to more easily collect necessary information as they underwrite and make loan decisions. The collaboration reflects a growing interest among banks and other lenders to embrace data sharing via API for their small business financing operations.

Jack Henry Links FIs to AR Finance Offering

While FIs are exploring how APIs can elevate operations like small business loan underwriting, traditional FIs are also turning to their third-party FinTech partners to augment processes and product offerings. Jack Henry & Associates is taking advantage of this trend with the launch of an AR financing solution for bank clients to adopt, with a focus on enabling the AR financing tool, BusinessManager, to integrate seamlessly into banks’ core infrastructures provided by the SilverLake System. The integration means banks can purchase SMBs’ outstanding receivables at a discount to provide them with faster working capital. Integrating directly into core technology means even deeper automation, the companies noted.

FirstBank Taps Finxact for Core Infrastructure

Speaking of banks’ core infrastructures, it’s yet another area in which traditional FIs are turning to third-party FinTechs as they progress in their digitization journeys. One of the latest to do so is FirstBank, which recently announced that it will deploy Finxact’s Core-as-a-Service offering, an initiative the bank said will allow it to not only modernize its core infrastructure, but also to become more agile at its own internal digitization and product development. The regional bank also noted growing interest among smaller FIs to embrace the bank-FinTech collaboration trend.

Hawthorn River Eyes Open Banking for Community FIs

Hawthorn River is another third-party FinTech embracing the opportunity for smaller regional and community FIs to embrace open banking as part of their modernization efforts. In a recent conversation with PYMNTS, Co-founder and CEO Jon Rigsby of Hawthorn River, which provides loan origination software for FIs, noted that bank-FinTech collaborations are essential to helping smaller banks meet customers’ digitization demands despite FIs’ often outdated infrastructures. Yet maturation is low. “My guess is, if you went to 100 community banks, maybe five would know how to describe open banking,” he said.

Yes Bank Woes See API Disruption

In India, financial regulators and banks continue to work together for a bailout agreement for Yes Bank, with the bank’s troubles having caused service disruptions in recent days. MoneyLife reports recently noted that the Reserve Bank of India’s decision to place Yes Bank under moratorium caused disruptions to payment service providers and other partners of the bank, as well as its B2B API service, which integrates into companies’ ERP systems (regardless of provider) to facilitate AR financing and other supply chain services. According to the publication, however, that API service was also hit with disruptions amid ongoing turmoil for the bank.

Exclusive PYMNTS Report: 

B2B APIs aren’t just for large enterprises anymore — middle-market firms and SMBs now realize their potential for enabling low-cost access to real-time payments and account data. But those capabilities are only the tip of the API iceberg, says HSBC global head of liquidity and cash management Diane Reyes. In the March 2020 B2B API Tracker, Reyes explains how the next wave of banking APIs could fight payments fraud and proactively alert middle-market treasurers to investment opportunities.