As digital transformation continues to build momentum, fintech institutions have stolen a majority of the spotlight. They are fundamentally reshaping financial services through unparalleled improvements in efficiency, security, and accessibility. As consumers continually demand more improved services, fintech companies regularly develop consumer-focused solutions.
However, fintech activity shifted from consumer to business, with business-to-business SaaS startups attracting 58% of fintech funding in 2023. B2B fintech forms a strong, robust ecosystem addressing the relatively complex requirements of businesses and financial institutions. Through digital automation and digital channels, B2B fintech plays a critical role in shaping the future of financial services.
The rapid adoption of automation and digitalisation, as well as the expansion of international trade and business sector expansion, also contributed to the rise of global payment. The B2B payments market is valued at 72.30 trillion USD in 2022 and is projected to grow from USD 79.53 trillion to USD 174.38 trillion between 2023 and 2030. As more businesses deploy technology to maximise their return on investment, the integration of B2B payment solutions with enterprise planning (ERP), customer relationship management (CRM), and supply chain management systems would drive more demand for the fintech market.
B2B banking as a service, BaaS, which connects crucial digital banking services to non-banks, is one of the current trends of B2B Fintechs. However, open banking has emerged as the future of B2B fintech. Open banking can be explored as a new sales channel for B2B fintech.
Open banking changes how consumers and businesses interact with financial services in the financial service ecosystem. By driving new innovations, it presents a wealth of opportunities for B2B fintech.
What is Open Banking?
The era of technological advancement and fintech birthed open banking, which has emerged as a transformative trend driving the financial industry. Open banking serves as a revolution in financial services. It provides more convenient ways to view and manage customer data. Open banking uses an application program interface (API). It allows third-party financial service providers to access financial institutions’ customer data.
This means that customers can share their financial information with other service providers, such as budgeting apps, investment services, video games, or lenders. Open banking potential significantly improves customer experience and serves as a core sales opportunity for B2B fintech. The concept is driven by regulatory frameworks such as the European Union’s Payment Service Directive 2 (PSD2).
Open banking and Traditional Banks
Open banking offers enormous opportunities compared to traditional banking. Open banking APIs secure communication between financial service providers. Fintechs can leverage their existing instruments and data to deliver improved, customer-focused offerings.
By connecting businesses to a range of platforms, open banking offers fintechs unprecedented access to financial data and services. This breaks down the barriers of traditional banking and encourages the collaboration and development of new technologies. Access to more data also facilitates informed decision-making in fintech, leading to improved strategies and increased revenue potential.
Key Benefits of Open Banking
- Enhanced Customer Insights: Open banking allows fintechs to access real-time customer financial data such as spending patterns and transaction histories. This insight enables B2B fintech providers to offer more customer-tailored products and services.
- Improved Regulatory Compliance: Open banking frameworks provide a structured approach to data sharing. This makes it easier for fintechs to meet legal and compliance requirements. Furthermore, this reliability builds trust with both clients and partners.
- Foster Strategic Partnerships: Open banking allows for collaboration between companies like banks, fintechs, and other financial entities. Partnerships with these organisations
- These partnerships create opportunities for co-branded products and shared customer bases.
- Cost Reduction: Open banking reduces the costs associated with transactions, such as credit card fees, by improving the payment environment.
- Better safety and security: Open banking uses secure APIs and authentication protocols to protect customers’ data and ensure that it is only shared with authorised service providers.
How Does Open Banking Work?
Open banking relies on an application programming interface (API). The API enables secure communication between software systems and applications. This allows financial institutions to share consumer financial data with third-party aggregators. The aggregators act as intermediaries that connect account providers such as banks with third-party applications such as fintech companies and other financial service providers. The shared data empowers these applications to deliver financial services to both consumers and businesses.
Through this process, open banking enables businesses to streamline their operations and innovate financial products. By integrating advanced APIs, the need to build systems from scratch is eliminated, reducing costs and speeding up product launches. It also provides a competitive edge to businesses, allowing them to attract and retain customers in a rapidly evolving market.
The impacts of open banking services cut across different stakeholders within the financial services ecosystem;
- Financial institution: Open banking services foster innovations among banks and third-party service providers.
- Fintechs/SMEs: Businesses gain insights into their customers’ needs by leveraging open banking data. This allows them to customise their products and service offerings to customer needs.
- End Users: Data from open banking empowers consumers by giving them greater control over their financial data and allowing access to more efficient and personalised digital services.
Challenges
While the adoption rates are high, open banking still faces challenges. However, stakeholders are actively working to address issues around uncertainties surrounding potential regulations. Despite opening B2B fintech to new opportunities, it is paramount to state the concerns around data privacy with open banking. Customer data security is important, and regulations such as Strong Customer Authentication (SCA) under PSD2 ensure the right checks are put in place. It is vital to ensure that customers give explicit consent to their data before it is shared.
Wrap Up
Open banking offers the opportunity to create new sales channels and innovation for the B2B fintech landscape. Businesses can securely share data with third parties through APIs, which enables fintech to develop tailored solutions to meet businesses’ needs. The connectivity and integration of this advanced functionality lead to reduced costs and accelerated time-to-market for new financial products.
Open banking also promotes financial inclusion. It grants small and medium-sized enterprises (SMEs) access to financial services exclusive to larger corporations. B2B fintech can streamline their payment solutions through open banking and integrate management tools that empower SMEs to compete more effectively in the market.
Open banking is unlocking new sales channels for B2B fintech that foster a collaborative and innovative environment. By embracing open banking APIs, fintech can develop and deliver advanced, personalised, and efficient financial solutions that cater to businesses’ evolving needs. This drives growth and competitiveness in the financial industry.