Banks seek innovations in integrated payments

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It’s been a big week for in-app payments innovations, with one developer in the space earning unicorn status, banks identifying them as an urgent priority in new research, and businesses increasingly adopting them in the as part of their digitization efforts.

Airbase Founder and CEO Thejo Kote joined PYMNTS to discuss this and other news in This Week in Payments.

Explosion of innovation and activity in the BaaS space

First on the agenda was banking-as-a-service (BaaS) in general and fundraising by Unit, which achieved unicorn status with a $1.2 billion valuation.

Read more: BaaS firm unit valued at $1.2 billion after Series C

The BaaS trend has taken off in recent years, Kote said. Before that, it was nearly impossible for companies like Airbase to integrate payments and money movement into larger software products: it was the only area of ​​large financial institutions with big in-house development projects.

But recently, opening a bank account, issuing a card, setting checks on the card, debit and credit through the Automated Clearing House (ACH) network and other features have become available through superior application programming interfaces (APIs).

Today, there are a number of players in this market, including Unit.

“There’s been this explosion of innovation and activity in this space, which ultimately I think is amazing because it’s easier for developers to access the infrastructure underlying financial, to hold money, to move money, to issue cards – it unlocks innovation at the next level,” said Kote.

These high-quality API platforms have democratized access for even the smallest companies and enabled startups to innovate across different categories.

“It’s happening in all areas – it’s happening in a bunch of consumer apps and it’s happening in a lot of different B2B apps,” Kote said. “All of this innovation wouldn’t be possible if improved financial infrastructure didn’t allow companies like ours to easily integrate payments and money movement into other upstream applications.”

Urgency for banks to innovate

PYMNTS’ release of a report that found payments modernization to be a critical initiative for financial institutions and businesses of all sizes also grabbed headlines this week.

See also: Half of banks report an urgent need to deliver integrated business payments innovation

Banks have always had doubts about why they can move money and move it — for a variety of good reasons, including regulation, Kote said.

This has changed, however, with the more tech-savvy banks opening up their infrastructure and allowing some of the BaaS providers to plug into the banking infrastructure and enable innovation.

Today, banks are seeing the success of cutting-edge competitors and hearing the demand for their own modern products that will connect their banking operations to the rest of their workflows.

“So a lot more of these banks are thinking about this process because if they don’t, they’re going to be left behind in a lot of ways,” Kote said. “So I’m not surprised your report suggests there’s a lot of urgency on that front.”

Rapid growth in B2B payments

The third item on the agenda was a PYMNTS interview in which BigCommerce CEO and President Brent Bellm predicted that e-commerce spending by B2C sellers would grow 8% over the next five years. But it is growing by 16% for business-to-business (B2B), on all platforms that modernize and accelerate transactions, in a collaborative manner between buyers and suppliers.

Read more: Booming Trade Payments Now Outpace B2C Advances by a 2-to-1 Margin

Kote said as someone who experiences this every day, it’s not surprising. Forty percent of B2B payments are still made with paper checks, so there’s a big opportunity to increase digitization.

Businesses see the efficiencies to be gained by not having to make check payments and not having to deal with paper, Kote said. And integrating everything into cloud-based tools makes it even more efficient.

“Every business spends money and every business has to make payments, and historically, there have been many different payment systems and means to manage,” Kote said. “But all of these tools are improving rapidly, so as it happens, customers are adopting it, so it’s not at all surprising to me that the volume of B2B payments is growing quite rapidly.”

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NEW PYMNTS DATA: THE TRUTH ABOUT BNPL AND STORED CARDS – APRIL 2022

On: Shoppers who have store cards use them for 87% of all eligible purchases – but that doesn’t mean retailers should start buy now, pay later (BNPL) options at checkout. The Truth About BNPL and Store Cards, a collaboration between PYMNTS and PayPal, surveys 2,161 consumers to find out why providing both BNPL and Store Cards is key to helping merchants maximize conversion.

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