Payrailz, a digital payments startup, offers something bank customers can use: a digital assistant that uses artificial intelligence (AI) to offer insights on payments and cash flow. It can even lower bills by suggesting cheaper vendors.
"It's bringing to your pocket that private banker advice, which is what banks used to be known for — not just as transaction processors," says Fran Duggan, CEO of Payrailz. "That's what they can do to reestablish themselves at the center of people's financial lives. We are going to help them get there."
It's pretty indisputable to say that financial institutions have been slow to offer new and compelling add-on services that appeal to consumers. But Payrailz serves as a good example of how the payments industry still holds the cards. Facing the threat of disruption from 'techfin' — tech companies such as Amazon, Google and even PayPal, all of which will offer financial services — banks nonetheless have struggled to integrate services driven by application programming interfaces (APIs) to their own existing platforms.
The tide might be finally turning, with the likes of Payrailz and a multitude of other providers, many of whom are now partnering with others to work with banks, as part of new ecosystems to bring better services to consumers. Call it symbiotic: financial institutions need the technical know-how of open architecture, and fintech providers need the data.
"This is a huge opportunity," Duggan says. "The best fuel is financial data, and the banks have it."
Open APIs help drive new era
Payrailz is part of a global movement to transform the customer experience fueled by open APIs. These have traditionally been used to integrate internal IT systems of a financial institution, but the biggest value is to expose APIs to external partners, notes David Albertazzi, a research director at Aite Group, a consulting firm.
"Customer-centricity requirement is really the catalyst to the digital transformation that we are seeing taking place," Albertazzi says. "Financial institutions have realized that they need to provide choice and convenience. They need to make it easy for doing business. It needs to be personalized."
To enhance personalization, financial institutions need to be more willing to share their data. In Europe, this mentality has been spurred by the Payment Systems Directive, Version 2 (PSD2), and the effects are starting to be felt in the United States.
In finance, API availability is accelerating. As of April 2020, there were more than 2,000 public APIs available in finance, according to ProgrammableWeb, an organization that tracks API development. And there were more than 22,000 public APIs overall. These APIs make it easy for companies to enhance the services of other companies: think of the ubiquity of the Facebook login as one commonly used APIs.
Emerging ecosystems fueled by the cloud
Financial institutions see the potential. Live Oak Bancshares, parent of Live Oak Bank, with $4.8 billion in assets, has gone so far as to set up its own venture fund, dubbed Canapi Ventures, investing in tech startups geared toward enhancing financial services. Canapi has invested in companies centered on other parts of the customer relationship, such as Payrailz and Finxact, a cloud-based core processor, among others.
Using the cloud, these providers can offer compelling pricing. "The pressure on the operating costs for community and regional banks is very high because the incumbents charge too much — because their technology costs too much," says Frank Sanchez, chief executive officer and founder of Finxact.
Finxact stands apart due to its cloud-based platform at a time when many financial institutions still rely on mainframes and IBM AS400s for core processing. Yet it also has an open core API, allowing banks and their partners to access Finxact for faster and less costly integrations and customization, Sanchez notes.
Finxact also touts its alliance with Payrailz and other public API providers, as part of an ecosystem of sorts. Payrailz handles payments. Apiture and Zenmonics can be used for onboarding, nCino for loan origination, High Cotton for statement creation and Deluxe for remote deposit capture and item processing. The theory is financial institutions will get real improvements to consumers faster with these types of providers.
The openness also promotes competition. "My best scenario is that for any particular piece of a solution, there are two or more alternatives that a bank can choose from," Sanchez says.
By going with these white-label, API-driven open providers, the theory is financial institutions won't lose business to techfin, including PayPal in the payments world, Duggan argues. "We're not going to just give you technology that PayPal does," he says. "We're going to help you leapfrog PayPal."
Better technology at a good price? Banks stand to benefit, and so will customers.