The many fintech startups that burst on the scene to compete with Western Union or MoneyGram are morphing into something else — white label providers for companies running on dated infrastructure.
This pivot serves a growing demand to support cross-border payments. Merchants and banks alike are viewing such technology as a way to fast-track the development of payment services and make better use of the data they collect on their customers. Application programming interfaces (APIs) may be easier to work with when developing a business from the ground up, but the technology's ease of use makes APIs an increasingly practical option for less tech-savvy companies as well.
"At a very broad level, the market is moving to faster, better and more efficient systems," said Gilles Ubaghs, senior analyst with Aite Group. "The API side of this represents a big shift in financial services and the corporate world."
Many banks are weighed down by legacy infrastructure, with a lot of old systems in place that can be difficult and expensive to upgrade. Upgrades would be further complicated by the need to keep these older systems running as they are modified, Ubaghs said.
With regulations like Europe's revised Payment Services Directive (PSD2) calling for more collaboration and data-sharing between banks and third-party developers, there is a heightened demand to implement these upgrades — both to comply with the new regulation and to tap into the opportunities PSD2 creates.
World First, a London-based international payments provider, hasn't changed its technology much since entering the marketplace a few years ago, but it has completed a full upgrade of its API suites.
"A partner can come in and take our sandbox and documentation and see that they can build with this and find API endpoints that work for them," said Mike Ward, CEO of North America for World First. "We really wanted to upgrade our API functionality for client creation and onboarding, payments and transactional activity, and mass or bulk payments flow."
World First competes with the likes of Transferwise, Remitly and WorldRemit. World First sees its World Accounts Solution as a differentiator for clients to enable cross-border trading around the globe.
"We have that solution and continue to add currencies that we onboard in those countries," Ward said. "With up to about 20 currency accounts now, we have offered that to corporates who deal with other currencies or want new markets."
It's the type of service World First can build on in the future, with the goal of becoming a one-stop shop for companies not wanting to have multiple relationships with app providers.
While it is not likely that any of the fintech companies can displace the need for the messaging standards of the Society for Worldwide Interbank Financial Telecommunication, or Swift, Ward hopes clients will view alternative payment options as a way to bypass some of the traditional banking hurdles.
For its part, Swift is taking an approach not entirely different from smaller companies on the cross-border payments landscape. Swift's Global Payments Innovation initiative is seeking to have banks more aligned in their processes and communications, with upgrades as needed to legacy systems. It is not advocating major technology overhauls at this time.
In a digital-driven payments world, a major overhaul may not be necessary. APIs can come into play for most any aspect of a company's or bank's business, even if only to clean up the interface.
"A lot of corporate, old-school stuff doesn't look as nice," Aite's Ubaghs said. "It's about data visibility now, putting it in the interface, as data is easier to pull out and keep track of."
That sort of upgrade would help in creating better invoices or forms, as well as improve accounts payable and receivable.
This technology also allows the providers of APIs to "move up the value chain" and become more well-rounded companies, Ubaghs said.
"It happened with Square, starting with a digital service for consumers and then starting to add more data aspects to their services," he added. "A few years ago, fintechs were seen as a big threat to business models, but now they are seen as a way to modernize."