Payment Processing for Finance: How Open Banking APIs Simplify Payment Operations

Written by Jim Buitt
April 28, 2022

How we consume goods and services has changed massively, including payment processing. Think of our modern services, like Disney+, Amazon, and Twitter. New technologies have enabled people to receive entertainment, goods, and news faster, better, and cheaper.

While the consumer world has become used to “always-on” services, it’s taken time for digital innovation to arrive within banking. For this reason, third-party payment providers popped up to meet clients’ needs.

Times are changing, though. Banks have built open banking APIs, empowering them to partner with FinTechs to provide new payment processing innovations. Open banking APIs enable next-gen banking services to go direct to clients by creating pathways between the banks and other tech solutions.

To understand how this change has come about, let’s discuss where the payment space has been over the past 30 years, and what has caused this digital transformation to occur.

The Last 30 Years: Batch Processing

For the past 30 years, we’ve gotten used to processing payments through batch processing/file-based transports.

When I was a Controller, I went from cranking out physical checks to processing checks with digital signatures through payment software. Throughout this time, we were practically operating a mailroom to process payments, which was far from efficient use of our time. 

The problem with batch processing is that there’s hardly any transparency throughout the payment process. When you send your batch payments through your bank, there are usually no tracking or acceptance management services available immediately. Once a batch is settled, reconciliation is difficult because payments are packaged into one transaction on your bank statement.

With a lack of tracking capabilities, you often get essential information too late, such as notice of a payment lacking confirmation. This can lead to seeking out workarounds to make up for those late payments.

From a security standpoint, there’s a single point of failure, and trying to scale is difficult since reconciliation is time-consuming. The cracks of batch processing are showing.

Fortunately, a generation shift is occurring within payments.

The Generational Shift to Open Banking APIs For Payment Processing

By developing open banking APIs, banks have built more secure, faster bank rails, enabling businesses to digitally transform with new, robust technology.

Now organizations can leverage both individual transactions and bi-directional processing, which empowers greater transparency and scalability within payments that weren’t possible before. 

These new banking rails upscale existing payment methods like ACH, wires, and book transfers and enable new payment methods, like Real-time payments (RTP) and Pay-By-Bank. 

With RTP, you can send payments 24/7 with near-instant settlement, fund availability, and confirmation between your cash management platform and bank. Many will even enable you to Pay-By-Bank by linking your bank account to services like PayPal and Venmo.

This level of speed and automation, paired with modern cryptography enables you to gain stronger payment insights and security.

Check out this episode of Fintech Corner, where Joseph Drambarean and Trovata CEO, Brett Turner wade into the murky waters of corporate payments and demystify how APIs are shaking up the corporate payments ecosystem:

Advantages of Open Banking API Payment Processing

With the innovation within open banking APIs comes some inherent advantages to payment processing:

  • Easier Reconciliation with  Tracking. Reconciliation is inherent to the individual tracking process. With transaction ID meta data tied to each transaction, matching your transaction between your bank accounts and ERP software is done automatically.
  • Bulk Payments. Make mass payments without incurring any added fees at all. 
  • Limitless Scalability. Individual transaction processing eliminates digging into batch payments to uncover missing payments.
  • Increased Security. With open banking APIs, there’s three levels of encryption with token-based authentication on the transaction level, including encoding, more secure API payment rails, and APIs that check the ID of each transaction.

Through banking APIs, banks are becoming payment processors with the help of new FinTech platforms, like Trovata, the next-gen automated cash management platform.

Unlike third-party payment processors, Trovata doesn’t take money out of the bank as a subprocessor. When initiating payments through Trovata’s open banking APIs, your platform sends instructions and gets data back from your banking partners instead of actually processing payments.

Convergence Is Approaching Within Payment Processing

Many third-party payment processing solutions exist for different payment use cases, company sizes, and industries. But now, with cloud platforms connecting directly to your bank partners through APIs, we will see convergence from these singular third parties.

With automated cash management platforms like Trovata, bank data is distributed between your Trovata platform and your bank partners, tying a broader loop between quote to cash. Those who adjust to this new digital innovation will have access to all the pros open banking APIs provide in one secure platform.

How Trovata Is Enhancing Bank Services

Trovata’s vision is to enhance the bank, not disrupt it. By becoming the premier open banking API partner with many of the world’s largest financial institutions, we’ve helped develop these APIs alongside banks to provide better, clearer visibility into your balances and transactions across all your global bank accounts. And we’re just getting started, empowering clients of banks and Trovata to automate cash reporting, forecasting, analysis, and money movement.

You don’t have to transform your treasury and cash management operations alone. By aggregating your cash and banking information into a single dashboard using open banking APIs, Trovata helps you easily eliminate tedious, manual workflows. Automating your data management with Trovata makes generating, analyzing, and monitoring your cash reporting, forecasting, and payment workflows easier than ever.

Discover how our comprehensive suite of automated cash reporting, forecasting, and payment tools can enable you and your team to focus on strategic initiatives that drive value for your business.

Book a demo of Trovata!

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