A No-Nonsense Guide to Treasury APIs
By Eleanor Hill, Editor
Almost every industry conference now carries a mention of application programming interfaces (APIs), but they are far from just another fad. In this era of open banking, APIs are offering treasurers new ways of working, moving away from batch processing into a real-time environment, as well as facilitating more efficient payments, and delivering working capital management benefits. Here, Eleanor Hill, Editor, TMI, cuts through the noise to find out what treasurers really need to know about APIs.
With so much talk about APIs right now, it would be tempting to think they are a new invention. In fact, we’ve been using them, albeit unwittingly, for years – in both our personal and professional lives. If you have ever used a treasury management system (TMS), or any financial system for that matter, you will likely have benefited from API technology beneath the surface. Anyone with a smartphone or a LinkedIn profile will also have used APIs in one form or another.
But if APIs have been around for decades, why are we hearing so much about them now? What’s the big deal from a treasurer’s perspective? And what’s new that’s actually worth knowing about?
What exactly are APIs?
Sometimes, you get beyond the point of being able to ask a basic question – because people assume a certain level of knowledge. But if you’ve never encountered APIs before, or simply aren’t that interested in the mechanics, there’s no reason why you should know how they work.
Nevertheless, it can be useful to understand a little bit about the concept in order to see the potential they hold in the treasury space. So, in simple terms, what is an API and how does it work?
According to Tom Durkin, Bank of America Merrill Lynch, “APIs provide a way to connect things together in a simple fashion, in real time. Much like a power outlet lets you connect any appliance to the power company just by plugging it in.”
Meanwhile, Anis Rahal, CEO, TreasuryXpress, says that: “very simply put, an API is just a piece of code that allows two applications to talk to each other. They work behind the scenes to deliver the end-user a seamless experience.” He adds that “In our own personal use of technology, we ‘experience’ an API all the time, whether we are posting something to LinkedIn or Instagram or merely checking on the weather, the API is there, unbeknownst to us, doing all the work.”
Oskam echoes these thoughts, explaining that an API is “an interface for exposing products and services to a third-party software or service. APIs hide the complexity of underlying functions, allowing business and technology partners to focus on building value-added capabilities without being concerned with the internals.”
He goes on to say that, in essence, APIs make it possible for products and services of one company to connect with those of another for increased value. “By opening its data, functionality and services to third-party developers, a business can expand its innovation capability to comprise a broader ecosystem of partners. Likewise, in addition to exposing functionality, APIs make it possible for companies to also consume data, functionality, and services to increase client value.” He adds that APIs have the potential to be a revolutionary concept since they can reduce costs, accelerate innovation and solve complex problems.
But, of course, it is not quite this simple. As Durkin observes, “the biggest misconception around APIs is that they will provide richer, more robust experiences in and of themselves. What APIs do provide is the ability for services providers to combine data and services in new and enriching ways by using a variety of APIs combined into a singular experience. Imagine pulling ten data feeds together in real-time via API and combining them to provide one robust output.”
So, before we delve into the treasury benefits, it’s worth briefly setting the scene and understanding the current interest in APIs. As well as rapidly advancing consumer and business expectations, one of the most powerful drivers behind the current wave of momentum is recent regulation. As Dick Oskam, Managing Director, Global Head of Transaction Services Sales, ING Wholesale Banking, confirms: “The Payment Services Directive 2 (PSD2) in Europe and the open banking initiative in the UK have proved to be a catalyst to accelerate API-enabled open banking innovations.”
He explains that, “at the core of PSD2 is the requirement for banks to grant Third Party Providers (TPPs) access to a customer’s online account/payment services in a regulated and secure way. This ‘Access to Account’ (XS2A) rule mandates banks or other account-holding Payment Service Providers (PSPs) to facilitate secure access via APIs to their customer accounts and data if the account holder provides consent.”
This is a big leap forward in terms of customer experience and the hope is that it will also transform the banking landscape. “Done correctly, API-enabled open banking will allow banks to accelerate innovation and improve collaboration with our clients and selected third parties,” says Oskam.
Anis Rahal, CEO, TreasuryXpress is slightly more outspoken on this subject, adding that, “regulation is driving transformation when it comes to bank connectivity and open banking because there needs to be more accessibility, security, and more ‘democracy’ amongst clients and banks.” He says that it is important to remember, though, that regulations like PSD2 are not really ‘API regulations’ per se: the API is just the solution that has been identified to satisfy the requirements.