A No-Nonsense Guide to Treasury APIs

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?

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. 

However, Vanessa Manning, Head of Liquidity and Investment Solutions, Global Transaction Banking, Deutsche Bank, is quick to point out that PSD2 is far from the only regulatory development driving APIs forward. “It is true that PSD2 has already enabled a new generation of fintechs, PSPs and Account Information Service Providers (AISPs) to develop solutions which both compete with and complement formerly bank-proprietary solutions,” she says.

“But the agreement of API technical standards across the EEA over the coming years, in addition to national regulatory harmonisation across APAC and Africa around API and QR code adoption, will further increase the flexibility of connectivity, data richness and bespoke dashboarding and analytics available for corporate treasury and their commercial sales teams,” she notes.

Concrete benefits for treasury

Turning, then, to the potential rewards on offer, Tom Durkin, Head of Global Digital Channels in Global Transaction Services at Bank of America Merrill Lynch, believes that the true benefit of APIs to treasurers will be in the breadth of offerings they have at their disposal and the reduced friction in the payment and reporting systems. “Treasurers will no longer be tied to systems that require batch data and direct host-to-host connections to the bank. New systems will take advantage of the speed and ubiquity of APIs and offer value-added services to treasurers.” Payments will happen in seconds, not minutes or hours”, he says. Information will also be real-time, not hours or days old, changing the face of reporting and decision-making.

As a result, the benefits to treasurers will be many. “Aside from getting real-time balances, which will improve cash efficiency, corporates will be able to disburse funds in real time from their apps or websites using a variety of global faster payments networks, such as Zelle in the US. Treasury staff will also be able to get instant FX rates and AI-driven investment and liquidity guidance,” adds Durkin.          

For Manning, meanwhile, one of the clearest benefits to treasurers of APIs lies in solving the challenges associated with managing cash and liquidity across multiple banks. “Multi-bank sweeping requires multi-bank agreements per jurisdiction. Compared to single-bank sweeping structures where sweeps happen at close to midnight, multi-bank sweeping requires early cut-off times, often resulting in residual (buffer) balances being left in local bank accounts,” she explains.

With APIs deployed in the PSD2 environment, and combined with instant payments, however, treasurers will have the ability to view balances and concentrate liquidity in real time, says Manning. “This will reduce the risk of local overdraft balances and lower the opportunity cost of holding local cash buffers. In addition, treasurers can reduce credit risk by avoiding intraday or overnight cash balances with local banks. Overall, this could also see treasurers rely less upon SWIFT messaging to manage liquidity,” she adds.

On the technology front, Manning acknowledges that numerous corporates are still challenged by a plethora of unconnected, multiple instances and multi-bank interfaces which continue to require cost, time and security protocols to manage. The good news is that “the use of API-powered integration layers or message broker services, whether from a bank, ERP/TMS provider, former service bureau or licensed AISP, is now a market reality.” 

She says that such a layer can provide real-time, cost-efficient and low maintenance integration services to overcome fragmented ERP and bespoke hardware or software applications. In turn, this should deliver real-time updates of source information to inform planned and event-driven working capital decisions in a multi-banked environment.

And for those wondering just how APIs can bring these efficiencies, a picture – or two – is worth a thousand words (for full transparency, Bank of America Merrill Lynch kindly provided these images, hence the reference to their CashPro platform, but others have similar offerings – speak to your relationship bank(s) and vendors to find out more):

Fig 1 - Payment initiation  Source: Bank of America Merrill Lynch

Fig 2 - Reporting  Source: Bank of America Merrill Lynch

To truly harness the power of APIs here, however, it may well be time to rethink treasury technology and enterprise-wide tech set-ups, believes Manning. “On a close to real-time basis, as funds are received, the accelerated decision time and need for automatic parameterisation of whether to pay down bank or corporate debt, invest in off-balance sheet instruments, or avail of a discount opportunity, will require significant enterprise-wide automation,” notes Manning. “Customisation, with a degree of artificial intelligence to continue to learn transactional and decision patterns, and ongoing reconciliation matching will also be important,” she says.

Working harder and smarter

Oskam largely agrees, saying that “treasurers today have a number of internal operational challenges such as lack of oversight to enable true cash flow forecasting, friction in their reconciliation processes, not having a complete overview of their cash balances in real time. Through APIs, treasurers would be able to bridge the gap in these challenges by streamlining current processes and making use of these APIs to deliver value across their subsidiaries, for example.”

To be more explicit about some of the potential benefits, he believes that “open banking and APIs should allow for advances in multi-bank capabilities and aggregation services. By applying analytics (using artificial intelligence), improved forecasting will also be possible,” he says. In addition, he sees tools in the ‘next best decision’ arena as a point of focus going forward – helping corporates to move towards smarter, more strategic, thinking.

As well as leveraging working capital management benefits from APIs, Oskam thinks that APIs may well be used more in the trade finance arena – issuing letters of credit and managing the workflow in a trade transaction, for example. Elsewhere, APIs also have the power to transform the channels landscape, he says. “Most corporates rely on bank supported direct channels as well as third-party services such as SWIFT for their transaction needs. APIs are likely to affect such channels and increase the playing field through open access channels, complementing or competing with such traditional channels.”

Treasurers are also likely to see increased innovation with banks collaborating with fintechs and offering integrated cash management products through APIs, notes Oskam. In addition, treasurers will also be allowed more flexibility to ‘adapt an API’ to their business challenge. “After all, through APIs, products and services can be plugged into their ERP packages seamlessly,” he explains.

This point about seamless integration and connectivity should not be underestimated. In Rahal’s view, the ‘big deal’ about current API offerings for corporate treasury is how the API changes the connectivity experience for treasurers – experience being the operative word. For example, “one of the longest, most gruelling, and expensive parts of a TMS implementation project is often the bank connectivity piece. By using APIs to connect to banks, connectivity can happen much more quickly and therefore more affordably, transforming the implementation experience for treasuries,” he says.

Grasping the opportunity

Interestingly, TreasuryXpress has been using APIs in its solutions since 2015 (before the open banking phenomenon really began). This, says Rahal, is to “provide flexible and secure connectivity to banks and other third-party platforms that our clients require. And because of our experience, we have been invited by numerous global banks to take part in their early testing programmes for their APIs under PSD2 requirements.”

He adds that: “by leveraging technology-driven methods such as APIs for our implementations, it allows us to again, deliver a unique and improved implementation experience that saves time and costs for both us and our clients. APIs completely optimise delivery for both the provider and the client. Without having to rely on inflexible, legacy connectivity methods, it also opens up the options for all levels of technology collaboration – from market data feeds to trading platforms, etc. The possibilities are endless.”

Durkin, too, believes that APIs can potentially open new doors for treasurers, although he focuses more on the treasurer’s ability to add value to the company’s bottom line through increased visibility into cash and liquidity, for example. Either way, to take full advantage of the opportunities, Manning re-emphasises the point that treasurers may well need to rethink their IT infrastructure. What’s more, to build an agile, secure and scalable treasury architecture, treasurers must also ensure that their skillset or team is enriched with technologists, data scientists and risk managers who can process the relevant inputs and fulfil treasury’s growing strategic liquidity and risk management role, she says.

 So, while APIs may be light-touch from a deployment perspective (since it is predominantly banks and vendors who will be rolling them out on behalf of their corporate clients), in order to maximise the potential benefits, treasurers have some groundwork to do. Only by having the right technology, people and processes in place, will treasury professionals be able to reap the full rewards that APIs can offer.