As Good as it Gets?

APIs have often been cited as one of the most useful among the recently developed tools for treasurers, but are they really delivering? We look at current and future use cases, obstacles to adoption, and what exactly treasurers need to do in order to extract the most from this technology.

There is a clear trend towards increased API adoption in corporate treasury, with a significant increase in the adoption of APIs for real-time payments. Bank of America (BofA), for example, reports a 51% rise in API usage for treasury services over a 12-month period, suggesting that companies are facing “enormous pressure to know their exposure and cash position at any given time”.

However, the pace and extent of implementation vary among organisations, notes Ken Bugayong, Treasury Director and Consultant for digital asset infrastructure provider, Ripple[1]. This, he suggests, is influenced by factors such as technological readiness, resource availability, and their own industry-specific challenges. He also observes a fundamental technical issue, with API adoption often hampered by a lack of standardisation, of which more later.

While such obstacles exist, Bugayong, who also served as Fintech Faculty Instructor at the University of Washington, believes treasurers who are particularly conservative will persist with the view that the introduction of APIs might be opening up their organisations to potential security breaches or compliance-related issues. It’s a topic he feels needs addressing sooner rather than later, as those who do not engage with APIs may hamper progress within their organisations.

“Treasurers who don’t yet have a basic understanding of the internal workings of an API should start reading up on them now,” he advises. “They need to recognise how they can leverage APIs to make their work much easier, more error-free, and more efficient and productive.” Of course, he also stresses the need for heightened security awareness, suggesting all potential users “identify potential points of attack or violation within their own technical infrastructure” in advance of API deployment.

Expect more

Among those who are using APIs, primarily they have been deployed for basic bank account information retrieval, such as balance reporting and transaction history, notes Sergio Riesgo, Technical Product Manager, Embat. “However, their use has expanded significantly,” he adds. Indeed, today, he sees them being used for:

• Real-time payment initiation and reconciliation: enabling faster and more efficient payment processing
• FX rate management: providing up-to-the-minute rates for hedging and trading
• Cash forecasting: integrating data from various sources to improve forecasting accuracy
• Risk management: aggregating data from multiple sources to provide a holistic view of financial risk, enabling easier and quicker screening of payment outliers for fraud detection, for example

Of course, with banks and vendors frequently introducing new API features and functionalities, it is incumbent upon all providers to generate awareness of and interest in emerging use cases among their clients, suggests Bugayong. Among applications currently gathering momentum, he believes the automation of payment origination and approval directly from a TMS or ERP can be particularly advantageous for treasuries.

“It’s something that would be especially beneficial for global organisations, or those operating in multiple countries, because the ability to centrally initiate and execute payments cross-border or domestically would be a huge time-saver”.

Work in progress

As APIs gain acceptance so more examples of straight successes – and deployment challenges – in corporate implementations are coming to light, says Riesgo. “A significant number of large retailers have effectively leveraged APIs to automate their cash reconciliation processes, either internally or by externalising it via a TMS,” he notes. “This has led to a dramatic reduction in manual effort and associated errors, directly enhancing their working capital management and freeing up treasury resources for more strategic initiatives.”

While this demonstrates the tangible benefits of a well-executed API strategy, one major hurdle in API implementation is manifested in their integration with legacy systems. “This often leads to compatibility and data integrity issues, and unexpected costs,” explains Riesgo.

Compounding this, he says the banking sector has created its own set of challenges through a lack of API standardisation. “Critically, many banks simply expose their legacy internal systems through APIs, resulting in partially reconciled or unprocessed data. This forces corporate treasury teams to navigate unfamiliar bank-specific business logic, significantly complicating integration and increasing the risk of errors and inefficiencies.”

Therefore although the level of uptake indicated by reports from FIs such as BofA suggest that API adoption in treasury is gaining momentum, it is not evenly distributed. “While many  multinationals are actively exploring and implementing APIs, widespread adoption among SMEs is still a work in progress,” comments Riesgo.

Bugayong notes, too, that SMEs have often been slower to adopt APIs in treasury operations, “possibly due to implementation costs and resource constraints”. Their slower uptake, he warns, “may result in SMEs falling behind larger organisations in terms of operational efficiency and cash management capabilities”.

That said, as already mentioned, one of the most pressing API-adoption challenges facing all corporate treasuries has been their lack of technical standardisation. “Many companies struggle with integrating APIs from different banks due to inconsistent formats or incompatible data protocols,” he observes. “This has hampered adoption, as treasurers often find it difficult to consolidate data from various FIs into a unified system. While banks are working to improve their API offerings, the lack of a common approach remains a significant barrier for many.”

Advancing standards

Globally, initiatives such the EU’s revised Payment Services Directive (PSD2) and the US Consumer Financial Protection Bureau’s open banking rules are mandating banks to provide secure APIs for data sharing. Riesgo explains that as well as fostering a more competitive and dynamic market, they demand action on standardisation to simplify integration and enhance interoperability.

This is why major banking associations are now working towards facilitating a more streamlined API framework. For instance, the Bank for International Settlements (BIS), owned by member central banks, published its Promoting the harmonisation of application programming interfaces to enhance cross-border payments: recommendations and toolkit in October 2024. “If the impetus and support comes from the regulators, it makes it so much more likely that it will facilitate the adoption of standardisation across the industry,” observes Bugayong. “With that, it will surely alleviate most treasury concerns, especially those operating globally or across regions and that have to work with a number of domestic and international banks.”

In addition to tackling standardisation, several other key advancements are shaping the landscape of API use and implementation. A significant focus is being placed on improving API documentation and developer portals, indicates Riesgo. “This aims to make integration and implementation more accessible and straightforward, flattening the learning curve for developers.”

Advancements in API security, such as the widespread adoption of the OAuth 2.0 authorisation framework, and the implementation of robust API gateways, are, he adds, significantly enhancing protection against evolving cyber threats, which is paramount when handling sensitive financial data. And in terms of functionality, while not all banks have fully adopted it yet, there is a clear trend towards real-time API data transmission. This, notes Riesgo, enables treasury departments to access truly live data.

With API fundamentals now being tackled, the creativity continues to flow for new treasury use cases too.  “The future of APIs holds many exciting possibilities in treasury that will enhance productivity and unlock new financial service applications,” enthuses Bugayong.

Indeed, the emergence of several innovative API-driven services are directly transforming corporate treasury, suggests Riesgo. ‘Treasury-as-a-Service’ platforms, for instance, are leveraging APIs to provide on-demand access to crucial treasury functions such as cash management, FX, and risk management. Additionally, he believes that the “proliferation of API-powered instant payment services” is revolutionising transaction processing for corporate treasurers.

“Another particularly exciting development is the rise of startups that are leveraging diverse API services to compound bespoke financial offerings for corporates,” he notes. “This enables the new set-ups to effectively compete with traditional global banks by providing specialised, agile, and often more cost-effective solutions.”

Higher ground

With the rate of creative progress in mind, Riesgo foresees a “significant expansion in the use of APIs” in treasury. The application of AI and ML to analyse API data extractions is supporting predictive analytics in treasury, enhancing forecasting and real-time risk assessment. The integration of treasury functions directly into ERPs and TMSs is enabling corporates to offer embedded financial services, while the use of APIs to facilitate the secure transfer and management of digital (or tokenised) assets is opening up a host of new possibilities for treasury operations.

“The integration of APIs with AI/ML logic is already establishing stronger historical and real-time cash flow analysis, more accurate assessments of future liquidity needs, and even more robust fraud detection,” asserts Bugayong. But as part of the Ripple treasury team, he has a particular interest in how blockchain technology and APIs combine around tokenised assets.

“In the US, with changes in regulation, and the new government’s inclusion of digital assets into its strategic reserves, I expect to see the integration of APIs with blockchain and AI enabling instant cross-border and digital asset payments and settlements,” he submits. “This would significantly reduce transaction fees and processing times for treasuries.”

J. P. Morgan and its JPM Coin dollar-backed stablecoin is already delivering digital asset payments. A number of AI-driven fintech startups and so-called ‘neobanks’ are also using blockchain and APIs to innovate in areas such as consumer finance and compliance automation. It suggests that mainstream acceptance is arguably already well on its way. However, Bugayong recognises that most treasurers will need to see widespread deployment of APIs in this context before taking a step of this magnitude.

Know your APIs

“The key to successful API adoption in treasury will require a strategic, more measured approach,” Bugayong indicates. “Start with clear goals –  prioritising security and compliance – then you can begin choosing your banking and third-party APIs, making sure you provision for longer-term scalability. From there it will be possible to focus on automating routine tasks and improving efficiency. Do not neglect to invest in training though – and always remain adaptable to future innovations in the API space.”

Treasurers considering an API implementation are offered the following advice by Riesgo:

• Develop a strategic approach and select the right partners. Begin by defining clear goals and objectives for your API integration. If API integration isn’t your core business, prioritise finding the simplest and most efficient methods to integrate as many APIs as possible, maximising coverage and efficiency. Simultaneously, carefully select vendors and banks with a proven track record of reliable and effective API capabilities. The right partners will not only provide robust API solutions but also offer guidance and support throughout the integration process, ensuring alignment with your strategic goals (see Box 1 Question time below for hints on selection).
• Prioritise use cases. Focus on implementing APIs in areas where they can deliver the most significant value and address the most pressing business needs.
• Start small and scale upwards. Begin with a pilot project to test and refine your API strategy, and then gradually expand your implementation as you gain experience and confidence.
• Focus on interoperability. Ensure that the chosen APIs are compatible with your existing systems and infrastructure. Consider isolating integrations and consuming them internally across all relevant systems to ensure consistent data flow and functionality.

“I also would like to add advice for more traditional banks,” proffers Riesgo. “While APIs are frequently promoted as the future of financial connectivity, widespread adoption is still in its infancy. The reality is that many traditional banks offer APIs that are poorly designed on top of legacy systems, seem excessively expensive, and then fail to provide truly real-time data. Until banks significantly improve the quality, accessibility, and pricing of their APIs, many businesses will continue to rely on traditional connectivity methods.”

_{Notes
1 The viewpoints of resource persons are independent from, or do not necessarily represent those of their organisation.}