The noise around APIs is particularly raucous in the financial services world, but are they delivering on the promise to bring a host of new products and services to end-users? TMI asks Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management, BNY Mellon, to assess progress.
That said, the volume of chatter in recent months around APIs and Open Banking has at least awoken many stakeholders in the corporate financial world to the potential of API adoption. The recent arrival of the API in this space (the term has been circulating among database professionals since the 1970s) has at least given rise to the idea that some banks will turn themselves into a kind of financial service platform provider.
By offering Banking-as-a Service to the expanding fintech and vendor communities, participants, in turn, will leverage their new connectivity by offering an unprecedented wealth of new services and products to end-users, including corporate treasuries.
Uptake
So, while there has been much talk of the potential of APIs, are they yet delivering the goods? Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management, BNY Mellon, is an advocate of the power of APIs but believes levels of adoption are currently “somewhat slow” and very mixed around the regions. “We’ve seen most uptake in the US, but there is also growing interest in APAC, EMEA and LatAm, with active exploration engagements in the cross-border payments space,” she comments.
Where API adoption has proven most enthusiastic, Singapore-based Vadakath says it is usually being driven by a strong regulatory push on a digital agenda, via bodies such as the Monetary Authority of Singapore (MAS), and the Australian Competition & Consumer Commission (ACCC) and through PSD2 in Europe. Changes in local market infrastructure driven by some central banks looking for digital transformation is, she feels, also mandating financial institutions (FIs) to push API uptake.
In certain territories, where fintechs are capturing market share from banks, she also notes increasing expectation on the part of the end-user – especially in the consumer sector – to be offered new digital services that provide both immediacy and efficiency.
Naturally, this expectation is beginning to filter through to the business-to-business (B2B) realm. Indeed, many corporate professionals are anticipating the application interfaces of their banking solutions to be as slick and intuitive as those they find in their consumer lives. Vadakath is also now seeing more corporate treasury clients eyeing API-driven advantages such as operational speed and efficiency. Where process automation is also deployed, rapid (even real-time) data flows, superior analytics, and real-time visibility over balances and payments status are, she says, now entirely possible.
Of course, there has been a varied level of uptake with firms being at different levels of maturity of their digital transformation journey. This requires significant technology investment, which has proven challenging this year due to the pandemic. That said, banks that do not yet offer a polished digital experience will begin to see rising customer dissatisfaction. It has been observed in the consumer space for some while, and it is now being seen in B2B too. Essentially, APIs have become the technological bridge between new and improved service offerings, and greater levels of customer satisfaction.
Application
In terms of use cases, it’s worth briefly restating that the US has an industry-driven approach to Open Banking, rather than one connected with the consumer privacy regulations seen in the EU, for example. Resultingly, US uptake is more focused, with the insurance, corporates and healthcare sectors most visibly adopting this model, notes Vadakath.
Within these sectors, speed and efficiency are being leveraged most readily in the payables, disbursements and collections space to connect to the electronic payment options such as the US RTP / Zelle. APIs are assisting migration away from paper-based operations towards a wider range of payment and collection tools and channels, including e-wallets and the introduction of request-for-payment.
A further interesting use case for APIs is to be found in business continuity planning (BCP) and the quest for more viable solutions for emergency scenarios. With organisations invoking their contingency plans as they go into remote working mode during lockdown, those that rely heavily on paper-based processes have had to start looking at how they connect to their providers, notes Vadakath.
Indeed, the pandemic has raised the awareness and attention at senior levels across most various organisations of the importance of having a robust, resilient, highly responsive plan. “Integrating with APIs would make the most sense as it will be an easy switch from the main messaging channel with providers and have the least impact on operational capacity,” she says.
It’s a pretty limited set of scenarios so far. “From what we have seen, we have only just started to scratch the surface in the B2B space,” she counters. But she concedes that there is “lots more to do” to unlock the potential not only of APIs but also the data flows and insight that they can deliver. “As the data starts to become more available [through APIs], so more opportunities will arise to integrate treasury processes into a real-time model,” she explains.
Of particular interest here for treasurers would be the insight into transactional status and how this might drive more proactive actions around functions such working capital management. However, although in a domestic environment, API-enabled real-time data is achievable, Vadakath says that the complexity starts with international transactions.
Development
The problem lies within the cross-border interoperability of market infrastructures and networks, she explains. In particular, she accepts that there is a desperate need to find a common messaging standard, such as the ISO 20022. Until this issue is resolved, it restricts how useful APIs can be.
There is a great deal of effort underway by market infrastructure providers, central banks and institutions such as SWIFT to find ways of simplifying processes. This will happen by evolving standards into a common code, Vadakath says. “Once that is in place, and the language of data is harmonised, it creates enormous opportunities to provide value through APIs.”
Of course, adoption of APIs by consumer-focused providers is “just the tip of the iceberg”, says Vadakath. The Big Tech companies (Google, Amazon et al) are well-versed in seamlessly leveraging API-derived data across their platforms. This level of expertise is yet to be translated into the financial services sector, she says, adamant that “it’s what we are working to accomplish now”.
However, with uptake inconsistent across the world, the levels of investment required of banks and corporates to bring the financial services infrastructure to a state where all data can be seamlessly consumed without interpretations or translations is behind the curve. In addition, the economic situation as a result of the pandemic may cause some strain on investments – yet there is also a wave of investments towards initiatives that support operational efficiency and business resiliency.
By talking to corporates and FIs about the wider issues they face and the broader goals they wish to achieve, rather than offering point solutions, banks, fintechs and vendors will help bring about greater clarity and understanding of what APIs can really achieve.
But the banks also have to bite the bullet, stop building on their legacy applications, and adopt a digital-first agenda. With the flexibility and agility that wise investment will bring, the integration of APIs into their own and their clients’ infrastructures will exponentially expand competitiveness, enhance the employee and customer experience, and open domestic and international trading opportunities for all.
