Can APIs Shape the Future of Treasury Services?
Application programming interfaces are a crucial component of modern financial services – especially investment banks.
Application programming interfaces (APIs) are a vital innovation able to transform treasury banking – making financial institutions more agile, innovative and highly experiential to support their clients’ needs, writes BNY Mellon’s Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management.
From real-time payments to account authentication and real-time payment exception handling, digital services have become a prominent part of financial institutions’ (FIs) offerings to treasury customers. Clients are increasingly looking for fast and frictionless experiences throughout the transaction life cycle – including pre-processing, during processing and post-processing. Application programming interfaces (APIs) are providing valuable real-time experiences that help address these needs.
APIs enable streamlined, efficient communication and integration between software components. By using APIs, FIs can offer greater speed and efficiency, and, by harnessing process automation, can provide instantaneous transactional data and actionable insights; as well as real-time visibility over payments, statuses and transactional balances for efficient cash management.
The increasing potential of APIs has been fueling industry innovation, disruption and connectivity, and many FIs have already integrated APIs into their operations. Now, with the ecosystem being driven towards greater levels of harmonisation – through initiatives such as the global migration to the ISO 20022 messaging standard – APIs are beginning to shape the future of banking.
Achieving business goals
APIs can connect the digital ecosystem while bringing numerous back-end and client-facing benefits. A critical advantage of APIs is the ability to integrate real-time balances and transactional data across multiple channels, including Treasury Management Systems (TMS) and Enterprise Resource Planning (ERP). For example, through BNY Mellon’s Treasury Payments API, clients can integrate FIs’ solutions within their own internal systems. Clients can seamlessly perform business operations by automating payment processes, as well as streamline necessary treasury operational tasks such as reconciliation and reporting. Clients can also leverage the technology to securely access global payment capabilities through a single endpoint, enabling them to initiate payments and track the status of transactions end-to-end.
APIs can connect the digital ecosystem while bringing numerous back-end and client-facing benefits.
Through such solutions, clients can enjoy the time and resource saving benefits of real-time data sharing, especially through the pre- and post-transaction processing lifecycles. The automation and streamlining of operational processes allow clients to redirect their resources to more value-generating functions, such as forecasting analysis, customized reporting and transaction capabilities.
Return on investment
After several years of investment in APIs to deliver integration solutions, FIs are already seeing a strong return. Benefits include retaining clients through improved client satisfaction and resiliency, as well as unlocking legacy data and eliminating manual processing.
And APIs now play an important role in business continuity plans (BCPs). The importance of having an established plan to offset against the impact of unexpected events has been confirmed by the COVID-19 pandemic. In the case of a disruption or network outage, FIs are using APIs to seamlessly switch to a digital, active-active alternate channel to process their payments – traditionally, a resource-heavy process between FIs and network providers to ensure timely execution without any financial implications. By integrating APIs into their networks, FIs can smoothly transition to their back-up plans during such exigencies.
For banks such as BNY Mellon, integrating APIs with their clients’ operations is a way of offering value-driven, tailor-made solutions to support business agility and innovation for clients. As opposed to a one-size fits all approach where offering a standard product isn’t the goal, APIs provide a solution-based target where the client can be kept at the center, and their unique needs – whether that be authentication, validation services, exception handling, or real-time access to data and reporting on payments and account activity to take timely actions – can be solved through APIs and other digital capabilities.
Looking to the future
While the finance industry is learning to leverage API technology, the size and complexity of the solution required can sometimes impede the success of delivery. For example, an API might need to work for multiple parties across various jurisdictions that are each bound by regulations in their domestic markets. As a result, a number of consortiums, formed by both fintech and financial firms, are working on ways to resolve these issues.
In fact, FIs are responding through collaboration and partnerships – with each other, with fintechs, and with industry networks and participants, such as SWIFT. Where FIs focus on upgrading legacy systems and data architecture, they see opportunities to partner with fintechs to accelerate the process. Meanwhile, FIs can offer fintechs with real world client use cases, problem statements and the ability to deliver their innovations across a range of situations and sectors, leveraging each other’s expertise to address industry needs to stay relevant.
One of the biggest challenges for adoption is the difficulty in maintaining multiple variations of the message specifications by channels, currency and markets. However, the way to overcome this challenge is through increased standardisation, and the upcoming migration to ISO 20022 could reduce a lot of these frictions, by improving cross-border interoperability and streamlining the exchange of data for APIs. It is going to be a journey towards harmonisation that requires the industry to come together to chart the path towards the digital future.
As FIs continue to invest in new technologies and further leverage the benefits of APIs, they move closer to not only achieving their strategic business goals, but also enabling their clients’ own digital transformation goals. Banks and other FIs have the responsibility to continue to explore agile, innovative and integrated API solutions, ensuring that clients can benefit from the host of opportunities APIs will bring as they shape the future of the industry.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.