APIs allow us to make payments seamlessly, reaching the global marketplace at our fingertips, by transmitting information from one piece of software to another.
But as APIs become increasingly part of our day-to-day transactions, how can we make sure they are the best fit for the service users and that they do not fall into the trap of prioritising style over substance? Finance Monthly hears from Henry McKeon, Innovation Architect at moneycorp.
Banks, fintechs and APIs
For incumbent banks, APIs give the opportunity to expand their customer reach, by offering a more accessible range of services, along with potential partnership opportunities with fintechs. However, due to the business model of the bigger banking institution, they are inherently less agile than their fintech counterparts, meaning they often come up against barriers in the development of their API offerings.
On the other hand, we see a number of fintechs who rush to get their API service to market in order to serve their customer base – who are more likely to be tech-savvy. And while they have an agile business model that allows then to be flexible in adapting customer solutions, they don’t have the heritage and pre-built trust with the general public, along with the years of customer feedback to implement into their systems.
The customer at the core
Fundamentally, a successful API has the customer at the very core. In the first instance, it’s vital that the provider looks at the specific customer requirements and relates those needs directly to the API services. Working closely with end customers helps to provide a better understanding of customer requirements and helps to structure the API offering. In building an API offering, developers should look to engage a number of existing customers to understand their requirements and to offer the functionality that would service clients across a wide variety of industries and needs.
Fundamentally, a successful API has the customer at the very core.
Some customers need efficiency in order to operate at scale; keying payment transactions manually via a web portal doesn’t scale and is error prone. Mass payment file processing provides efficiency and reduces errors but is not always what our high-tech customers are looking for. They want open API services so that they can link their platform directly to payment and foreign exchange services, they want to drive transactions from their own platforms directly. Having the ability to access services via API instead of via files provides the ultimate flexibility.
Building a central set of API endpoints, which provide the core banking on a multi-currency wallet, global and local beneficiary validation, international payment capabilities, peer-to-peer facilities for instant transfers, and 24/7 multi bank dealing and transactional and statement capabilities is part of the core requirement which help service customer needs.
Different industries have different requirements
The diverse needs of the customer journey are put into perspective when looking at invoice factoring customers who service short term debt. They need strong banking facilities for receiving and auto-allocating incoming money. Receiving is a key part of the banking offering, so doing that quickly and across a multi-currency account is a core part of our offering. Having account tiering (Parent-Child segregation) also helps with segregating money and reconciliation.
Invoice factoring companies need efficient pay out capabilities, for paying suppliers (early) and paying back to investors at the end of the agreed term. As a result, the ability for an API to provide speed, global coverage and multi-channel capabilities are crucial. Building receiving information into the API, providing instant access to balancing and received funds, along with the referencing on incoming money therefore becomes a fundamental requirement. This allows customers to understand the source of the money, so they can do checking an allocation on their own platform.
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Freelancing companies are another good use case for APIs. By their very nature, they are collecting and paying consultant salaries and need to be able to capture consultant bank details accurately and securely. In addition, they want to be able to validate these bank details at the point of capture, instead of at the point of payment, in order to avoid any errors or delays. Having the ability to validate local and global bank routing information at the point of entry using an API is a big advantage. Having a validation rules engine enables clients to dynamically configure the capture screens on the source freelancing system. In showing the mandatory banking fields required for each country and currency, it provides clarity on the required fields and validation of the banking details captured as part of the API offering. This functionality fundamentally helps eliminate payment failures, reduce rework and costs in the payment process.
When working with clients running freelancing sites, you’ll often find that they also require FX conversion and payment facilities which need to be embedded into the API to facilitate global pay out requirements. Local payout facilities also help reduce costs of transmission and receipt, as sending through expensive international channels is not always suitable.
This is also echoed in the requirement for shipping companies, that need to be able to pay efficiently for port calls globally. Having access to a wide range of international payments routes and currencies is essential to provide a full service. For example, at moneycorp we have partnered with Inchcape Shipping to provide Smartpay which services the world's maritime industry. Smartpay simplifies the payment process, providing efficiency and transparency and helping to centralize treasury and FX and payment services for the group.
FX providers give substance and style
In the fast-evolving world of API solutions, style is impossible to achieve without substantive attention to detail. This is even more apt in the space of foreign exchange, where achieving speed, efficiency and security can be more of a challenge due to the nature of banking across borders. In this space, to be successful, an API needs the agility of a fintech to evolve to rapidly changing consumer needs but be backed by substantive banking networks and expertise to execute payments securely and quickly across currencies, markets and time zones.
“Strong global market sentiment for risky assets, a weakened dollar and geopolitical turmoil in the Middle East underline the need for a long-term multi-asset portfolio”, asserts a leading global analyst at one of the world’s largest international advisory organisations.
deVere Group’s International Investment Strategist Tom Elliot, is weighing in after the IMF upgraded its estimate of global GDP growth this year to 3.9%.
Mr Elliot comments: “We have seen an unusually strong start to the year for risk assets, as global investors appear confident that a period of non-inflationary, globally synchronised economic growth is underway.
“Equities and non-core bond markets have benefited from strong inflows in recent weeks, with a slow creep upwards in core government bond yields doing little to deter enthusiasm for risk.
“The MSCI World index of developed market shares is up 7.0% since the start of January, and up 5.5% in local currency terms. The Japanese economy grew at an annual rate of 1.4% in the third quarter 2017, despite a shrinking population. And the MSCI Emerging Market index is up 9.9% since January.
Mr Elliot details three major theories that are on offer for these developments: “Firstly, the ECB and the Bank of Japan look likely to end their quantitative easing programs earlier than had been anticipated, so bringing forward the date when those central banks might also start to raise interest rates.
“Secondly, Trump’s tax cuts announced in December are worth an estimated $1.5tr over the next five years, at a time when the labour market is already tight. This raises fears of wage inflation pushing up CPI inflation.
“And thirdly, a suspicion by many FX traders that the Trump administration wants a weaker dollar as a deliberate tool for narrowing the trade deficit, to be used alongside more overtly protectionist policies. Trump denied this while in Davos on Thursday, calling for a strong dollar… ‘ultimately’.”
Mr Elliot underlines how Sterling’s strength has contributed to a return on the MSCI U.K. index of -0.2%, as dollar-earning FTSE100 heavyweights have come under pressure, and to a return on the MSCI World index in sterling terms of just 2.0%.
He goes on to say that Trump’s ‘Make America Great Again’ policy poses only a modest attack on free trade, and that it should be contextualised.
Mr Elliot states: “Bush raised tariffs on European steel imports early in his first term, and massively expanded agricultural subsidies. The sky did not fall down. We must hope that Trump’s attacks on free trade remain relatively specific and do not become broad in scope.” At the same time, Central bank policy errors remain “a key risk to capital markets”, asserts Elliot.
He says: “Anything that produces a sudden rise in core government bond yields, or cash rates, are a threat to stock markets and high yield bonds.”
“Meanwhile, geopolitical turmoil in the Middle East should be observed closely”, says deVere’s top analyst.
Mr Elliot comments: “The Middle East is developing new themes that one needs to keep an eye on, partly because of the ongoing risk of a regional clash, but also due to the young populations who are less conservative and less inclined to tolerate the status quo.”
He concludes: “As such, I strongly advise a multi-asset portfolio for the long term to offset financial volatility, centred around 60% global equities and 40% global bonds.
“Such funds predicated on this principle are available in spades and differ according to the level of risk for suitable investors, who more often than not, value certain returns over high-risk gambles.”
(Source: deVere Group)
They make it seem so easy to just jump into the foreign exchange industry and begin trading. But there are actually plenty of considerations to make. Steve Plant, the CEO of WhichFX, has compiled a list of the dirty tricks of the FX industry to be aware of when planning currency transactions.
As an international small business owner, I am all too familiar with the complexities of the foreign exchange landscape. When trying to arrange a foreign exchange (FX) transaction, initial dealings with banks are often frustrating due to poor rates and high commission, which are often particularly unfair to smaller businesses. As such, many turn to brokers to secure more fruitful deals. This can often be overwhelming, however, as different brokers offer varying rates, commissions, and hidden costs.
It can be difficult to cut through this cacophony of brokers, who often solicit unwanted quotes once you’re on their books as they’re hungry for your business. They may appear good on paper but when it comes to initiating the transaction the rates and spread have completely changed. This is thanks to the inaccessible nature of the FX marketplace, perhaps cultivated by banks and brokers so they can hold a monopoly on foreign transactions.
Banks take advantage of the trust placed in them to provide good value and competitive services, making high profits off small businesses’ FX transactions, giving you rates that differ vastly from live interbank rates.
Brokers offer honeymoon rates to attract new customers but then slowly increase the spread (the profit the broker makes on each transaction at the clients’ expense) once a relationship has been established.
Some brokers refuse to use new services that drive down the spread, reducing their profits but maximising the value for clients.
Aggressive sales techniques keep you trapped in the honeypot. Brokers call clients with unsolicited sales calls, often creating a sense of panic by suggesting now is the best time to conduct a transaction as rates are about to take a turn for the worse in the very short future.
Broker comparison sites are misleading by only comparing rates, putting advertisers at the top of their lists, and omitting commission and hidden fees.
SMEs should avoid banks, turning instead to brokers, but beware, and tread the ground of the FX landscape carefully. Frequently shop around to take advantage of honeymoon rates to try and find the best deals.
In my own experience, I often found it frustrating trying to find the best deal and ended up spending countless hours consulting brokers, distracting me from other aspects of my import/export businesses. As a result, I founded WhichFX.
WhichFX is the first live broker comparison site and puts brokers in competition with each other to bid on FX requests, driving down the spread and giving SMEs quotes as close as possible to the live interbank rate. Rather than spending hours on the phone haggling with brokers, WhichFX provides you with a live quote in 15 minutes.
Due to the progressive nature of the WhichFX platform, some brokers have refused to sign up to it as they want to maximise their profits, even though this means their customers would get better FX deals. This illustrates the established FX industry as self-serving and unwilling provide small businesses with the best foreign exchange deals possible.
The Bank of New York Mellon has been hit by a $714 million (€660 million) settlement on accusations of FX manipulation, which resulted in it defrauding government pension funds and investors for more than a decade.
The settlement is part of a broader deal which will see the bank laying off some employees and reworking its foreign exchange operations.
The settlement was struck by the US Attorney in Manhattan and the New York Attorney General and focuses on what the authorities called a ‘fraudulent business model’. The bank claimed to offer clients the best foreign exchange rates ‘free of charge’ but instead offered them lower rates and imposed ‘undisclosed fees’. BNY Mellon secured the gains from better exchange rates rather than passing the gains onto its customers.
“Bank of New York Mellon have admitted to essentially lying outright to their clients to line their own pockets. The most concerning factor is that BNY Mellon’s misconduct was outed by a whistle-blower, which begs the question, how many cases such as this happen where there is no one to lift the lid?” said Philippe Gelis, CEO and Co-Founder of Kantox, a business foreign currency exchange.
“Claims of offering the best FX market rate are ubiquitous in the sector, and so, the only way to ensure they do indeed get the best market rate, companies must benchmark their bank against the live mid-market rate. This is not just another foreign bank being fined in a foreign country by a foreign court, but a warning of malpractice that could be carried out by any bank or broker that does not display live rates transparently."
