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By Eleanor Hill, Editor

A No-NonsenseGuide toTreasury APIs

A lmost every industry conference now carries amention of application programming interfaces(APIs), but they are far from just another fad. In

this era of open banking, APIs are offering treasurers newways of working, moving away from batch processing intoa real-time environment, as well as facilitating moreefficient payments, and delivering working capitalmanagement benefits. Here, Eleanor Hill, Editor, TMI,cuts through the noise to find out what treasurers reallyneed to know about APIs.

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With so much talk about APIs right now, itwould be tempting to think they are a newinvention. In fact, we’ve been using them,albeit unwittingly, for years – in both ourpersonal and professional lives. If youhave ever used a treasury managementsystem (TMS), or any financial system forthat matter, you will likely have benefitedfrom API technology beneath the surface.Anyone with a smartphone or a LinkedInprofile will also have used APIs in oneform or another.

But if APIs have been around fordecades, why are we hearing so muchabout them now? What’s the big deal froma treasurer’s perspective? And what’s newthat’s actually worth knowing about?

Banking on changeSo, before we delve into the treasurybenefits, it’s worth briefly setting the sceneand understanding the current interest in

APIs. As well as rapidly advancingconsumer and business expectations, oneof the most powerful drivers behind thecurrent wave of momentum is recentregulation. As Dick Oskam, ManagingDirector, Global Head of TransactionServices Sales, ING Wholesale Banking,confirms: “The Payment Services Directive2 (PSD2) in Europe and the open bankinginitiative in the UK have proved to be acatalyst to accelerate API-enabled openbanking innovations.”

He explains that, “at the core of PSD2 isthe requirement for banks to grant ThirdParty Providers (TPPs) access to acustomer’s online account/paymentservices in a regulated and secure way.This ‘Access to Account’ (XS2A) rulemandates banks or other account-holdingPayment Service Providers (PSPs) tofacilitate secure access via APIs to theircustomer accounts and data if the accountholder provides consent.”

What exactly are APIs?

Sometimes, you get beyond the point of being able to ask a basicquestion – because people assume a certain level of knowledge.But if you’ve never encountered APIs before, or simply aren’t thatinterested in the mechanics, there’s no reason why you shouldknow how they work.

Nevertheless, it can be useful to understand a little bit about theconcept in order to see the potential they hold in the treasuryspace. So, in simple terms, what is an API and how does it work?

According to Tom Durkin, Bank of America Merrill Lynch, “APIsprovide a way to connect things together in a simple fashion, inreal time. Much like a power outlet lets you connect any applianceto the power company just by plugging it in.”

Meanwhile, Anis Rahal, CEO, TreasuryXpress, says that: “verysimply put, an API is just a piece of code that allows twoapplications to talk to each other. They work behind the scenes todeliver the end-user a seamless experience.” He adds that “In ourown personal use of technology, we ‘experience’ an API all thetime, whether we are posting something to LinkedIn or Instagramor merely checking on the weather, the API is there, unbeknownstto us, doing all the work.”

Oskam echoes these thoughts, explaining that an API is “aninterface for exposing products and services to a third-party

software or service. APIs hide the complexity of underlyingfunctions, allowing business and technology partners to focus onbuilding value-added capabilities without being concerned withthe internals.”

He goes on to say that, in essence, APIs make it possible forproducts and services of one company to connect with those ofanother for increased value. “By opening its data, functionality andservices to third-party developers, a business can expand itsinnovation capability to comprise a broader ecosystem of partners.Likewise, in addition to exposing functionality, APIs make itpossible for companies to also consume data, functionality, andservices to increase client value.” He adds that APIs have thepotential to be a revolutionary concept since they can reduce costs,accelerate innovation and solve complex problems.

But, of course, it is not quite this simple. As Durkin observes, “thebiggest misconception around APIs is that they will provide richer,more robust experiences in and of themselves. What APIs doprovide is the ability for services providers to combine data andservices in new and enriching ways by using a variety of APIscombined into a singular experience. Imagine pulling ten datafeeds together in real-time via API and combining them to provideone robust output.”

But if APIs havebeen around fordecades, why arewe hearing so

much about themnow?

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This is a big leap forward in terms ofcustomer experience and the hope is thatit will also transform the bankinglandscape. “Done correctly, API-enabledopen banking will allow banks toaccelerate innovation and improvecollaboration with our clients and selectedthird parties,” says Oskam.

Anis Rahal, CEO, TreasuryXpress isslightly more outspoken on this subject,adding that, “regulation is drivingtransformation when it comes to bankconnectivity and open banking becausethere needs to be more accessibility,security, and more ‘democracy’ amongstclients and banks.” He says that it isimportant to remember, though,that regulations like PSD2 are not really‘API regulations’ per se: the API is just thesolution that has been identified to satisfythe requirements.

However, Vanessa Manning, Head ofLiquidity and Investment Solutions,Global Transaction Banking, DeutscheBank, is quick to point out that PSD2 is farfrom the only regulatory developmentdriving APIs forward. “It is true that PSD2has already enabled a new generation offintechs, PSPs and Account Information

Service Providers (AISPs) to developsolutions which both compete with andcomplement formerly bank-proprietarysolutions,” she says.

“But the agreement of API technicalstandards across the EEA over the comingyears, in addition to national regulatoryharmonisation across APAC and Africaaround API and QR code adoption, willfurther increase the flexibility ofconnectivity, data richness and bespokedashboarding and analytics available forcorporate treasury and their commercialsales teams,” she notes.

Concrete benefits for treasuryTurning, then, to the potential rewards onoffer, Tom Durkin, Head of Global DigitalChannels in Global Transaction Servicesat Bank of America Merrill Lynch, believesthat the true benefit of APIs to treasurerswill be in the breadth of offerings theyhave at their disposal and the reducedfriction in the payment and reportingsystems. “Treasurers will no longer be tiedto systems that require batch data anddirect host-to-host connections to thebank. New systems will take advantage of

How secure are APIs?

Arguably, another of the most common misconceptions around APIs – in particular openAPIs – is that they are somehow not secure. But “just because something is designed to beused externally, does not mean that it will be accessible for everyone. There will be accessbarriers,” confirms Oskam.

What’s more, “Mature companies creating API products will typically leverage astandardised security framework,” says Durkin. For example, ‘OAuth 2.0’ is used acrossindustries and platforms to ensure only authorised parties are using APIs. Banks andvendors are also taking their own measures to ensure the robustness of their APIofferings – from dynamically generated security tokens and URLs to limiting access to APItechnology providers.

Rahal notes that, contrary to what some may believe, “API adds an additional level ofprotection because when using APIs for bank connectivity or any platform for that matter,your data is never fully exposed to the servers.” The way it works is that it simply transferssmall ‘packets’ of the relevant information that is ‘called’ up and delivers only what isnecessary to complete/deliver the communication, he explains. “Most data breacheshappen when someone has hacked into a network and gained access to data. With anAPI, you are never actually penetrating a network to retrieve and deliver the data.”

Anis Rahal

Banks andvendors are

taking their ownmeasures toensure the

robustness of theirAPI offerings.

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the speed and ubiquity of APIs and offervalue-added services totreasurers.” Payments will happen inseconds, not minutes or hours”, hesays. Information will also be real-time,not hours or days old, changing the face ofreporting and decision-making.

As a result, the benefits to treasurerswill be many. “Aside from getting real-time balances, which will improve cashefficiency, corporates will be able todisburse funds in real time from their appsor websites using a variety of global fasterpayments networks, such as Zelle in theUS. Treasury staff will also be able to getinstant FX rates and AI-driven investmentand liquidity guidance,” adds Durkin.          

And for those wondering just how APIscan bring these efficiencies, a picture – ortwo – is worth a thousand words (for fulltransparency, Bank of America MerrillLynch kindly provided these images,hence the reference to their CashProplatform, but others have similar offerings– speak to your relationship bank(s) andvendors to find out more):

For Manning, meanwhile, one of theclearest benefits to treasurers of APIs liesin solving the challenges associated withmanaging cash and liquidity acrossmultiple banks. “Multi-bank sweepingrequires multi-bank agreements perjurisdiction. Compared to single-banksweeping structures where sweeps happenat close to midnight, multi-bank sweeping

Fig 1 Payment initiation

Source: Bank of America Merrill Lynch

Fig 2 Reporting

Source: Bank of America Merrill LynchVanessa Manning

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requires early cut-off times, often resultingin residual (buffer) balances being left inlocal bank accounts,” she explains.

With APIs deployed in the PSD2environment, and combined with instantpayments, however, treasurers will havethe ability to view balances andconcentrate liquidity in real time, saysManning. “This will reduce the risk of localoverdraft balances and lower theopportunity cost of holding local cashbuffers. In addition, treasurers can reducecredit risk by avoiding intraday orovernight cash balances with local banks.Overall, this could also see treasurers relyless upon SWIFT messaging to manageliquidity,” she adds.

On the technology front, Manningacknowledges that numerous corporatesare still challenged by a plethora ofunconnected, multiple instances andmulti-bank interfaces which continue torequire cost, time and security protocols tomanage. The good news is that “the use ofAPI-powered integration layers ormessage broker services, whether from abank, ERP/TMS provider, former servicebureau or licensed AISP, is now a marketreality.”

She says that such a layer can providereal-time, cost-efficient and lowmaintenance integration services toovercome fragmented ERP and bespokehardware or software applications. Inturn, this should deliver real-time updates

of source information to inform plannedand event-driven working capitaldecisions in a multi-bankedenvironment.

To truly harness the power of APIshere, however, it may well be time torethink treasury technology andenterprise-wide tech set-ups, believesManning. “On a close to real-time basis,as funds are received, the accelerateddecision time and need for automaticparameterisation of whether to pay downbank or corporate debt, invest in off-balance sheet instruments, or avail of adiscount opportunity, will requiresignificant enterprise-wide automation,”notes Manning. “Customisation, with adegree of artificial intelligence to continueto learn transactional and decisionpatterns, and ongoing reconciliationmatching will also be important,” shesays.

Working harder and smarterOskam largely agrees, saying that“treasurers today have a number ofinternal operational challenges such aslack of oversight to enable true cash flowforecasting, friction in their reconciliationprocesses, not having a completeoverview of their cash balances in realtime. Through APIs, treasurers would beable to bridge the gap in these challengesby streamlining current processes and

Amplifying the power of APIs through VLM

APIs can already be deployed to interface with market execution, trade confirmation andregulatory reporting platforms. In addition, APIs should make it easier for treasurers tocollect data from multiple ERP/TMS environments, says Manning.

In combination with virtual ledger management (which is essentially an outsourced in-house bank provided by your bank – see the article on page 40 of this issue for moreinformation) this means that subsidiaries will be able to post accounting entries andreport accurate and complete treasury positions quicker. This, Manning explains, willmake it easier to deploy best of breed applications to capture and manage group widecash, liquidity and FX positions.

Interested treasurers should speak to their relationship bank(s) to find out whetherthey offer such VLM solutions.

Dick Oskam

APIs should makeit easier fortreasurers to

collect data frommultipleERP/TMS

environments.

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making use of these APIs to deliver valueacross their subsidiaries, for example.”

To be more explicit about some of thepotential benefits, he believes that “openbanking and APIs should allow foradvances in multi-bank capabilities andaggregation services. By applyinganalytics (using artificial intelligence),improved forecasting will also bepossible,” he says. In addition, he seestools in the ‘next best decision’ arena as apoint of focus going forward – helpingcorporates to move towards smarter,more strategic, thinking.

As well as leveraging working capitalmanagement benefits from APIs, Oskamthinks that APIs may well be used more inthe trade finance arena – issuing letters ofcredit and managing the workflow in atrade transaction, for example. Elsewhere,APIs also have the power to transform thechannels landscape, he says. “Mostcorporates rely on bank supported directchannels as well as third-party servicessuch as SWIFT for their transaction needs.APIs are likely to affect such channels andincrease the playing field through openaccess channels, complementing orcompeting with such traditionalchannels.”

Treasurers are also likely to seeincreased innovation with bankscollaborating with fintechs and offeringintegrated cash management productsthrough APIs, notes Oskam. In addition,treasurers will also be allowed moreflexibility to ‘adapt an API’ to theirbusiness challenge. “After all, throughAPIs, products and services can beplugged into their ERP packagesseamlessly,” he explains.

This point about seamless integrationand connectivity should not beunderestimated. In Rahal’s view, the ‘bigdeal’ about current API offerings forcorporate treasury is how the API changesthe connectivity experience for treasurers– experience being the operative word.For example, “one of the longest, mostgruelling, and expensive parts of a TMSimplementation project is often the bankconnectivity piece. By using APIs toconnect to banks, connectivity canhappen much more quickly and thereforemore affordably, transforming theimplementation experience fortreasuries,” he says.

Grasping the opportunityInterestingly, TreasuryXpress has beenusing APIs in its solutions since 2015(before the open banking phenomenonreally began). This, says Rahal, is to“provide flexible and secure connectivityto banks and other third-party platformsthat our clients require. And because ofour experience, we have been invited bynumerous global banks to take part intheir early testing programmes for theirAPIs under PSD2 requirements.”

He adds that: “by leveragingtechnology-driven methods such as APIsfor our implementations, it allows us toagain, deliver a unique and improvedimplementation experience that savestime and costs for both us and ourclients. APIs completely optimise deliveryfor both the provider and the client.Without having to rely on inflexible, legacyconnectivity methods, it also opens up theoptions for all levels of technologycollaboration – from market data feeds totrading platforms, etc. The possibilities areendless.”

Durkin, too, believes that APIs canpotentially open new doors for treasurers,although he focuses more on thetreasurer’s ability to add value to thecompany’s bottom line through increasedvisibility into cash and liquidity, forexample. Either way, to take fulladvantage of the opportunities, Manningre-emphasises the point that treasurersmay well need to rethink their ITinfrastructure. What’s more, to build anagile, secure and scalable treasuryarchitecture, treasurers must also ensurethat their skillset or team is enriched withtechnologists, data scientists and riskmanagers who can process the relevantinputs and fulfil treasury’s growingstrategic liquidity and risk managementrole, she says.

So, while APIs may be light-touch froma deployment perspective (since it ispredominantly banks and vendors whowill be rolling them out on behalf of theircorporate clients), in order to maximisethe potential benefits, treasurers havesome groundwork to do. Only by havingthe right technology, people andprocesses in place, will treasuryprofessionals be able to reap the fullrewards that APIs can offer. �

Tom Durkin

APIs completelyoptimise deliveryfor both the

provider and theclient.

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