Fintech Insights

How Are APIs Reversing the Dynamics of the Bank-to-Corporate Relationship?

Luc Belpaire

January 24, 2019

As FIS’ recent Modernizing Corporate Payments and Bank Connectivity in the Digital Age report reveals, the opportunity to use open APIs for bank connectivity is the most compelling proposition for corporations in this space, highlighted by 49 percent of treasurers. Forty-two percent of treasurers already have, or plan to have, an API initiative for real-time payments.

Given that APIs barely registered on treasurers’ radar a year ago, what is driving this interest? After all, many treasurers have already successfully implemented multi-bank connectivity using SWIFT and harmonized formats based on XML ISO 20022 standards.

A major driver is the acceleration of payments and liquidity. Instant domestic payment schemes are emerging rapidly worldwide: 25 schemes are now live, with many more in development. Cross-border, 50 percent of SWIFT gpi flows are now settled within 30 minutes, with universal adoption by SWIFT banks slated by end 2020.

However, while payments, and crucially, the information that accompanies them, can increasingly be passed across borders and clearing systems in real or near real-time, treasurers cannot fully reap the benefits. Using existing web-based, host-to-host or SWIFT-based connectivity, treasurers typically exchange data daily (MT940 end-of-day statement messages) or at intervals during the day using MT942 (intraday statement messages). This means that treasurers cannot monitor increasingly dynamic account activity or make the necessary liquidity and risk decisions.

The move to “real-time” payments and collections, and the resulting demand for a dynamic reporting workflow, therefore requires real-time and interactive banking channels. Using APIs, treasurers can determine what data they receive and from which banks, how regularly, and what should happen to that data. This reverses the dynamics of bank connectivity. Previously, banks have determined what information they will deliver and how; today, treasurers can control this. The use of APIs is therefore not simply a new communication method, but a transformation in the sourcing, integration and use of banking data.

The difficulty at this stage is that banks are at different stages of their own API strategy, with variable scope and maturity of solutions. Some have yet to introduce scalable APIs that are universally accessible, and are setting up bespoke APIs per customer. Some too are struggling to translate the theoretical value of APIs into practice. As of yet, there are no standards in the use of APIs, which can lead to difficulties when accessing data from multiple banks.

There is also the issue of what to do with data once extracted. With the potential to extract far more specific data, and far more regularly, treasurers need to work with treasury and payment system providers that can integrate, and crucially, harness, this data effectively.

However, with a growing number of case studies emerging, banks and technology companies’ API strategies are rapidly becoming a competitive differentiator. The combination of real-time payments and collections, and dynamic connectivity via APIs, is a powerful catalyst for cash and liquidity transformation, particularly as opportunities for real-time liquidity management emerge. As a result, we expect to see a proliferation of API-based solutions taking shape over the coming months as treasurers explore and leverage the benefits.