Commercial banks are joining the API revolution

Donny Hoye, Capital One: The power of APIs is in the vision behind the technology

Our business and personal lives have been made vastly more interesting and convenient by the power of APIs, yet most people take them for granted.

An API, which stands for application programming interface, is a set of prepackaged instructions and protocols that enable developers to easily move data and requests for data in real time back and forth between their own platform and another.

Consider the services built into an app like Yelp. Thanks to APIs that connect Yelp with platforms like Google Maps, a user can locate a restaurant on a map, get directions, and book a reservation, all within the app. Part of Yelp’s appeal is that it seamlessly brings together multiple tools through APIs to create a unified experience for the end user.

The power of APIs will soon come to treasury management, where it will deliver a richer, more flexible environment for payments and reporting. No longer will treasurers be tied to cumbersome legacy systems that require batch processing and direct host-to-host connections to their banks. Labour-intensive processes like SFTP file transfers will be replaced by plug-and play, virtually maintenance-free APIs. Through treasury management APIs, treasurers will gain the ability to monitor their cash flow in real time and schedule their payments with unprecedented precision.

APIs gain traction in banking

Although fintechs were originally the strongest proponents of API technology in banking,  commercial banks in recent years have picked up the banner and moved APIs to the center of their digital strategy. Capital One, for instance, has created DevExchange, a repository of tools and APIs that enable developers to take advantage of the financial institution’s software-building resources to add Capital One APIs to their own platforms. Thanks to efforts like this, many of the immediate benefits for treasurers will come from APIs developed by their commercial banks.

While the near-term vision for APIs is to make existing technology easier to use and more efficient to access, the ultimate value of APIs will be the vehicle for the next wave of financial innovation. We are already seeing APIs serve this purpose in the consumer banking world, where APIs are incorporated in financial management tools like Mint to aggregate transactions from accounts at different banks as well as in peer-to-peer (P2P) money transfer apps like Google Pay or Venmo, which consists of a payments link API and a receipts API. In making it possible for nonbank entities to provide financial services, APIs are serving as a gateway for open banking.

At the same time, APIs will help commercial banks strengthen their relationships with customers by facilitating value-added services. For instance, banks are planning to build artificial intelligence (AI) and analytics into their APIs so that they can deliver real-time financial perspectives alongside their API data. The banks’ developers might even include decision-making and visualisation tools so that treasurers can act on the data quickly and present it in meaningful ways to other members of their management team.

Treasury management APIs: the next wave of financial innovation

In coming years, treasurers will be able to choose from an array of commercial bank APIs to insert into their enterprise resource planning and treasury management systems, enabling them, among other tasks, to monitor their account balances in real time, check payment status, validate account numbers of new customers, and make one-time ACH payments to vendors. Treasurers will also be able to make these bank APIs available to their vendors, for instance so that both parties have the same insight into the status of their payments.

Benefits of treasury management APIs

• Treasury management APIs are efficient because they are light – designed to complete a specific task or facilitate a specific exchange of data.
• They are only getting better – commercial bank developers are designing APIs that go beyond simple functionality. For instance, an account balance API could include alarms that treasurers can set when an account reaches a certain balance or a payments API could be set to send payments when invoices are approved. These smart APIs will be a critical driver of back-office automation in the future. This already exists through multi-bank reporting, but you could argue that APIs will make it easier and/or cheaper.
• APIs will allow the dream of streamlining processes to become a reality. No longer will treasury teams have to fight for IT resources for complex six-month SFTP implementations. Instead, the API will be set up in a matter of days, and the stability will allow you to avoid ongoing maintenance.

The API advantage for corporate banking

APIs deliver an impressive number of advantages for corporate treasurers. They can facilitate more efficient payments, enable better management of working capital, support more accurate decision-making and forecasting, and accelerate back office automation among other benefits. And treasurers can take advantage of these benefits with minimal investment of time and IT expertise because API developers have built into the API virtually everything needed to insert them in an ERP or TMS.

For example, today treasurers interested in an integrated payments product, which would enable a bank to automatically set up wire service, ACH, or credit card payment upon receiving an ERP-generated payments file, must establish and maintain an SFTP connection. For most organisations, the cost is prohibitive. With a treasury management API, establishing this connection would be virtually effortless to implement and use.

That being said, treasurers should use this interval as APIs are gaining momentum to reflect on the skill set of their team. Because APIs will promote the automation of manual tasks while enabling real-time decision-making and more sophisticated analysis and forecasting, treasurers should begin shifting the balance of their team to those with higher-level skills.

The advent of these commercial banking APIs should also cause treasurers to reevaluate their relationship with their commercial bank. To take full advantage of the API revolution, treasurers need a commercial bank partner who understands the potential of APIs, who is actively involved in API development, and who is actively seeking innovative ways for APIs to deliver value. Ultimately, the power of APIs is not in the technology but in the vision behind that technology.

By Donny Hoye, SVP, cash management executive, specialised industries at Capital One