Published: October 31, 2022
As we shift towards a real-time treasury, application programming interfaces (APIs) have become an essential technology, enabling data to move instantly and seamlessly between corporates and their banks. As a relatively new technology in treasury, it is not always clear, however, what the API use cases are for capturing real-time cash visibility and maximising process efficiencies.
One of the key benefits of APIs is their ability to provide treasury departments with on-demand visibility over transactions and data held by their banks. In some cases, according to Rita Jardan, Head of CAM Finance, Freeway Entertainment Group (Freeway), using bank APIs can be preferable to using banks’ electronic banking platforms.
“The first advantage of the API approach is that all the data is pushed to the treasurer, rather than the treasury team spending a lot of time and effort going after the data,” she explains. “Tracking receipts is part of our core business. The notification of new receipts to our clients is extremely time-sensitive, so real-time notification is key for us to provide an outstanding level of service. We handle more than 6,000 accounts across 15 banks. Having all the new data in our system without delays is a huge breakthrough.”
Nokia’s treasury implemented APIs for live balances and transactions with five core banks in early 2019, as Daniel Gramunt, Director, Cash Management, Nokia, outlines.
“Our focus has been on real-time visibility, which is one of the key benefits of API integration,” he notes. “Another advantage is an improved user experience. There is seamless integration with our TMS, so the data is visible directly in the tool we use every day. We have single sign-on, meaning there is no need to log into different banking platforms with tokens, for example. This also enables automation – the real-time data in the TMS can be used for automatic processing and reporting.”
Having the relevant data instantly in the TMS is a significant advantage, as many, if not all, treasurers will have had the frustrating experience of working with data that is out of date by the time it is transferred into their systems. Gramunt reflects that even if e-banking platforms provide real-time visibility on balances and transactions, this data cannot always be used as required.
“We have developed a clearing engine that can recognise customer payments and auto clear them within 30 minutes,” Gramunt says. “That used to take two to three days. Another benefit is that we have better exception handling. In our API model, we use the pull mode, which means we are asking the banks to send us the balances and latest transactions. This immediately alerts us if something is not working so we can take action. But, conversely, the previous day’s statements are pushed to us. They can have significant delivery delays, making them much harder to monitor.”
With so many types of API available from banks, treasurers need to understand where they can most benefit from API integration. At Freeway, for example, the treasury team has developed a four-level roadmap to determine how they can make the best use of APIs.
“Our first implementation level focuses on receiving data regarding incoming and outgoing transactions, in addition to our account balances, via the API,” Jardan explains. “This is extremely important for us. Then the second level uses APIs for some practical account administrative tasks such as opening, closing, or renaming accounts. This is something of a luxury, but why not take advantage of that functionality?”
As managing these tasks is part of the treasury’s everyday business at Freeway, this connectivity helps to drive efficiencies. The third implementation level represents a significant step forward, as it “concerns processing outgoing payments via the API system so that our colleagues no longer need to enter the banking system to key in all the payments,” Jardan continues.
“We process a massive number of payments daily to beneficiaries worldwide, so this is a huge part of our function. Using the API system will save so much time for us but also for our payment authorisation colleagues because they will no longer have to go to the bank to make sure those payments are indeed the same as those they already checked in the ERP system.”
This is an example of where using API connectivity can not only save time but also help to reduce mistakes arising from manual data entry and comparison.
“Finally, our fourth implementation level is very exciting: tracking the live status of outgoing payments via SWIFT gpi,” enthuses Jardan. “This means we will be able to see the live status of our payments in our system. This gives visibility over the entire payment life cycle. We will see when the payment reaches the intermediary, when they deduct $5, for example, when the funds reach the beneficiary bank, and when the payment is credited to the beneficiary account. Before APIs, we would have to initiate a time-consuming investigation if we received an enquiry asking where funds were.”
API use cases around data visibility in real-time for instant cash flows, instant payments, and real-time reporting are just the start. Kerstin Montiegel, Global Head Client Connectivity/Digital Client Access Channels (Managing Director), Deutsche Bank, explains: “There are use cases in areas such as data intelligence and ERP/TMS connectivity to improve cash flow forecasting or working capital management. Or virtual accounts, which are connected via API. These are major topics we see when discussing clients’ requirements with them, which lead into the broader topic of process efficiencies. For example, eBAM [electronic bank account management] is a significant driver of efficiency and treasury process optimisation.”
Gramunt agrees that there is potential in the eBAM space but cautions that implementation may be harder to achieve due to regulatory requirements. “Treasurers need to provide documentation, such as passport copies, which could be tricky,” he notes. “But if we could query who has access to which bank account, who are the signatories, and have the power to close or remove access rights from a user who left a company, that would be beneficial. It could be easier to implement than adding an account or a signatory.”
APIs also open up the possibility of implementing self-service options with banks, which Nokia has already achieved with some of its banking partners.
“One example of a self-service solution we implemented is proof of payment – as beneficiaries sometimes ask for this,” continues Gramunt. “When that’s supported, the user can go into the payment, click a button and obtain a PDF with the header and signature of the bank. Another self-service solution we use retrieves missing bank statements. We simply go to the bank account, enter the date, click a button, and that statement is immediately posted to the ERP system. This is incredibly useful. I’d love to see more of these types of solution, but they are rather bank specific.”
There can also be benefits in terms of client relationships and service delivery.
“Direct connectivity via APIs mean that treasurers no longer need to call our hotline or ask for assistance so frequently, which enables both the client and the bank to allocate that time to other – often more strategic – priorities, all leading to a benefit for the client,” Montiegel explains. “At Deutsche Bank, we also use APIs internally to reduce integration and testing efforts and costs, and to speed up processes. These internal aspects, which ultimately also benefit our clients, might not always be visible.”
Despite the benefits of APIs, there are considerations to be taken into account. The first of these is the cost.
“The costs of implementing APIs can vary depending on the bank,” comments Jardan. “There is always a fixed monthly fee per account. As we have hundreds of accounts with most of our banks, this can accumulate. It’s imperative to thoroughly look into the costs. Some banks, particularly in the US, apply a fee that, for Freeway, meant it didn’t make sense to implement their API at this stage. I hope that when APIs are not such a ‘luxury’ feature and demand for them grows, banks will realise that they have to establish a more reasonable fee. I fully support finding an efficient and fast way to process data, but it needs to make financial sense.”
The difference in pricing between various banks highlights the second critical issue: a lack of standardisation across APIs. For treasurers, this can lead to differences in the way that APIs are set up and maintained.
“There are issues such as authentication that can vary significantly from bank to bank,” reveals Gramunt. “We are lucky to have our own in-house IT team, so challenges can be overcome relatively quickly at our end, but it’s one of the main reasons I wouldn’t push API integration beyond our core banks.”
Despite the potential obstacles, there are signs that the industry is moving towards greater standardisation.
“The full implementation of ISO 20022 will create a new standard where there is less truncation, meaning there’s more data available that can then be transported via an API,” notes Montiegel.
SWIFT is also focusing on APIs, she says. “SWIFT will set standards for processes and API behaviour, I see plenty going on there and we are actively engaged. I also see a significant amount of push coming from the market aggregators. They’re challenging the banks and a key driver of future API development, and we want to be ahead of the curve.”
Furthermore once the APIs are in place, treasurers must maintain them.
“Certificates expire, and if you don’t monitor that issue properly then everything could suddenly stop working,” warns Gramunt. “So, there’s a little bit of overhead there as well. If we didn’t have our own IT team, we would maybe look at an aggregator to manage some of that burden. We haven’t put everything into APIs, but they’ve definitely been a good tool to have, and we still have SWIFT for the rest.”
Implementing API connectivity also requires the TMS or ERP system to be capable of correctly transmitting, receiving and processing data with the relevant internal or external counterparty.
“We are constantly developing our in-house-built ERP system so it can handle increasing functionalities,” says Jardan. “We work in the Scrum management framework for our developments. Every second week, something new goes live, which ensures that there is always an exciting element in the pipeline.”
Gramunt agrees that treasurers should integrate APIs with their TMS or ERP so that the data is readily available within the system on which they are usually working. “We focus on live transactions and balances and currently have five banks up and running,” he outlines. “We plan to add two to four more banks and then that’s it. We should be able to cover about 70-80% of our collection accounts, which is where I personally find API integration most useful. Then we’ll stop. Our landscape is quite fragmented after that. It would require too much effort to do more.”
Beyond cash management, there are other areas where treasury can tap into APIs to enhance their data management, as Jardan explains. “We use APIs in various areas, such as the API of IMDb [an online database of information related to films, television series, home videos, video games, and streaming content] that we use to get information about projects,” she says. “We also use the API of the European Central Bank to have the latest exchange rates from it in our system. That’s built into our invoicing system, so we automatically have the exchange rates in there. Wherever there’s an API available, we will go for it.”
Implementing various bank connections should become increasingly straightforward as treasurers become more familiar with the process, and initiatives from SWIFT and ISO 20022 adoption bring increased standardisation. This is also a topic that certain banks are trying to address.
“We recently partnered with a fintech to help corporate clients onboard with us and make the set up and running as smooth as possible,” comments Montiegel. “There is also a mindset question for the corporate treasurer. The journey is to move from real-time information into real-time transactions, and ultimately into real-time efficiencies and automation. There needs to be a conscious decision to embark on these steps. Our clients are at different stages of the journey to real-time. However, many have started to build a vision around their real-time business opportunities and have begun to learn from pilot initiatives”
When looking at the potential for real-time treasury, instant payments, and smart cash management, this vision is only possible if every step of the data transmission cycle takes place in real-time, and with a complete set of information exchanged at each point. APIs play an essential role in enabling that connectivity and integration.
“We have a huge opportunity to create a new channel that is better aligned, with the same standards and format, to reduce any effort that the client has,” comments Montiegel. “We must pick up on that opportunity and get it right across the banking and corporate landscape.”
As with most treasury technology projects, the vital first step in implementing APIs is to identify the use case.
“Don’t use APIs for the sake of using APIs,” advises Gramunt. “Establish clear use cases, then talk to your core banks and check what APIs they have available in their catalogues. Also, talk with your IT team or system integrators to see whether they can integrate something into the tools already used. The best move is to look at an add-on or something integrated. Don’t go with something external that has to be to maintained separately.”
Finally, it is essential to note that the enormous efficiencies APIs can drive in treasury functions are not the sole preserve of giant multinationals. They are available for any corporate that uses a TMS or ERP. “Don’t be hesitant to start implementing APIs in your processes, even if you’re a small organisation like we are,” concludes Jardan. “It is such a step change for your efficiency, like using a bank card instead of cash, it’s such a game-changing process.”
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