Corporate expectations for fast, efficient and convenient payment services are now the norm. BNY Mellon Treasury Services’s Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management, explores how banks are leveraging APIs to keep pace with these demands and maintain a competitive edge.

The expectation for a quick, seamless and user-friendly banking experience has long been the norm in the consumer space. Today, treasurers expect no less from their corporate banking applications.  The gap between this desire for new and improved offerings and delivering greater levels of client service is being bridged by APIs (Application Programming Interface) – a key innovation that banks are harnessing.

APIs are a type of computing interface that enable streamlined, efficient communication and integration between software components.  Benefits include operational speed and efficiency and, where process automation is also deployed, rapid – or even real-time – data flows, superior analytics, and real-time visibility over balances and payments statuses.

APIs have become a familiar term in the finance space. In the past few years, regulators and industry bodies have helped drive adoption – with uptake currently varying from market segment to market segment and region to region. Traction has been highest in the US, with momentum building in APAC, EMEA and LatAm.

While many banks have already incorporated APIs into their strategies, the overall progress has been somewhat limited by a lack of standardized, interoperable systems and processes across the financial services industry. But, with upcoming industry initiatives, such as the global migration to the ISO 20022 messaging standard, pushing the industry further towards greater harmonization, the full potential of APIs can be unlocked. Now, therefore, is the opportune time for banks and their clients to invest in their API capabilities.

Leveraging APIs

In today’s fast-paced world, an effective and successful bank needs to deliver optimized payment capabilities, with accurate and efficient processes. This is being achieved through API solutions targeted at specific use cases.

For example, while making a payment may appear straightforward at the point of execution, the underlying processes are complex. Ensuring the streamlined and successful completion of these processes – which include payment initiation, reporting and sanctions screening – is critical for businesses, with any lapses potentially causing financial and reputational damage. As a result, banks are increasingly looking to APIs to provide real-time visibility for the entire payment process – meaning that any potential issue can be spotted and resolved in a timely manner.

APIs can also be used to integrate real-time account balances and transactional data across multiple channels, including Treasury Management Systems (TMS) and Enterprise Resource Planning (ERP). For example, BNY Mellon’s Treasury APIs enables the bank to integrate its solutions with its clients’ internal systems. This allows clients to streamline efficiencies by automating payment processes – with necessary tasks, such as reconciliation, able to be performed seamlessly. Automating previously manual functions via APIs saves time and frees up resources previously spent on repetitive tasks,  thereby enabling this capacity  to be redirected to value-added  processes, such as forecasting analysis, customised reporting and transaction capabilities. Through this solution, clients can also securely access global payment capabilities through a single endpoint to initiate payments and track the status of transactions, from initiation to completion.

Elsewhere, as the Covid-19 pandemic has proved, it is important to have a robust business continuity plan (BCP) in place to offset against the impact of any unexpected events. APIs can be used in BCPs to help create an effective, resilient active-active alternate channel solution for contingency scenarios. For example, if a bank suffers a disruption or outage to their network provider, they will have to ensure they are able to seamlessly switch to an alternate digital channel to process their payments in a timely manner with no financial implications. Traditionally, banks relied on the provider’s online bank portal to instruct payment orders – a process that, to execute accurately and within the cut-off time, uses a significant amount of resources. Depending on the timing and intensity of the disruption, these resource are sometimes challenging to mobilize and activate within a short interval and could lead to serious financial and reputational implications. APIs offer a good alternative to these traditional contingency plan solutions. By enabling a fully functional integration with their network bank providers, banks can process a certain share of daily volumes via an API in addition to their usual channels – allowing for a smooth transition during a contingency scenario.

The next steps for APIs

Though enthusiasm for API adoption is relatively strong, we have only just started to scratch the surface in the B2B space. So far, the biggest strides have been made by Big Techs, which have been particularly adept at delivering API solutions thanks to their nimble business models. While the financial industry is making efforts to evolve – embracing the start-up work culture, breaking silos and developing an open and collaborative work environment – the success and speed of delivery is often hindered by the size and complexity of the solution required. For instance, an API might need to work for multiple parties across various jurisdictions that are each bound by unique regulations in their domestic markets. As a result, consortiums formed by fintech and financial firms, various market network providers and regulators are each working on ways to simplify these processes.

One path forward is increased industry standardization. For example, the lack of cross-border interoperability between market infrastructures and networks currently makes the exchange of data and APIs much less effective. The upcoming migration to ISO 20022 – the new global payments messaging standard – looks set reduce these frictions. With major market infrastructures and network providers each migrating to the new standard, banks looking to leverage APIs and other messaging channels may no longer be required to maintain multiple variations of the message specifications by channels, currency and markets – something that today represents one of the biggest barriers for adoption. Elsewhere, plans are also underway to connect the various domestic real-time payment infrastructures to create an interoperable system for digital payments – one that could eventually support API adoption for cross-border real-time payments.

As the industry standardizes and simplifies its processes, and banks begin to integrate APIs into their own and their clients’ infrastructures, a host of new opportunities, including real-time data feed of balances to drive more proactive functions for treasuries, is set to be unlocked. Importantly, the onus is now on banks to invest in APIs and advocate their adoption to clients.

Sindhu, who is based in the BNY Mellon Singapore Branch, recently took part in the “Executing business strategies with the power of APIs” Sibos webinar. To sign up to Sibos to view the webinar, please click here.

 The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.