Last week we found out what APIs are and how they might be used to shape the future. This week, we explore some of the opportunities and challenges that exist around the use of APIs and what this all means for the treasury.
When talking about APIs and their potential impact, it is key to make a distinction between retail and corporate banking, says Enrico Camerinelli, Senior Analyst, Aite Group. In retail banking, the relationship with the customer is vital. API connectivity risks giving that relationship away through loss of contact, even if the bank still retains all the analytics. “This is where the level of threat is higher,” he warns.
However, in the corporate banking space, banks want to offer a good user experience, but not at the expense of losing contact with the customer to an API-enabled middleman. In this case, it is up to the individual bank to offer the necessary competitive services but in the end, notes Camerinelli, the degree of collaboration with APIs is down to how much the banks want to co-operate and how much they want to compete.
Further control may be needed to ensure open banking remains a stable proposition for clients. As with electronic invoicing, unless there is a regulatory push, setting some rules of the game, progress may not be made, says Camerinelli. Rule-setting may limit the creativity but also, he feels that regulation may be the necessary catalyst for API advancement because currently the business opportunity alone is seemingly not sufficient motivation for the banks to move beyond the proof of concept (PoC) stage.
Should more banking API strategies come to fruition (and most are currently only at PoC stage), corporate clients can expect a far easier ride when it comes to extracting bank data for their own use. Mainstream adoption of APIs and the rise of a standard approach will quite substantially reduce integration costs and improve data flow efficiencies. It could also provide near real-time information flow for treasurers, certainly beyond the MT 798 SWIFT messaging experience of most users of that service, says Camerinelli.
In principle, APIs could even offer up a challenge to SWIFT messaging, suggests Camerinelli. Assuming banks will be willing to share account details, direct transactions could be possible through an API, using SWIFT-style message protocols and executing a transaction through to settlement. SWIFT should see this as an opportunity rather than a threat, creating an additional integration component that it does not yet have.
Look and learn
But this is an opportunity for banks too. Camerinelli believes that all the signs indicate a need to be more open, exposing more of their functionality to partners, others banks or clients. Whether the adoption of APIs is the means to this end remains to be seen because technology continues to evolve. Certainly, the rising volume of conversation about APIs is at the very least opening up doors by making banks aware of the changes ahead.
If openness really is the way forward, banks would do well to start looking at how other sectors have exploited this approach. The aerospace and automotive supply chains, and even the highly competitive ERP technology space, for example, have for some while enjoyed ‘co-opetition’ – competitive cooperation. Here, competitors collaborate and share experiences around innovation rather than keep re-inventing the wheel. They do this largely because frontrunner status has a very short lifespan before the rest catch up: technology is quickly commoditised so they work together and compete only on value-added services.
This is all good news for treasurers because if customer-centricity really is the aim of the banks, as they often claim, then the collaborative model will not only help bring the best possible solutions to market, but it will also encourage banks to be the best they can be in terms of service delivery. From this perspective, APIs seem like a good place to kickstart the next generation of corporate banking services.