For the past few years, the use of application programming interfaces (APIs) in banking has gradually gained momentum in the Asia Pacific (APAC) region, with banks seeking to match the EU’s move to open banking. However, the diverse regulatory environments across APAC mean that progress has been staggered, with some countries advancing faster than others.
For example, in 2018 Japan implemented a “soft” open banking regulation. It was hoped that by the end of 2020 this would persuade the big Japanese banks to release APIs that open up access to accounts and enable third party delivery of payment instructions.
Singapore, meanwhile, has been spearheading the adoption of APIs. At the 2016 API Conference run by the Monetary Authority of Singapore and the Association of Banks in Singapore, Sopnendu Mohanty, Chief Fintech Officer, Monetary Authority of Singapore said: “If we want to realise our vision of becoming a smart financial centre, the key enablers of innovation – rapid experimentation, active collaboration, and a conducive ecosystem – must be present. The Monetary Authority of Singapore is of the view that the proliferation of APIs in the financial sector will facilitate Singapore’s transformation into a smart financial centre.”
Back to basics
For Raof Latiff, Group Head of Digital and Product Management, Institutional Banking Group at DBS, one of the main challenges with APIs is ensuring everyone understands them. “Education is definitely number one. We spend a lot of time describing what they are, how they work, how they’re the new alternative to host-to-host environments, and the potential opportunities that they bring,” he explains.
A 2018 report from the Economist Intelligence Unit, ‘The Future is Now: How ready is treasury?’, found that 80% of the 300 senior corporate treasury executives polled believed they had “at least the majority of skills required to meet the challenges of treasury’s technological transition.” Yet the report notes that only 8% named APIs when asked to identify the top technologies they believed will bring the most benefit to their department.
For treasurers to be comfortable with implementing APIs, they first need to have a solid understanding of how APIs can benefit treasury. The Oxford English Dictionary defines an API as “a set of programming tools that enables a program to communicate with another program or an operating system, and that helps software developers create their own applications.” In other words, APIs enable different applications to communicate automatically with each other.
The website MuleSoft compares APIs to a waiter in a restaurant. The menu provides a list of dishes you can order. The waiter – or API – takes your order and delivers it to the kitchen. The kitchen is part of the ‘system’ which will prepare your order. The waiter will then deliver your food back to you. You don’t know how the food is prepared – nor do you really need to.
For François-Dominique Doll, Executive Director, Global Treasury Advisory Services at Deloitte, APIs offer treasurers the possibility of direct integration between treasuries and banks. This, in turn, would lead to real-time treasuries, reductions in costs and better security.
According to Latiff, banks see APIs as a technology that can enable clients to achieve transformation – not just in treasury, but across the overall business. During the COVID-19 pandemic, this has been more integral than ever, with more companies looking to move online and therefore needing to develop a new business model. “When businesses move online and get more of their services integrated online, the only way to connect supply chains and their daily activity at a treasury level – which has good, meaningful visibility and transparency of transactions – is through APIs,” says Latiff.
Security is, of course, a key concern for many companies when it comes to introducing new technologies, and some may see APIs as an unknown entity. As such, companies may have concerns about the use of APIs by treasury departments which deal with sensitive data. But conversely, the ‘open’ nature of APIs means that they can be easily integrated with audit and analytics systems, which in turn help to identify and manage risk exposures.
Likewise, APIs are ushering in the wide-scale adoption of real-time treasuries and payments. The ability to connect instantly with a banking system means that treasurers are able to send and receive payments immediately, as well as have real-time visibility of funds.
And where cost is concerned, Doll notes that traditional host-to-host or SWIFT systems have their own costs – often because of the lengthy manual tasks associated with using them. In contrast, APIs are key to back office automation and so the cost comes only from the maintenance of the technology. In the current COVID-19 environment, as companies look to streamline costs, Doll points out that this is an important consideration.
Better business all round
A key benefit of APIs, explains Latiff, is that they offer companies the opportunity to transform their business platforms to have direct interaction with consumers. “APIs allow corporates to connect with marketplaces, ancillaries or wholesalers, and reach out to the end consumer,” he says. For a company to connect directly to the consumer, it needs to be able to input its inventory to an online platform, create a gateway to accept payments, have the ability to connect the logistics company and the warehouses – and finally, be able to deliver the goods to the final consumer. “How do you connect all of this on a real-time basis?” asks Latiff. “It’s through APIs.”
Doll agrees, and notes that many already in the direct consumer market, such as ride-hailing and food delivery companies like Uber and Grab, are already working well in the API space and driving the adoption and growth of the technology with their banking partners.
Latiff also says that newer companies are generally the quickest to adopt these new technologies. “For the modern-age names that are fully platform-based, APIs are the only way they connect,” he explains. “For them, it’s the norm. It’s how they operate in terms of connecting with the counterparties, their customers and their suppliers to enable a more digital experience.”
Ironing out the kinks
Like any new technology, there are still a few kinks to be ironed out with APIs. A key one, says Doll, is the lack of standardisation. “There’s no discussion between different banks about which formats should be used for APIs for payments, which means there’s no consensus on what the standardisation message is,” he explains.
For corporates with multiple banking partners, this could mean that implementing APIs is trickier than first thought. “Not all banks will be API-ready,” says Doll, adding that the question of readiness extends beyond banks. “Corporates should be asking themselves, ‘are our applications API-ready? Is our ERP capable of enabling the API with the banks? Is our TMS ready for this?’,” he says. Companies which are pioneering this technology may feel like something of a guinea pig – but by doing so, they will also be paving the way for other companies and reap the benefits of transformation first.
There are some alternatives – sort of
Strictly speaking, a company doesn’t have to adopt APIs if it doesn’t want to. Indeed, both Doll and Latiff point out that the existing systems do still function and are available. “For bank connectivity, the alternative is what is already in place,” says Doll – be this e-banking portals, host-to-host or SWIFT connections.
However, as Latiff points out, “These solutions are not straightforward, they’re not easy to integrate, and they cost a lot of money.” This is especially the case for companies that are not only looking to connect to banks but may be moving into the direct to consumer space. In this case, he argues, host-to-host connections are more costly and harder to scale – and making changes tends to be slow and inefficient. By comparison, APIs are a repetitive technology, meaning they are quick, easy and cheap to implement.
Where other options are concerned, Latiff believes these will depend on what problems need to be solved in the future. “There’s enough technology through APIs and Cloud services where we can enable various methodologies to drive solutions for new problems. As we discover them, I think we will discover what exactly an alternative could be,” he says.
Looking to the future
With more companies adopting APIs, Latiff notes that education is a key focus. “What’s more important though, and what we’re trying to get into more going forward, is how these changes will shape the company and the treasurer,” he says. APIs are always improving and becoming more invisible. As a result, companies don’t actually need to understand the nuts and bolts of APIs – they just need a clear understanding of what they want to get out of them.
At the end of the day, APIs solve problems for treasurers. And with increasing regulations across various countries and regions pushing for open banking, they’re becoming a necessity. But, notes Doll, “It’s important for the treasurer to be vocal about APIs, and pave the way, driving the banks to adapt.” Since the banks are the ones that issue the APIs, he says it’s a necessity that they keep up with leaps in technology and listen to treasurers.
Latiff agrees, and says that from a banking perspective, it’s important to work with corporates to solve their problems. He has seen companies which previously used host-to-host technologies switching to APIs, and explains that whilst has benefits in terms of bank connectivity, companies don’t always take full advantage of what APIs can offer. “It’s easy to take the old pipes and replace them with new. What’s important with API solutions is to help companies transform and get new business opportunities whilst providing them with effective solutions,” he concludes.