How APIs can transform global banking

Business-to-business application programming interfaces are moving banks closer to clients on the value chain, but there are a host of hurdles that must be overcome first


J.P. Morgan, Goldman Sachs and Bank of America are three of the banks who have taken the lead on using APIs for global banking

With companies expanding into new regions and doing more trade with the rest of the world than ever before, global transaction banking has become critical to their success.

Traditionally, major banks have provided these essential services, covering everything from transfers, payments, and cash and asset management to financing and global trade.

It’s a money spinner that generates almost $1 trillion in global annual revenues and is expected to grow to $7.2 trillion in ten years, according to industry estimates.

Previously, banks had relied on legacy systems and technologies such as host-to-host file transfer to integrate their services with clients’ systems. However, while working well for single-step transactions, they struggle with more complicated real-time functionalities such as reconciliation, trade services, collections and supply chain finance.

In the face of increasing competition from more nimble rivals, notably fintechs and digital banks, banking institutions have had to up their game. Enter business-to-business (B2B) application programming interfaces (APIs), which enable banks to simplify transactions and provide clients with a seamless service.

Why use APIs in global banking?

But what are the key challenges involved in migrating to this new technology and how can banks overcome them? What has been the effect of regulation? And how can they capitalise on the biggest growth areas? 

APIs work in closed networks that integrate banks’ services with their clients’ enterprise systems and workflows. They allow banks to scale complex operations and eliminate the need for brokers or service bureaus.

Banks including Goldman Sachs, J.P. Morgan and the Bank of America have already taken the lead. Yet, as a technology, it’s still in its relative infancy, with a lack of clearly defined industry standards, and is restricted by clunky infrastructure and governance protocols.

What are the drawbacks of APIs?

The biggest challenge is in developing a platform that is both user friendly and compatible with clients’ systems. Too many APIs, however, are let down by poor or overcomplicated designs, due to lack of development expertise.

“API banking is a product with unique design constraints and challenges in the same way mobile or web banking are,” says David Jarvis, co-founder and chief executive of Griffin, a banking-as-a-service provider. “You need to build out that expertise internally and none of the banks have invested in this to date.”

They also need to be fully secure, well documented and meet ever-evolving regulatory changes. Then there is the considerable cost involved too, as well as overhaul of existing systems and processes.

To overcome these issues, banks must embrace technology and change, with a dedicated team focused on developing a strategy and rigorously testing their APIs. They should also collaborate with clients and partners, including fintechs, thus spreading the cost of innovation and reducing time to market.

How to implement APIs properly

As an absolute basic first step, banks need to invest in a digital banking platform that links their gateway and product processors and functions to enable their APIs. That platform informs all the modification, authentication, authorisation and consent-management capabilities, as well as connecting multiple information sources.

Société Générale has achieved this by building its B2B SG Markets platform. It provides everything from cash management, financing and security services to global markets and private banking. 

“By implementing machine learning and combining our cash management and FX [foreign exchange] within our platform, we have created a one-stop shop,” says Société Générale’s head of execution platforms and UK chief digital officer Sohail Raja. “It enables clients to do everything from managing their transactions to taking cash positions on different currencies.”

Citi, meanwhile, has partnered with treasury software providers including FIS, Kyriba, Oracle and SAP to embed its API functionalities into their core products. This month, its CitiConnect platform reached one billion calls from corporate clients since its launch in 2017, while API volume grew 60 per cent in 2020.

“APIs are great for real-time treasury services to enable our clients to have the most optimal digital banking experience,” says Mayank Mishra, managing director and global head of digital channels at Citi treasury and trade solutions. “Open banking is an extension of this, but one that helps enable an entire market or industry vertical.”

UniCredit has also teamed up with FinDynamic to build its platform, which allows clients to automatically view invoices through a web-based or mobile platform and approve invoices for payment. In September 2020, it launched the first open banking API with an IBAN check to enable clients to verify their customers’ account details.

Open banking innovation

The move to APIs is being fuelled by open banking regulations, such as the European Union’s Revised Payment Services Directive (PSD2), and the introduction of the United Payments Interface in India. PSD2 has required banks to release their data in a secure, standardised form, so it can be readily shared between authorised parties online. 

“Industry needs, like smart personalisation and corporate banking, are driving the conversation beyond banking directives now,” says Vikram Gupta, global vice president at Oracle Financial Services. “These capabilities need access to premium information beyond regulatory mandates that give banks an opportunity to tap into new revenue streams and provide better services to their customers as well maintain customer stickiness.”

How new tech is supporting global transaction banking

Simultaneously, artificial intelligence (AI) and automation have vastly improved risk and liquidity analytics and forecasting within treasury management systems. Blockchain and distributed ledger technologies have also driven the digitalisation of trade and supply chain finance. 

“Banks need to accept that the future of finance is decentralised and integrate blockchain and AI into their overall digital transformation strategy,” says Inpay’s head of financial institutions Stan Cole. “They can remain a central part of society by capitalising on the tremendous opportunities technology brings in terms of an incomparably higher speed and lower cost.” 

The biggest growth areas over the next three years will be cash management and trade finance. More than 85 per cent of respondents to a McKinsey survey plan to invest in cash management APIs in the next three years and almost 50 per cent want to expand their trade finance APIs.

Banks can support this by upgrading their API capabilities to allow clients to initiate self-service transactions directly. They can also cater to clients in different time zones with real-time payment processing, liquidity, risk and fraud management, cash-flow forecasting, reporting and pricing.