Reducing the clutter: Overcoming cash management challenges with APIs

Why do more than 70 percent of practicing treasurers still say that poor cash visibility is a problem that affects their ability to take key decisions? As a treasury services community, we have been at this problem for years, but still haven’t managed to solve it. And this, despite the treasury and transaction banking space attracting high technology investments.

The problem lies in the very nature of transaction banking, with its multiple entities, disparate and inconsistent data sources and structures, connectivity challenges, and huge variety of transactions.  But here’s the good news: the trends show that all of these challenges are actually a sweet spot for API strategy and if this is true, technology will soon end up resolving an age-old business problem.

Let us evaluate the true potential of APIs to mitigate the various issues discussed earlier

1. Multiple entities with disparate data structures
   1. Much of cash management, besides the investments and liquidity aspects, revolves around transaction execution and efficient information sharing. Why is this even a challenge? The reason is that the different entities involved in these processes are at different levels of technology maturity, follow different standards, and struggle to establish a baseline process that is repeatable and scalable.

API solution – APIs create a level of standardisation to enable different entities operating in completely different technology environments to seamlessly exchange data virtually on call. Data that is exchanged (payload) can be structured to meet the requirements of a large number of users (use of standards) who can take what is relevant and ignore the rest. This is akin to a bank leaving large quantities of information at the doorstep in a manner that is a) standard / universal and b) can be consumed to support downstream client-side processes – virtually on call. Hence, universal and scalable.

2. Timing and connectivity
   1. Many banks and corporate treasuries are saddled with point-to-point connections that share data through scheduled file transfers or other mechanisms in non-standard formats. This is neither efficient nor scalable.

API solution – APIs can carry a data payload of real-time information, which can be shared with the customer on call, thereby eliminating issues like batch transfers, stale data etc. The solution offers everything that the traditional host-to-host / point-to-point connections did, but more securely, efficiently and on a larger scale (API channels).

3. Non-sequential nature of information requests
   1. Generally, operational challenges that hinder clear transaction visibility impact niche areas of transaction banking, such as trade finance and supply chain, more than others. Besides the regular issues of multiple entities and data standards discussed earlier, the need for information in these lines of busines tends to be non-sequential in nature, is more transaction specific and can change based on response of the entities involved in the transaction. Eg a Letter of credit acceptance v/s refusal or use of credit notes in a supply chain finance transaction. This tends to slow down the process needs frequent intervention, and at times creates an information gap – making the transaction more expensive to process.

API solution – The applications make standardised information available to all parties in real-time, resulting in a common pool (of information) that all relevant parties may access. This reduces the likelihood of information mismatch and reconciliation issues. The request for information doesn’t necessarily have to be sequential; it can be pulled anytime during the transaction lifecycle on call by any entity. Almost creates a common virtual ecosystem for all entities in the transaction to operate in.  Banks’ investments in APIs in the trade supply chain have traditionally lagged other areas, such as payments and overall cash management, but this is expected to change in the near future.

4. Client onboarding, fulfillment & Servicing
   1. In a recent survey, banks reported an average onboarding time for commercial banking clients between 70 and 120 days. Most of this delay can be attributed to the reasons discussed earlier – delays in sharing information, customised structures, non-standard processes etc. For many clients who have global businesses and are required to operate multiple bank accounts for varied reasons, this can be very cumbersome. From the banks’ perspective, delays mean loss of business opportunity.

API solution – Some banks have successfully implemented client onboarding APIs, which streamline the flow of information, making it faster and non-repetitive across multiple groups within the bank, as well as with the client. Common examples / areas of interest of API usage are seen to be around Account maintenance and entitlements related set-up, credit documentation etc. With the data and connectivity benefits discussed earlier, we expect to see increasing interest in this area, resulting in administrative benefits both to the clients and their banks.

Conclusion

The use cases discussed above are just the tip of the iceberg of what this technology can do to transform the current transaction banking landscape. The question is no longer  whether adopting APIs is the right strategy for banks – that is in many ways a settled conversation – but rather about the use cases which can exploit the technology the fastest and most effectively  to create the biggest impact on customer service, cost and eventually the bottom line. The race as we see it, is on. Technology has the solution; now business needs to creatively deploy it for the biggest impact on their own and their customers’ organisations.