This blog is based on a TIS whitepaper that provides analysis of Application Programming Interfaces (APIs) in the treasury and finance arena. In this piece, we explain what APIs are, analyze how they work, explore the relevant financial benefits, and finally, review real-world applications of APIs within the treasury environment today. For more information, the full resource can be accessed through this link.
APIs: What Are They & How Do They Work?
Although Application Programming Interfaces (APIs) have been around since the early 2000s, these process-based programming codes are only just beginning to reach their full potential within today’s digitalized financial ecosystem.
In the simplest of terms, APIs are programs that sit between various cloud applications and define how these applications can interact with each other. APIs are typically developed by cloud software providers. As a result, they can support strong integrations between a corporate’s back-office and the solutions used by their business partners, vendors, and banks. Ultimately, these API integrations enable a company’s various financial platforms to interact with each other and share data without repetitive human commands.
In order to properly function, APIs require sets of parameters to define which platforms they can connect too and the data sets they can interact with. For instance, APIs that are used to automate back-office payment workflows must “know” which software systems to collect payment data from (ERPs, TMSs, AP systems, etc.), as well as which data fields to access (currency amounts, bank addresses, account numbers, etc.). As you can guess or may even know from experience, for organizations using multiple payment solutions and formats, developing the right API codes to sync all of these systems together can be tricky.
While perfecting the API logic behind complex financial integrations has taken time, there has been significant progress achieved over the past decade. Today, APIs are providing real-time control over numerous cross-platform functions. Now, as businesses increasingly transition to cloud solutions and digital work environments, the use of APIs within treasury and finance is growing exponentially.
API Benefits for Treasury
As it stands currently, the core benefits of APIs for treasury can be summarized in five main points:
- Back-Office Automation. APIs enable an organization’s various treasury and financial software products to share data and process information in an automated fashion.
- 3rd Party Integration. APIs can connect a company’s back-office systems with 3rd party solutions used by their banks, partners, and vendors.
- Customizable Commands & Queries. APIs can be configured to perform an endless variety of financial reporting and process execution functions in the areas of payments, cash management, and security.
- Global Consistency. Collaboration between Fintechs has helped standardize global API logic and drive even greater cross-platform automation between financial systems.
- Real-Time Connectivity. As API technology becomes more mature, an increasing number of cross-platform functions and routines are being automated, which leads to greater real-time connectivity for treasury teams.
How are Financial APIs Developed & Released?
Because APIs are essentially data-driven computer applications and programming scripts, before you can develop an API, you must have an online data-hosting service to accommodate it. Typically, APIs are “hosted” in the cloud using services such as Amazon’s AWS or Microsoft’s Azure products. Today, these servers provide the foundation on which most APIs and Fintech cloud products are built upon.
Once the API development process begins, computer programmers will use applications like Java, Node, and Python to write code-based scripts, as showcased below on the left-half of the screen. As these scripts are created, programmers will collaborate closely with financial professionals and experts who act as industry consultants. Since few programmers have real-world experience in financial roles, the oversight provided by these industry experts simply ensures that the API functionalities being created will have practical use cases in the field.
Ultimately, the API code and scripts that are developed by these programmers and their industry guides will form the functions that dictate how various pieces of financial data can be manipulated by users. Some API scripts may be developed to aggregate all a company’s payments data together, and other APIs will determine how this data can be processed or exported. In the end, all these scripts are packaged together to form cloud-based API products that are implemented and leveraged by corporates and businesses.
As these cloud products are released, corporate users will never need to interact with the underlying API scripts. They simply use the front-end interfaces and dashboards that the APIs are populating behind-the-scenes. In this way, any practitioner can benefit from the functionality that finance and treasury APIs provide, without having to acquire any technical knowledge of how the programs are developed or managed on the back-end.
APIs Enable Globally Connected Networks of Cloud Solutions
While APIs are proving an innovative addition to the treasury and finance landscape, their benefits depend heavily on the industry’s continued adoption of modern cloud technology. This is because API development has advanced so rapidly in the last decade that many older or “legacy” financial platforms, particularly those that are still hosted on-premise or via local servers, cannot support the newest programming standards.
However, data from early 2020 (pre-pandemic) shows that nearly 60% of corporate treasury groups are already leveraging cloud-based financial software, and nearly 40% are using treasury APIs. These usage levels are expected to grow rapidly over the next few years, and it is already becoming commonplace for treasury groups to leverage a variety of different cloud platforms at once. As long as each platform is API-enabled, integrations can quickly be established to connect it with other cloud solutions in the corporate’s technology stack.
Although new API standards are being developed regularly, upgrades can be downloaded to existing cloud solutions through online patches that do not require complex installations or system downtime. In most cases, these upgrades are provided as a standard feature by software vendors as they release new product versions.
Ultimately, APIs are enabling much greater cross-platform integration capabilities for corporates. As a result, corporate back-offices increasingly resemble webs of interconnected technology solutions and data sets. With modern APIs, both external and internal platforms can connect with each other, and data can flow seamlessly between any system within the network.
How the Cloud + APIs Enable a Best-of-Breed Approach to Technology
Given the robust nature of today’s APIs, the integration capabilities now available to corporates can establish connectivity across virtually any combination of cloud solutions, including everything from global ERPs and TMSs to simple communication platforms like Slack, Zoom, and Gmail. Today, all the leading cloud solutions on the market use APIs, and most vendors work hard to ensure their solution’s APIs are compatible with other systems. This means that by being intentional with how their APIs are deployed, organizations can automate almost any function, from sharing documents and reports to transmitting payment data and developing cash forecasts.
As a result of modern API integrations, treasury groups are able to leverage numerous back-office solutions alongside one another without being impeded by siloed data or segmented workflows. This is a reality that has only recently become feasible for many companies, and it is resulting in a widespread movement towards “best-of-breed” technology architectures. The core benefit of this best-of-breed approach, compared to adopting an “all-in-one” solution, is that specialized software products can be utilized to perform niche functions, such as payments management or FX trading, without creating a gap in how the underlying data is collected or analyzed.
For more information about how APIs are transforming the world of treasury and finance, download our latest whitepaper! This resource offers an extensive view into modern treasury API use cases, as well as additional information and visuals regarding the above sections. This whitepaper also provides a glimpse at what’s next for APIs in treasury, and how current innovation is shaping the next decade of usage for practitioners across the globe.