What are APIs in Treasury?

Application Programming Interface (API) is an interface provided by one application for other application(s) to communicate with it. APIs in treasury management software connect different systems to share cash data or execute cash management and payments workflows automatically and in real time.

Despite the fact that APIs are relatively new to treasury and corporate banking, they are already everywhere in our daily life, especially for web and mobile applications.

An illustrative example is the ubiquitous Google Maps, which is embedded in almost every location-based service we use, such as local taxi services, food delivery, and hotel booking apps. Underneath every inquiry is an API call to the Google Maps database, from which location related information is picked up and presented to the user instantaneously.

Many financial apps have also used APIs to offer seamless data integration with other tools. For example, the popular budget and expense tracking app Mint allows app users to connect to their banks via API and then automatically syncs the data across the accounts to provide a consolidated view on their latest financials.
How an API call works between an application and a database

What Is the Difference Between FTP and API Connectivity?

In today’s enterprise IT landscape, FTP, or File Transfer Protocol, is still the most commonly used connectivity option for data to be transferred between systems. Most often SFTP, or Secure File Transfer Protocol, is used, which means there is a layer of security to the FTP process.

As both names suggest, (S)FTP is a file based transfer protocol, and it is also known as ‘batch transfer’ in treasury and payments. It works like a file package delivery service, where many files containing required data are packaged and sent directly from one system to be received or picked up by another system.

For big data packages that cannot be sent as attachments in emails, FTP is very useful. But the downside is that it takes time for the packages to be delivered to the destination, because it is a step-by-step transfer process across the different systems, as files have to be selected and downloaded and further transferred at every step of the process.

If it takes 5-10 minutes for each step, it will take a long time for a data package to go from one system to its final destination. Then it will take the same amount of time for any acknowledgement of information to travel back to the starting point.

Difference between FTP and API in treasury applications

The downside of FTP is exactly the reason why API has attracted so much interest recently in corporate banking, treasury management, and payments processing, because it enables instant data exchange between systems simultaneously, in a secure way.

When connected via an API, two (or more) systems can exchange any amount of data directly in real-time. There is no longer the need for any file packaging and transfer.

What’s more, data can be made available via API to any number of systems at the same time, just like the Google Maps and the Mint app examples mentioned above, making it possible to have data available on-demand.

What Are Banking APIs?

In the context of banking APIs, the code in APIs facilitates communication between financial institutions and external companies. In general, there are three types of banking APIs.

  • Private APIs, or closed APIs, are internal APIs belonging to a bank or financial institution They are used to share information within a closed ecosystem.
  • Partner APIs can be used only by partners of the bank or financial institution.
  • Public APIs are more commonly known as open banking APIs. Public APIs are available for third parties to use, without requiring any type of partnership. Since access rights are usually limited, open banking APIs are typically considered secure.
Three Common Types of Banking APIs
Private APIs Closed system for own use Process automation and system integration In-house innovation
Partner APIs For partnered access only Seamless customer experience with partner apps Innovate with agreed/selected external service providers
Public APIs An open ecosystem Open banking and embedded finance Open innovation

Banking APIs enable companies to include financial services with their products, for example:

  • Digital wallets that securely store credit card information can also be used by an API to send encrypted data when the receiving customer or business asks for payment.
  • Invoice factoring, where APIs can be used to prepay funds by 30, 60, or 90 days
  • Insurance disbursements can be paid quickly via APIs, with no need to wait for a physical payment

These banking APIs facilitate efficient and secure communication and data-sharing among multiple entities, applications, and services. Overall, the use of different types of banking APIs can help financial institutions improve their operations, enhance customer experiences, and drive innovation.

What Are Premium APIs?

Premium APIs, a type of private API, are APIs that banks sell directly to their corporate customers.

This type of API provides customers direct access to bank data that the bank customers can then incorporate into their underlying processes, including treasury, finance, and ERP systems.

Unlike open banking APIs, premium APIs in treasury are not regulated anywhere, giving banks the opportunity to monetize the significant amounts of data that the regulations do not cover. The purchasers of the data can then use it to create new and existing products.

Fast, accurate information is key to decision-making and premium APIs help provide a comprehensive view by bringing together vast amounts of data from disparate areas and feeding it into one source. Potential use cases for premium APIs include:

  • Real-time foreign exchange feeds and data for analysis, trades, and currency hedging
  • Tax APIs, including compliance and auditing
  • Property value calculations based on trends and local data
  • Credit and lending data, such as credit scores and deposit balances
  • Financial planning and budgeting for corporates and individuals

Corporations will continue to identify use cases that will let banks develop, release, and monetize premium APIs, driving innovation, bringing opportunities, and providing a competitive advantage.

What Are the Benefits of Using APIs for Treasury Management?

The use of APIs in treasury management can bring us many benefits, mainly around convenience, efficiency, security, and instancy. For treasury, it can improve the experience in all treasury functions such as bank connectivity, payments, cash reporting, and forecasting.

  • Convenience: consolidating information from different systems means comprehensive updates and reporting without the need to log into different banking portals.
  • Efficiency: no more wait time for file exchange. On-request payments and real-time reconciliation minimize manual errors and improve operational efficiency, with the ability to quickly share data with stakeholders across the company.
  • Security: security risks are lowered, with no files to tamper with and internet security protocols in place. Real-time updates mean fraudulent activities can be captured promptly.
  • Instancy: real-time data feeds provide instant updates on foreign exchange rates, bank transactions, trades, valuations, and payments. This means your cash position is always up to date, allowing for data-driven decisions.

Use Cases of APIs in Treasury

Banks have increasingly adopted APIs to offer better experiences for their customers. But APIs have potential for use cases far beyond bank connections. For corporate treasury and finance, APIs have nearly limitless potential. A recent study by research firm IDC identified that 90% of finance leaders have already implemented or expect to incorporate APIs within their financial technology stack.

API for Bank Data consolidation

Clients who connect via APIs to their banks can truly get real-time visibility into their account balances, transaction status, or other banking data.

When such data is aggregated across different banks, your cash and banking information can be presented in one dashboard, for example in your treasury management system or other cash forecasting software, enabling you to take further actions based on timely and accurate data sets.

API for Real-time Payments

This is probably the most well-known use case for banking APIs in treasury. It is a payment type where the transmission of the payment message and the availability of “final” funds to the payee occur in real time or near-real time.

Many banks already support real-time payments with their APIs, such as CashPro by BoA, CITI, and JPMC. You can find more details from the Kyriba developer portal, and more banks are being added regularly.

API for ERP-to-Bank Integration

Kyriba has developed API connectors to SAP, Oracle, Microsoft Dynamics, and other major ERP providers to provide real-time data flows and instant updates, like changes in payment status, to the connected ERPs. With such connectors, you can integrate your TMS workflows with your ERPs, including cash forecasting, payment initiation, payment confirmations, and GL reconciliation.

API for Embedded Treasury

With APIs in treasury, it is now possible to embed financial and banking data into any corporate process whenever and whenever needed, enabling great data accessibility and supporting data-based decision making. This is what is called ‘Embedded Treasury’.

This is a game-changing development for treasurers, who can now access and share real-time financial data at any time and make data-based decisions more quickly and accurately, increasing treasury’s advisory value to the C-suite.

Example of Integrating APIs into Treasury Processes

Kyriba client Hunt Companies is an early adopter of APIs. They use the Kyriba bank connector to J.P.Morgan’s bank API for real-time payments and have replaced all qualifying wire payments with RTP®, reducing bank fees from $6 on average for a wire transfer to less than $1 for RTP®, with a potential for much greater savings as more banks are added.

On top of payments, Hunt Companies have also adopted the API integration between ICD and Kyriba to obtain up-to-date account data, fund availability, and market data, with which the organization is able to make informed investment decisions.

API integration between ICD and Kyriba as an example of APIs in treasury application