API banking and the digital innovation of businesses

How progressive are banks in order to achieve an effective customer-centric shift to APIs?

There is a need to distinguish between the banks on the retail business side and the banks on the corporate side. When it comes to retail banks, their API strategies are barely advanced, especially in Europe, because we have the PSD2 regulation that is addressing banks to make their accounts available to customers. In terms of developing solutions with fintechs, all the hackathons that banks are running with the fintech developing companies are focusing mainly on payments services, being consumer-centric. If we are talking about the corporate side, the user experience, which is so important on the retail side, it is less important for the corporate users. So, the application that needs to be developed, in terms of APIs for corporate customers, should be mainly focused on encompassing a number of business processes – treasury, cash management, liquidity, trade finance, SCF, flows, and all the processes that treasury goes through.

In this case, we can assume that banks are beginning to identify all these opportunities for their banking strategies and considering applying them. Specifically, two banks have already declared they are developing APIs for a corporate treasury or for cash management applications – Standard Chartered and Citi Group.

Do you see other triggers besides PSD2 or is it the only one?

Certainly, PSD2 is a major trigger for banks in the European Union; and, although the UK left the EU, it is still involved in the open banking strategies. More than that, there are similar triggers in Australia and India, but they are not as widespread as PSD2 in the faction of being a mandatory directive, instead they are triggers that make banks aware that they cannot keep their system closed.

Banks now realise they have to be more collaborative: PSD2 highlighted that banks must start looking at APIs as a way to enhance collaboration and offer easier-to-use services. Moreover, banks are required to develop a customer value ecosystem and focus mainly on customer centricity.

What are the benefits for banks opening their APIs to fintech partners?

The benefit for banks is that they can leverage the technical proficiency of these fintech partners, startups or companies that have technically skilled employees. This is something that banks hardly have in their own IT departments. Also, a skills shortage has been identified as a barrier to growth, therefore banks are closely analysing their resources and cutting costs, so that people who are currently working as IT in banks can still focus on the current systems the banks use.

Dynamic partnerships with fintech startups will help banks introduce digital innovation. Yet, when these ambitious startups came to stage, banks started raising a number of concerns. The dominant players – banks – understood that these new players bring honed technology expertise; however, they do not have the brand recognition, network, business experience, and customer trust that current bank products enjoy. In short, there is plenty of opportunities for traditional banks and fintech to co-exist without hindering progress. Banks will reimagine themselves digitally and offer innovative experiences; fintechs, on the other hand, will put effort towards creating revenue and reach a wider client base.

How are corporate treasurers impacted by the API-driven agenda?

If we are to consider the limitations that corporate banking faces and the fact that APIs are just at the beginning of their journey, I believe that corporate treasury will eventually understand that APIs allow them to perform a uniform and integrated real-time process execution. The API-driven applications will allow treasurers to have a more integrated process, something they have always looked for.

When banks will state clearly how they want to apply their corporate banking APIs, treasures should consider what are the areas they would like to address more, that are API driven.

The role of a treasurer is not just to sit and wait for solutions to come from banks, but rather be proactive, guide the API development, be aware of the possibilities APIs brings to corporate banking.

How does the future of APIs look like beyond payments?

As I mentioned before about Standard Chartered and Citi, larger banks with international networks realise the need to adopt API applications for their value-added features. Treasury goes back to what could be the role the treasures might have on API driven agenda.

There are large companies capable of investing closer in so-called treasury management systems and they keep on working with basic functionalities like Excel. If banks provide API-based technology and make it available to corporates, they will boost payments into a richer area of cash management and treasury features that corporate treasures might be willing to use from banks, like a dedicated treasury software that financial institutions could offer as a thin layer over their back-office applications. The research I carried out a few years ago concludes that companies in emerging markets are still willing to work with banks. Corporations do their best to have a closer relationship with banks and the latter should start to offer them easy-to-use, rich applications.

About Enrico Camerinelli:

Enrico Camerinelli is a senior analyst at Aite Group specializing in wholesale banking, cash and trade finance, and payments. He brings a strong European focus to Aite Group’s Wholesale Banking practice. Mr. Camerinelli has been widely quoted by publications ranging from American Banker to the Financial Times.

About Aite Group:

Aite Group is an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, wealth management, capital markets, and insurance, Aite Group’s analysts work with clients as partner, advisor, and catalyst.

This article was published in the B2B Fintech: Payments, Supply Chain Finance & E-invoicing Guide 2017. For more stories like this download the Guide here.