Following our recent Treasury Disruption and Optimization series for corporate treasurers, in this article we switch focus to look at how financial institutions are able to benefit from the rapid expansion in Application Programming Interfaces (APIs) to support intra-day liquidity management, track and trace payments in real-time and streamline cross-border currency transactions.
Ongoing shifts in the financial services landscape – driven by evolving regulation, technology developments and disruption by fintech players – have reinforced the case for ambitious digitization agendas for financial institutions (“FIs”). Leading FIs, including banks, broker-dealers, asset managers, insurance companies and payment processors, are investing in digital-led solutions that deliver cost efficiencies, automate existing processes and help them meet rising client demand for a seamless digital experiences.
In addition, rapid changes in market conditions, including rising structural volatility, highlight the importance of real-time information and integrated data in informing critical decisions around liquidity management, as well as creating new opportunities to think differently about treasury management within FIs.
An Application Program Interface (“API”) defines the data, rules, communication protocols, and tools for developers to build their software. APIs are the standard way for computer programs to "talk" to one another without human intervention, encouraging integration and efficient transactions with all businesses. APIs work behind the scenes to power most activities experienced in modern-day technology. APIs are typically divided into two main categories:
Data API - Pull information, such as account balances, transaction details, or account signatories.
Example:
J.P. Morgan has developed a DataQuery API, which is cross-product application for analyzing historic financial data. The application provides access to end-of-day time series data as well as advanced analytics that cover multiple asset classes, including FX and credit.
Process or Service API - used to initiate a specific type of service, such as initiating a payment, inquiry, or requesting action from the bank.
Example:
J.P. Morgan API-enabled Execute platform spans FX and commodities and provides live bid-offer information to clients, allowing seamless and automated trade processes across multiple channels (e.g., desktop, web, mobile). This platform received the Award for Excellence in the Digital FX Awards (2019).
There are five key API benefits to FI treasury:
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1) Real-time data
APIs allow users to call data in a pre-specified format in real time. This contrasts to the batch processing approach historically used in FI treasuries (e.g., mid-/end-of-day balance reports).
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2) Customization
APIs provide clients with the ability to customize data feeds with information, services and formatting that are most useful to them, allowing for seamless integration into workflows.
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3) Transparency
APIs allow for sharing and redistribution of underlying data sets through proprietary and third-party channels, making APIs especially suited for multi-platform and open-source environments.
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4) Intelligent automation
APIs can handle routine tasks and workflows that would otherwise require manual work, freeing up resources to conduct more strategic tasks (e.g., forecasting).
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5) Security & control
While APIs enable otherwise independent platforms to interact in a dynamic environment, they do not compromise system integrity and controls - a key priority in the FI space.
API use cases for financial institutions:
Real-time balances support intra-day liquidity management
As they adapt to an increasingly complex market and regulatory environment (e.g., BCBS 248), FIs have redoubled their efforts in optimizing intra-day liquidity. On a daily basis, global banks and broker-dealers process high volume and high value payments across multiple currencies, geographies and time zones.
This in turn necessitates a consolidated and close to real-time balance visibility. To date, FIs have typically relied on SWIFT messages (e.g., MT900 / 910; MT940 / 942) to query transaction status, intra-day positions and end-of-day balances.
The limitations of this approach are apparent, including but not limited to: reliance on manual processes, complex reconciliation and costs that rise in line with the complexity of account structures. Moreover, such an approach does not readily provide treasurers with customized real-time data, a key requirement for effective intra-day liquidity management.
In 2019, a leading European investment bank recognized APIs as an opportunity to better manage risk and improve operational efficiencies. In partnership with J.P. Morgan, the client successfully deployed real-time balance APIs, providing them with near real-time visibility on their payment activities and funding positions.
This implementation, spanning the client’s EMEA and APAC broker-dealer activity, enabled the treasury function to be more dynamic, reduced decision times and enabled the client to implement advanced algorithms to drive more efficient operations.
Real-time “track and trace” of payments
Progress towards payment visibility has made significant strides in recent years, with the launch of SWIFT gpi significantly enhancing the visibility of wire payments across the transaction life-cycle.
However, outside of correspondent banks connected to SWIFT gpi, users within other FIs (e.g., asset managers, insurance firms and payment processers) faced limits in their ability to track and trace transactions. Typically, a user would need to log on to the bank’s portal or call a client service desk to request the payment status, which would then be delivered in a standardized format. Due to such constraints, transaction queries tended to be initiated in case of payment delays or when the beneficiary claimed non-receipt.
Recognizing the potential offered by APIs to enhance clients’ visibility into their payment flows, J.P. Morgan has partnered with a leading global payment processor to develop an API-powered “track and trace” dashboard.
Through this dashboard, the client is able to track and trace payment status within his or her own payments and treasury portals.
Streamline FX payments and collections
FX markets have witnessed an evolution towards greater digitization via single-bank platforms, driven by regulation and demand for greater transparency. This in turn has opened the door to a broad set of API-led use cases.
In the transactional FX context, API deployment can aid FIs (including non-bank FIs) by offering:
- Pricing transparency
- Faster execution
- Real-time access to bid-offer information
Recognizing this potential, J.P. Morgan has developed a suite of transactional FX solutions designed to leverage the digitization of FX payments (and collections) via the adoption of APIs to enable seamless connectivity between client environments and J.P. Morgan’s FX platform.
J.P. Morgan offers a Guaranteed Rate Service designed to optimize management of customers' payments in over 120 foreign currencies from a sole funding account - eliminating the need to manage and maintain multiple nostro accounts while migrating multi-currency management to J.P. Morgan.
To learn more, please contact your J.P. Morgan representative.
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