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Corporate Bank APIs: Definition and Examples

What is an API?

In its simplest form, an API is a technology that connects two systems and relays information back and forth between them.

API stands for Application Programming Interface…and nearly everyone uses APIs in their daily life without even realizing it –

  • When you’re making a purchase with your debit card, it’s an API that allows you to see pending transactions in your bank app
  • When you’re checking the weather on your phone, an API feeds in the forecast information from major weather trackers like Accuweather.
  • And the Google Maps API allows ridesharing services to determine driving instructions.

Classes of APIs

There are 2 main classes of APIs:

  1. Internal APIs connect two systems inside the same company and cannot be accessed without permission. These are also called Private APIs.
  2. Open APIs can be connected to with the help of software developers. These are also called also called External or Public APIs.

What is a bank API? A corporate bank API?

Now that we’ve covered what APIs are, it’s easy to understand what a bank API is.

For consumers, bank APIs establish a connection between their bank(s) and the consumer finance apps they use, like Venmo, Mint and others.

Corporate Bank APIs, then, establish a connection between a corporation’s banks and any other systems they choose. Corporate bank APIs can plug into an ERP, data lake, TMS, business intelligence tool, and more. Once connected in accordance with the bank’s and the corporate’s security requirements, bank data can safely pass back and forth instantly between the two parties.

Free ebook: the Essential Guide to Bank APIs 

Bank APIs are classified as Open APIs – they can be connected to with the help of software developers, but you must first obtain permission and instructions, called documentation, from the bank.

Corporate treasury uses for bank APIs

Commercial bank APIs dramatically enhanced the connection between treasury teams and their banking partners. Here are just 4 specific examples of the countless problems that treasury teams are solving with bank APIs today:

  1. Lack of payment traceability. Companies will never have to ask “where’s the wire?” again because bank API connectivity enables total payment traceability.
  2. Incomplete cash visibility. Stop waiting on a bank statement – access corporate bank data on your timeline, not the bank’s. Refresh your company’s bank data on-demand, as many times as desired.
  3. Time-consuming reconciliation. Don’t just automate reconciliation, accelerate it by beginning reconciliation instantly, the moment a transaction occurs.
  4. Spaghetti junction connectivity architecture. Go from complicated webs of bank connectivity to a single endpoint for all your corporation’s banks and PSPs.

Bank APIs also minimize risk of fraud thanks to the increased security of end-to-end encryption and the elimination of bank files.

Types of Bank APIs

Banks offer different types of corporate APIs based on the category of data. For example, most banks will have an API for each of the following:

  • Balances
  • Transactions
  • Payment Initiation
  • Payment Status
  • Account Entitlements
  • …and many others

Banks are rolling out brand new types of APIs and upgrading their APIs on an ongoing basis.

The connection to each of these APIs must be purpose-built for that particular API – you cannot simply copy and paste the connection for Balances to setup the connection for Payment Initiation. Each API requires its own unique set of instructions.

Open Banking APIs vs. Premium Bank APIs

The concept of open banking was born from emerging government regulations mandating that banks must provide their clients, or their proxy, expanded access to bank data. The way that financial institutions have complied with these regulations is to offer bank APIs.

Open Banking APIs are mostly associated with consumer banking – they are simpler and transport basic bank data.  This makes sense, since the complexity and needs of a consumer bank client are much simpler than the needs of a corporation.

Premium bank APIs do everything that the open banking APIs do, but go further to meet the special requirements of corporate entities: connectivity to multiple banks and accounts, a greater range of payment types, and additional digital solutions for managing bank records for account management, virtual accounts, and pooling structures.

Corporations advancing to bank API connectivity will be using premium bank APIs.

Connecting to commercial bank APIs

Creating connections between corporations and their banks via bank APIs has been a notoriously challenging task that leaves many treasury teams feeling defeated. Many will simply say ‘the banks just aren’t there yet.’

But in reality, most banks either already have APIs available, or are actively creating them — especially now that open banking regulations are taking hold in Europe, Australia, Asia and expected to spread around the globe.

It is true, though, that connecting to a bank API hasn’t historically been easy.

Because bank APIs are designed and created by each individual financial institution, they are built in different ways. Different formats, different languages, and each containing different levels of detail. Efforts to standardize bank API protocols have gone nowhere fast.

Check Out the Essential Guide to Bank APIs 

Each bank can have 10 or more unique API streams – transactions, balances, payments, payments status, etc. And the instructions on how to connect to a single bank API are typically hundreds of pages of documentation. That’s why building your own connections in-house requires a great deal of internal IT resources, an army of super-specialized software developers and a great deal of budget. And that’s just if you’re building a single API connection, much less links with multiple banks and multiple types of APIs. Then there’s the ongoing maintenance to consider.

The easier solution is to leverage a commercial bank API aggregator with a robust catalog of pre-built and pre-tested API connections because the hard work of harmonizing the bank APIs has been done for you.

With an API-based bank connectivity provider, the responsibility for ongoing maintenance is off your plate, and bank API connectivity goes from being highly complex – to plug and play.

Will corporate bank APIs replace SWIFT and host-to-host?

In short:  yes. Bank API connectivity will replace host-to-host and SWIFT.

Why? SWIFT was founded in 1973 and the host-to-host file transfer method was invented over 20 years ago. Technology has advanced. There are now faster and safer ways to transfer bank data between a corporation and its financial institutions: bank APIs.

Check out the Hackett Group Report: Why Treasurers should care about Bank APIs

As we’ve discussed, API technology is not new, but the idea of using APIs for corporate-to-bank connectivity is still new to some treasury professionals. Traditional methods of bank connectivity like host-to-host connections, and by sending messages through the SWIFT network will soon become obsolete.

“[CFOs] are able to get real-time, on-demand treasury reporting with very rich data sets and dashboards that they can play around with.…they can dynamically relocate any surplus cash… they may even be able to then shift investments into priority projects or accelerate spending on key initiatives that they may not have if they didn’t have that up-to-the minute visibility into their cash positions.”  Sri Mudigere, Senior Director of Product Management, Workday

Who agrees? 

  • Mastercard’s CEO. At the 2022 World Economic Forum in Davos, the CEO of Mastercard was asked whether SWIFT would exist in 5 years.  His answer was an emphatic “no.”
  • Corporate treasury thought leaders:
    • The Hackett Group’s treasury experts anticipate that bank APIs will become the cornerstone of treasury’s modern technology architecture.
    • Strategic Treasurer
  • Banks:
    • Nadya Hijazi, HSBC’s Head of Digital, Global Liquidity and Cash Management says “Bank APIs are the future of corporate-to-bank connectivity.”
    • Executive Director at Standard Chartered, Olle Malmgren says “We believe APIs will be the predominant way of connecting to banks in the future.”
  • Treasury Practitioners:
    • “If growth is the objective, financial apps and bank APIs are the means to get there.” -Bruce Edlund, Asst Treasurer at Citrix

As technology continues to evolve, so too must corporate treasury teams. The early adopters of bank API connectivity will be rewarded with a significant competitive advantage, while the laggards and their organizations will be playing catch-up.