For corporate treasury teams, having the right bank connectivity arrangements in place is an important enabler of effective cash management. Companies need to exchange messages with their banks in order to make payments and access information about bank balances and cash flows. This, in turn, provides treasury teams with visibility over their cash and enables them to carry out essential activities such as cash flow forecasting and deciding where to place short-term investments.
But getting the right connectivity in place can also be challenging. For companies that work with multiple banks, the traditional methods of connecting to those banks can bring certain drawbacks, from inefficiencies to a lack of security. And by only providing access to limited volumes of data, legacy connectivity methods may also fall short when it comes to helping treasury teams reconcile transaction data more easily.
Another option is to connect to the company’s banks using a bank API (Application Programing Interface). As well as overcoming the challenges associated with legacy connectivity models, the richer data supported by APIs can enable companies to reduce the number of payments rejected by the bank, improve reconciliation – and, ultimately, manage their cash more effectively.
The trouble with legacy connectivity options
Most corporations work with a number of different banks, which can make bank connectivity more challenging. In practice, there are several possible ways that companies can connect to their banks. For one thing, they can log into individual banks’ portals to access balance details. However, as different banks will have their own portals, each with their own look and feel, this approach can quickly become unwieldy for companies that work with multiple banks.
Other types of connectivity include SWIFT connectivity using options such as SWIFT Alliance Lite2 or a SWIFT Service Bureau, as well as direct connectivity via FTP or a host-to-host connection. But all of these options also come with certain drawbacks:
- Companies may only be able to access the information they need on a set schedule. For example, information may be provided twice a day, regardless of any situations that might arise during the course of the day and require up-to-date information.
- Legacy technology is also file-based, with information sent in one direction only from the sender to the receiver. Payment files have to be encrypted and stored in a file server whenever the corporation wants to send files to the bank.
- Setting up the necessary connections can take time and is often very labor-intensive – and while the process can be outsourced, this is likely to be costly.
Another consideration is that file-based connectivity can be vulnerable to fraud. Because host-to-host connections accept file formats of any type, they are not controlled by enforced data or security standards. As a result, this type of connectivity is vulnerable to data manipulation or malware injection attacks.
Benefits of bank APIs
Fortunately, another option is available – namely the use of bank APIs to connect to the company’s banks. By creating a direct connection between the company’s systems and the bank, APIs offer treasury teams a powerful way of carrying out a variety of treasury activities, including initiating payments, viewing balance and payment status information, and accessing details of recent transactions. They also offer real-time visibility over cash and enable treasuries to access a single source of truth.
As such, connecting to your banks via bank APIs brings a number of additional benefits:
- Flexibility. API connectivity is more flexible than other formats, as information can be requested at any time of the day – and it can be refreshed as often as needed.
- Real-time visibility over cash. Treasuries can access their cash position information in real-time, instead of having to rely on information that’s already out of date and only available at predefined intervals.
- Immediate feedback. APIs provide immediate feedback on whether messages have been received and executed, as the request and response happen simultaneously rather than as two separate actions – meaning there’s no uncertainty about the status of a particular payment.
- Access to real-time payments. More real-time payment systems are emerging around the world – and bank APIs can help corporations take advantage of these developments by providing the necessary real-time bank connectivity.
- Security. Where security is concerned, access to up-to-the minute account information reduces the risk of fraud by making it easier for users to spot any discrepancies. By providing a direct connection between the bank and the company’s ERP system, and by reducing the number of people that come into contact with transactions, APIs also reducing the risk of internal and external fraud attacks.
Tapping into richer data
But it’s not just about speed and flexibility. Bank API connectivity also enables companies to tap into the potential benefits of richer data, including internal reference data such as invoice information. The more detailed data treasury teams can access, the better placed they will be to consume and interpret that data, and make more effective decisions. In addition, with more detailed information at their fingertips, companies may also be able to reconcile their internal records more easily with the data they receive from their banks.
The following are some of the areas in which treasury teams can benefit from richer data:
- Reduce payment rejections. Payment files can be rejected by the bank in a number of different situations, often as a result of missing or incorrect information. When information is sent to the bank via API, the bank will have all the information needed readily available, leading to reduced payment rejections and saving time and effort.
- Balances. Having a clear view of the company’s current cash position is essential when it comes to making sure cash is in the right place at the right time. With bank APIs, companies can access up-to-date balance information whenever they need it.
- Transactions. APIs can be used to send a rich variety of transaction data. As well as the amounts and dates of transactions, this may also include descriptions, vendor information, invoice data, reference ID, bank information, subsidiary information and more.
Streamlining the reconciliation process
Rich transaction data can play an important role in streamlining the reconciliation process. The transaction records provided by the bank will need to be reconciled with the company’s records to ensure that both sets of information match. If the records do not match, the relevant transactions will be flagged as exceptions, and someone will need to investigate further.
By using bank APIs, companies can receive richer data in relation to their transactions. This might include details of all the amounts debited and credited to one or more of their accounts, together with vendor information and other details.
This rich data can then be leveraged by technology like FinLync’s machine learning capabilities, thereby enabling the matching process to take place automatically. If the relevant items do not match, the machine learning solution will make suggestions using the rich data that is recorded as part of the transaction. The more information the solution can access, the more likely it will be to find the right match.
API connectivity not only solve the challenges associated with legacy bank connectivity methods such as host-to-host connections – it also provides opportunities for companies to access enhanced, enriched balance and transaction data. This, in turn, supports faster reconciliation, reduces payment rejections, and helps corporate treasury teams understand and consume the information available to them quickly and more deeply.