The fuel powering digitisation
27 Oct 2021
APIs have been around for some time but their significance is growing in the asset servicing industry as experts say they are the fuel powering digitalisation
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Application programming interfaces (APIs) foster improved data movement between applications and across ecosystems, resulting in reduced costs, improved efficiency and an overall better experience for customers.
APIs enable greater process automation and real-time connection between systems. This is accelerating innovation, including opening asset servicing platforms to new applications based on disruptive technologies such as machine learning and blockchain.
While an API is not a new construct, it has become increasingly significant in the past few years within the asset servicing industry. For example, in August this year Citi Treasury and Trade Solutions (TTS) Asia Pacific revealed it had processed close to 350 million API calls for corporate clients since the launch of APIs for corporates in 2017.
The growing popularity of APIs can be attributed to the growing digital environment where data is exchanged online in real time.
“By nature, APIs are nimble, thus requiring less effort to collaborate with the customer applications. This collaboration makes it easier for asset servicing and transaction processing organisations to work in real time, circumventing the historical challenges of sharing large files of event data, reference data, positions data and entitlements,” explains Vishal Sharma, vice president, enterprise architecture, API lead for investor communication solutions at Broadridge.
The incorporation of real-time event data using APIs enables event processors to have access to event data from source, in real time, enabling their clients’ access to event information as near to market availability as possible.
According to Sharma, this is key when it comes to decision-making and trading strategies that are wrapped around corporate action event processing.
API connectivity to position management systems allows the event processors to see positions updated in real time, ensuring that the data being used to process the event is the most up-to-date data at that point. This allows for entitlements to be calculated and communicated in real time, also using APIs.
APIs play a large role in helping financial services firms evolve their infrastructure and achieve digital transformation, and the 2021 FIS Readiness Report shows this playing out across the financial services landscape.
The report found that nearly one third of capital markets firms say their competitive strategy includes making their data more accessible for clients via open APIs, while 36 per cent of finance leaders in corporations say the same. Meanwhile, Forbes found that 72 per cent of the top 50 global banks have invested in the creation of API platforms.
Growing popularity
Initially tagged as a technology instrument to connect systems, APIs have been around for quite some time. However, APIs can now be leveraged as a monetisable asset, thus the ‘API as a Product’ model emerged.
Sharma says digitalisation in fintech has been given further impetus by the impact of the pandemic. He elaborates: “As the pandemic confined citizens to their homes, we saw a rapid widespread adoption of digital tools for everyday tasks, from online medical consultations to shopping to internet banking. APIs are the real fuel powering this digitalisation.”
Further factors contributing to the uptake in the adoption of APIs can be put down to regulation. Robert Stark, global head of market strategy at Kyriba, suggests regulations such as the Payment Services Directive Two (PSD2) in Europe encourage banks to think about APIs, stimulating the development of products and services that could drive new revenue channels for financial institutions.
PSD2 is a European regulation for electronic payment services that aims to increase payments security in Europe and boost innovation while helping banking services adapt to new technologies. Asset Servicing Times finds that PSD2 is evidence of the increasing importance APIs are acquiring in different financial sectors.
Weighing in on the increasing popularity of APIs, Sanjeev Jain, Asia Pacific head of payments and receivables, TTS, Citi, comments: “Indeed, APIs have been around for many decades, but in the past APIs have been relegated to connecting system components to one another (for example, connecting databases to application front-ends).”
APIs are increasingly popular on the back of availability and the connectivity that they offer. According to Jain, this has allowed corporates to build innovative products and services of their own by combining ‘building block’ API services, including those provided by banks.
Jain explains: “For their end-consumers or target market segments, corporates can offer a customer experience that is much easier and agile, like never before.”
Another key catalyst in this growth story is the explosion in instant payments adoption around Asia Pacific.
“In this case, real-time payments based solutions have gelled very well with similar real-time integration technology between corporates and banks. This growth in instant payments has been driven by the increasing demand for instant fulfilment of goods and services among consumers flowing into the corporate payments world,” Jain comments.
Meanwhile, Rocky Martinez, chief technical officer, SmartStream RDU, notes: “In my opinion, there are three significant reasons for accelerated API adoption. The first reason is that many back-office and middle-office functions have become commoditised and this is not a competitive advantage.”
Experts say competitive advantage has a limited life. Therefore, many of the functions which made firms differentiated have become standard across the industry.
Second, Martinez observes the cost of running enterprise software has become increasingly expensive, which is pushing the maintenance of systems to another trusted party is beneficial.
Third, asset servicing firms accept that they do not need to be owners of every process, just the processes their clients find relevant, according to Martinez.
“Having a security master does not provide added value to an end customer, but having a customer service representative available 24 hours a day facilitating asset movement will drive customers to one provider versus another,” he explains.
APIs can provide significant opportunities hence the uptake in its adoption. API integration has opened the industry to real-time information and eliminated the need for batch cycles in the middle of the night.
Before asset servicing firms started to embrace APIs, customers would have to wait to see positions change after a sale or purchase, have delayed values of assets because pricing was done once at the end of the day, and wait for payments, according to Martinez.
Martinez affirms: “Real-time banking and API integration allows an asset servicing firm to call multiple payment APIs quickly to complete cash movements in seconds. Up-to-date third-party books and records, provide updated position movements and call an API for the current price when customers review their portfolios.”
Risks to consider
As Peter Parker said “with great power comes great responsibility”. So, when systems are open for good citizens, they are implicitly opened for malicious users too. Consequently, experts agree the most risk industry participants see with APIs relates to security. For example, security is a fundamental foundation of Broadridge’s systems’ design, and API security is taken very seriously, with a stern governance pattern around the security and accessibility of our APIs.
“Another key facet of risk that I foresee is that, in a rush to make systems more open, firms may potentially overlook what their customers are looking for and start making their system ‘as is’ available as an API,” says Sharma.
Though Shamra cautions: “This is a recipe for disaster; we need to make sure an API is ‘consumer-centric’ through effective product management and a governance body to ensure that every public or private API goes through security and integrity checks and balances.”
Stark suggests: “The entire data journey needs to be assessed for risks and vulnerabilities. This is less to do with API connectors and more to do with securing endpoints and the internal governance of the systems that are being connected.”
Standards such as ISO27001, SOC2 reporting, and SIG2 questionnaires encourage software providers to deliver a high level of security or risk being left off a vendor shortlist.
Additionally, there remains a significant amount of legacy technology in banking and financial services. Modernising solutions to include the necessary APIs remains high on the agenda of many chief technology officers, while newer fintechs have been able to disrupt the traditional players because they’ve started with modern, API-centric technology focused on a digital experience for their clients.
Baldesare concludes: “The biggest risk to consider is not associated with the APIs themselves, but in not developing a clear data and digital strategy that will support the ongoing funding, development, and maintenance of these APIs. Many firms remain challenged due to incomplete strategies or conflicting priorities associated with their digital transformation.”
APIs enable greater process automation and real-time connection between systems. This is accelerating innovation, including opening asset servicing platforms to new applications based on disruptive technologies such as machine learning and blockchain.
While an API is not a new construct, it has become increasingly significant in the past few years within the asset servicing industry. For example, in August this year Citi Treasury and Trade Solutions (TTS) Asia Pacific revealed it had processed close to 350 million API calls for corporate clients since the launch of APIs for corporates in 2017.
The growing popularity of APIs can be attributed to the growing digital environment where data is exchanged online in real time.
“By nature, APIs are nimble, thus requiring less effort to collaborate with the customer applications. This collaboration makes it easier for asset servicing and transaction processing organisations to work in real time, circumventing the historical challenges of sharing large files of event data, reference data, positions data and entitlements,” explains Vishal Sharma, vice president, enterprise architecture, API lead for investor communication solutions at Broadridge.
The incorporation of real-time event data using APIs enables event processors to have access to event data from source, in real time, enabling their clients’ access to event information as near to market availability as possible.
According to Sharma, this is key when it comes to decision-making and trading strategies that are wrapped around corporate action event processing.
API connectivity to position management systems allows the event processors to see positions updated in real time, ensuring that the data being used to process the event is the most up-to-date data at that point. This allows for entitlements to be calculated and communicated in real time, also using APIs.
APIs play a large role in helping financial services firms evolve their infrastructure and achieve digital transformation, and the 2021 FIS Readiness Report shows this playing out across the financial services landscape.
The report found that nearly one third of capital markets firms say their competitive strategy includes making their data more accessible for clients via open APIs, while 36 per cent of finance leaders in corporations say the same. Meanwhile, Forbes found that 72 per cent of the top 50 global banks have invested in the creation of API platforms.
Growing popularity
Initially tagged as a technology instrument to connect systems, APIs have been around for quite some time. However, APIs can now be leveraged as a monetisable asset, thus the ‘API as a Product’ model emerged.
Sharma says digitalisation in fintech has been given further impetus by the impact of the pandemic. He elaborates: “As the pandemic confined citizens to their homes, we saw a rapid widespread adoption of digital tools for everyday tasks, from online medical consultations to shopping to internet banking. APIs are the real fuel powering this digitalisation.”
Further factors contributing to the uptake in the adoption of APIs can be put down to regulation. Robert Stark, global head of market strategy at Kyriba, suggests regulations such as the Payment Services Directive Two (PSD2) in Europe encourage banks to think about APIs, stimulating the development of products and services that could drive new revenue channels for financial institutions.
PSD2 is a European regulation for electronic payment services that aims to increase payments security in Europe and boost innovation while helping banking services adapt to new technologies. Asset Servicing Times finds that PSD2 is evidence of the increasing importance APIs are acquiring in different financial sectors.
Weighing in on the increasing popularity of APIs, Sanjeev Jain, Asia Pacific head of payments and receivables, TTS, Citi, comments: “Indeed, APIs have been around for many decades, but in the past APIs have been relegated to connecting system components to one another (for example, connecting databases to application front-ends).”
APIs are increasingly popular on the back of availability and the connectivity that they offer. According to Jain, this has allowed corporates to build innovative products and services of their own by combining ‘building block’ API services, including those provided by banks.
Jain explains: “For their end-consumers or target market segments, corporates can offer a customer experience that is much easier and agile, like never before.”
Another key catalyst in this growth story is the explosion in instant payments adoption around Asia Pacific.
“In this case, real-time payments based solutions have gelled very well with similar real-time integration technology between corporates and banks. This growth in instant payments has been driven by the increasing demand for instant fulfilment of goods and services among consumers flowing into the corporate payments world,” Jain comments.
Meanwhile, Rocky Martinez, chief technical officer, SmartStream RDU, notes: “In my opinion, there are three significant reasons for accelerated API adoption. The first reason is that many back-office and middle-office functions have become commoditised and this is not a competitive advantage.”
Experts say competitive advantage has a limited life. Therefore, many of the functions which made firms differentiated have become standard across the industry.
Second, Martinez observes the cost of running enterprise software has become increasingly expensive, which is pushing the maintenance of systems to another trusted party is beneficial.
Third, asset servicing firms accept that they do not need to be owners of every process, just the processes their clients find relevant, according to Martinez.
“Having a security master does not provide added value to an end customer, but having a customer service representative available 24 hours a day facilitating asset movement will drive customers to one provider versus another,” he explains.
APIs can provide significant opportunities hence the uptake in its adoption. API integration has opened the industry to real-time information and eliminated the need for batch cycles in the middle of the night.
Before asset servicing firms started to embrace APIs, customers would have to wait to see positions change after a sale or purchase, have delayed values of assets because pricing was done once at the end of the day, and wait for payments, according to Martinez.
Martinez affirms: “Real-time banking and API integration allows an asset servicing firm to call multiple payment APIs quickly to complete cash movements in seconds. Up-to-date third-party books and records, provide updated position movements and call an API for the current price when customers review their portfolios.”
Risks to consider
As Peter Parker said “with great power comes great responsibility”. So, when systems are open for good citizens, they are implicitly opened for malicious users too. Consequently, experts agree the most risk industry participants see with APIs relates to security. For example, security is a fundamental foundation of Broadridge’s systems’ design, and API security is taken very seriously, with a stern governance pattern around the security and accessibility of our APIs.
“Another key facet of risk that I foresee is that, in a rush to make systems more open, firms may potentially overlook what their customers are looking for and start making their system ‘as is’ available as an API,” says Sharma.
Though Shamra cautions: “This is a recipe for disaster; we need to make sure an API is ‘consumer-centric’ through effective product management and a governance body to ensure that every public or private API goes through security and integrity checks and balances.”
Stark suggests: “The entire data journey needs to be assessed for risks and vulnerabilities. This is less to do with API connectors and more to do with securing endpoints and the internal governance of the systems that are being connected.”
Standards such as ISO27001, SOC2 reporting, and SIG2 questionnaires encourage software providers to deliver a high level of security or risk being left off a vendor shortlist.
Additionally, there remains a significant amount of legacy technology in banking and financial services. Modernising solutions to include the necessary APIs remains high on the agenda of many chief technology officers, while newer fintechs have been able to disrupt the traditional players because they’ve started with modern, API-centric technology focused on a digital experience for their clients.
Baldesare concludes: “The biggest risk to consider is not associated with the APIs themselves, but in not developing a clear data and digital strategy that will support the ongoing funding, development, and maintenance of these APIs. Many firms remain challenged due to incomplete strategies or conflicting priorities associated with their digital transformation.”
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