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Open Banking for Treasury Departments – What is It Good For?

Open Banking for Treasury Departments

In view of the current status quo, it is legitimate to question open banking’s useful-ness for treasury departments in the future. Is open banking a useful enhancement or is it just the latest hype as there have been so many since the beginning of the age of digitalization?

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Patrik Sandell

Director, Financial Risk Management

KPMG i Sverige

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The use of open interfaces

Using open interfaces has already been possible for many years and in some cases is quite common outside treasury departments. In treasury departments, the use of APIs was not of great relevance because TMS providers hardly supported these functionalities to date. Up to now, communication consisted of exchanging data through file directories or other transfer protocols in payment operations, such as host-to-host, EBICS or SWIFT. Whether this will change anytime soon will also de-pend on the value added by the APIs. But: banks as well as potential third parties must offer functioning and above all secure APIs. The current status quo indicates that it is precisely the standardization of these interfaces that poses a problem. At this time there is no generally accepted standard for APIs in payment operations, as each provider has its own design. This makes the whole thing highly complex and bogs down the IT architecture of treasury departments, thus slowing down the pro-cess. However, SWIFT is currently defining a uniform standard for APIs in payment operations in order to solve precisely this problem.

Dekorbild: Open Banking for Treasury Departments – What is It Good For?

In view of the current status quo, it is legitimate to question open banking’s useful-ness for treasury departments in the future. Is open banking a useful enhancement or is it just the latest hype as there have been so many since the beginning of the age of digitalization?

Account Information Service Providers

Let’s take querying account balances: Account Information Service Providers (AISPs) are currently considered to be services regulated by the PSD2. AISPs ena-ble the querying of data from different accounts, which are then made available to the customer in aggregated form and in real time in a TMS or another system (e.g. a reporting solution). Specifically, a third-party provider can thus communicate with the various house banks of a treasury department through these APIs and then access the relevant data. Access is in real time and may be initiated by Treasury any-time. This would be progress in regard to the current status quo, where banks only provide an end-of-day balance or an intraday account statement (in a previously defined frequency). Currently it is not possible to query account balances in an ad-hoc fashion.

Payment Initiation Service Providers

Apart from simply querying account balances, it is also possible to make payments directly through the APIs provided by the Payment Initiation Service Providers (PISP). Customers can make centralized payments themselves from their bank accounts using a third-party provider or in their own TMS. The PISP can access the company’s accounts and effect the wire transfers through the bank’s API.

In both cases (AISP as well as PISP) it will depend on whether and when the necessary APIs will become available at the banks and integrated into the software providers’ systems (i.e. FinTechs, TMS, etc.). As such, it is unlikely that there will be replacement of the tried-and-true communication channels such as host-to-host, EBICS and SWIFT, especially as these have already been anchored deep in treasury processes and IT solutions and a change would require considerable efforts. Most likely, APIs will complement the already known channels. On an everyday lev-el, they still have to prove their usefulness as far as the smooth and efficient functioning, as well as the maintenance by IT is concerned

Nonetheless APIs may indeed bring an added value for cash management and payment operations, for instance by making it more transparent and processing it faster. It is precisely in regard to cash management and instant payments (which will come inevitably and which we highlighted in the September 2019 newsletter) that APIs will become indispensable. It will be interesting to see what will happen when this hits the ground and how it will affect treasury and cash management de-partments around the globe!

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