Cash Management

Why APIs are the Future of Business-to-Bank Connections

Treasurers and CFOs are pushing banks for technology that enables real-time balances and payments.
Vincent RyanNovember 2, 2022
Why APIs are the Future of Business-to-Bank Connections
Photo: Getty Images

Small-company CFOs and corporate treasurers know the software links with banks are suboptimal. Sending funds via wire can be a hassle, account balances are often accurate only as of the previous day, and some processes still have to be done manually.

But an increase in the development of application programming interfaces (APIs) could make this part of finance operations a lot smoother.

David Miller, senior vice president and treasurer at Hunt Companies, and Bruce Edlund, group director and assistant treasurer of Cloud Software Group, explained why at the Association for Financial Professionals Conference in Philadelphia last week.

Amazon Web Services defines APIs as “mechanisms that enable two software components to communicate with each other using a set of definitions and protocols.”

In the context of banks and corporate finance, an API lets a treasurer or CFO connect to and transact with their banks in real-time through a treasury management system, service bureau, or a fintech software platform.

Tell your banks, tell your vendors, ‘I want an API, I want real-time payments. I want real-time balances, I want you guys to build it.’ — David Miller, Hunt Companies

Hunt is a family-owned holding company investing in operating businesses, real estate, and infrastructure. The company has more than 30 domestic bank account relationships and in 2021 made 3,600 payments with a total value of $2.5 billion.

So, Miller is trying to move away from what he calls slow, inefficient ways of wiring funds: wires getting returned because of a closed account or invalid account details, payment delays from compliance issues, and limited clearing system availability.

The solution for Hunt has been real-time payments (RTPs) through its API connections with banks.  The RTP network is an interbank payment system providing near-instantaneous settlements that debuted in 2017.

“[RTPs] and APIs are probably the best innovations and things that as an industry we’ve created in my 20-plus years of treasury,” Miller said. RTPs are “significantly” cheap on the sending and receiving side of the transaction, he said. And the API connections save “a significant amount of time on an ongoing basis.” To boot, APIs are really no expense for practitioners, he pointed out.

For Edlund, the issue at Citrix (now part of Cloud Software Group after the merger with Tibco) was a lack of bank connectivity.

Edlund arrived at the virtualization technology company’s treasury department from Walmart in 2014. The accounts payable team was still uploading XML payment files, and the accounting team downloading previous-day bank statements. Reconciliations were next-day, and treasury made payments through its bank’s portals.

“You don’t want to create a payment file that goes on the network somewhere that people can access,” Edlund said. “That’s a fraud risk you obviously want to eliminate.” And having the accounting team download next-day bank statements is “not super efficient,” he added.

With API connections to its banks through FinLync, a bank connectivity provider, Cloud Software Group gets up-to-date bank statements throughout the day, on the current day. In addition, other teams, like accounts receivable, that used to log on to individual bank websites can now get answers to questions through the API connection.

“I have this screen open all day long and I can see my global [positions],” Miller said. If his boss wants to know how collections are doing, Miller can look at current balances instead of the previous day’s. 

Pushing the Banks

API connections are somewhat in their early stages. For example, only two of Hunt’s banks offer RTP capabilities so far.

While vendors of treasury management systems and fintechs can build APIs, Miller feels the banks will drive their development. 

“Tell your banks, tell your vendors, ‘I want an API, I want real-time payments. I want real-time balances, I want you guys to build it,'” said Miller, addressing the finance executives in the audience.

Edlund advised treasury executives to talk to banks about their API strategies. “We started in January, [and] I was a little bit surprised by a couple of big global banks not being ready for payment APIs,” he said.

But Edlund believes banks are starting to get the message. “I had conversations two years ago and someone [at a bank] would say, ‘Don’t worry about the technology, you can connect to us, …. we’ll take care of things.’” 

Now, though, more banks are discussing APIs internally, Edlund said. “But the first person that you talk to [at a bank], may or may not know what’s really going on [with regard to APIs]. So you have to push.”