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A New Treasury Ecosystem: Open Banking, APIs, and Banking-as-a-Service
33 Plays3 years ago
During this episode, TMI Editor, Eleanor Hill, speaks with Peter Claus-Landi, Executive, Treasury Operations & Industry Initiatives at GE and Jared Smith, Managing Director, Global Head – Corporates, Global Liquidity and Cash Management at HSBC to cover how key API-centric developments are changing the treasury landscape.
With APIs significantly altering the way that corporates connect with their banks, Peter and Jared provide a candid perspective of the benefits – including a detailed overview of GE’s API plans – and consider which factors may help to facilitate greater adoption.
For more information on this topic, click here.
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Transcript
Introduction to HSBC Global Viewpoint
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This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
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A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
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Thank you for listening.
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Thank you.
Meet the Experts: Jared Smith and Peter Klaus Landy
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Welcome to TMI's TreasuryCast.
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I'm Eleanor Hill, editor of TMI, and I'm joined in our virtual studio today by a familiar face and a new face.
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So we have with us Jared Smith, who's Managing Director, Global Head Corporates, Global Liquidity and Cash Management, HSBC, and who many of you will no doubt recognize from previous TMI podcasts and articles.
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And new in our TreasuryCast hot seat is Peter Klaus Landy, who is Executive Treasury Operations and Industry Initiatives at GE.
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So it's great to have you both here.
Treasury APIs in 2021: Significance and Impact
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And we're going to be speaking about a very timely topic, namely the evolving Treasury ecosystem.
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looking at open banking, APIs, and banking as a service.
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So, Jared, kick us off then on this topic.
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You know, why do you think Treasury APIs have actually become such a key theme in 2021?
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What's driving interest here?
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Is it open banking?
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Is it digitization of Treasury departments?
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More familiarity with APIs or all of the above?
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What would you say?
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Yeah, thanks, Eleanor.
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So, look, APIs have been an emerging theme for some time now.
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which is really accelerated in 2020 and 2021.
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I think that the answer is that open banking, digitization of treasury departments, more familiarity with APIs in general, a look to more centralization and access to information to drive business decisions.
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It's really all of the above.
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We saw an acceleration of all things digital during the pandemic and not necessarily all new ideas, but movement into digital world at a faster pace.
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The speed and execution have always been important in this space.
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They're held at a premium now.
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And you'll see even more adoption of faster or real-time payment services.
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Overall, an expectation from our clients is to connect more quickly, safely and seamlessly and to put data in their hands on a real-time basis.
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Yeah, absolutely.
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It's one of the key drivers, that whole shift into real-time treasury.
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Peter, would you
GE's Treasury Transformation Journey
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agree?
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Anything you have?
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I definitely agree with most of what Jared was mentioning.
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I think one of the buzzwords you'll probably hear out more and more from a corporate perspective now is the concept of treasury transformation.
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Right.
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And I think more and more corporates have been going through that transformation from GE's perspective.
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We've been on that journey for many years now.
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Right.
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So with that, we've we've enhanced our technology stack, our infrastructure, our opportunity to digitize certain processes, stand up new dashboarding and other capabilities and pieces of technology.
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So I think that in conjunction with open banking, like Jared mentioned, the need for more of a real-time data exchange as the industry continues to evolve has definitely led to more of the interest here when it comes to APIs, especially over the last year or two.
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Yeah, definitely.
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Like you say, treasury formation and treasury on demand has become another one of those sort of buzz phrases.
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But, you know, Eleanor, we talk about treasury transformation, but I think we have with the likes of GE and other of our largest corporates for decades, right?
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It's new technology leads to the next evolution or the next restructure.
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And so is this 2.0, 3.0 of this kind of activity?
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Yeah, absolutely.
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It is one of those things that kind of rumbles on, but the pandemic has given it so much more focus, I think, and
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People are looking a lot more at sort of different technologies and how they can leverage those and improve for the future.
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And on that note, Jared, tell us a little bit in more concrete terms about APIs and the use cases there.
The Power of APIs in Corporate-Bank Interactions
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You know, how are they changing the way that corporates connect with their banks, for example?
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Yeah, look, I think it's fair to say that APIs are the future of corporate to bank connectivity or connectivity with fintech partners.
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Yeah.
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If you think historically, and maybe in terms of transformation, so historically, corporates would engage with banks through proprietary technology by bank.
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And then access to say, SWIFT for corporates, so the rise of open banking really changed that landscape.
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Though they still required some heavy integration with your banks, albeit with more standardization.
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With the expanded offering and use of APIs, we're enabling clients to rapidly integrate our solutions into their own systems and products.
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And this approach of embedding our capabilities into a customer's office
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and in some cases into their solution, is likely to make them more efficient, more resilient, and less dependent on evolving their own technology to meet the banks in the middle.
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So in support of this changing landscape, HSBC has offered our live API developer portal for some time now to facilitate this enhanced engagement.
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So you asked for sort of specific use cases.
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I mean, some specific use cases could be treasury APIs, which allow corporates to connect for payments as well as balance and transaction reporting, but that's sort of the basic view at this point.
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And maybe a more complex view comes from some of our e-commerce oriented clients who have used APIs in more restricted markets to support vendor retention and real time application of funds.
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Perhaps one example for one client, it had been particularly onerous for the vendors to manage their shipping contracts.
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And for this client to bring this in house, they needed to prove that the vendor had actually paid for shipping prior to sending goods to the buyer.
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In this case, APIs enable them the ability to immediately learn the status of collection from their vendors,
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which then would trigger a real-time application of the credit and thereafter immediate shipment of goods to the buyer.
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All of this was managed through an e-wallet that we put in place for them, which allowed them to aggregate multiple payment types, including cards and direct debits.
API Integration Challenges and Solutions
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Wow.
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Amazing.
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Like you say, there's a whole kind of range of possibilities and at the basic end, it's that connectivity piece.
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It's looking at, oh, is host-to-host relevant anymore?
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Swift, as you say, how can API go alongside those things and then getting into the kind of more exciting, dare I say, end of things like you said there, e-commerce.
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But Peter, let's hear a little bit from you in terms of GE and your journey of looking into the use of APIs for Treasury.
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How far along are you in that journey?
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From a GE's perspective, we're still kind of at the beginning stages of our journey when it comes to APIs for the most part.
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We've explored several use cases in the past.
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However, we were always inhibited a bit on the technology side.
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So like I mentioned earlier, as we continue to evolve there, it's making more and more sense for us to understand whether or not API connectivity could make sense for GE moving forward.
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So where we are right now, we're currently partnering with our treasury TMS and payment hub vendor on building out capabilities for APIs internally.
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Obviously, the other challenge for us as a large multinational, multi-banked corporate has always been the ability to easily adopt APIs with our banks, connecting with them directly, the standards or differences in standards between banking partners that go along with that.
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And that's always posed a bit of a challenge, right?
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So I think one other thing that we're looking at exploring now is actually a POC that's being led by
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Swift and potentially leveraging some of the ability that Swift has as playing kind of that middleman role, right?
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When it comes to connectivity, could we potentially connect with our banking partners utilizing API, but still leveraging Swift in the middle?
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GE, we use Swift for all of our businesses.
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Obviously, like I mentioned, one of the challenges that we have is connecting directly with every single bank.
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Is there a potential or an opportunity to leverage something in the middle more as an API aggregator aggregation, right?
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So that we connect once, right, with our TMS or our payment hub, and then our banking partners all connect to, to Swift or through other some type of aggregation, so that it takes the legwork off of us and our vendor.
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So that's kind of where we are now.
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We're still exploring it a bit.
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I think a couple of the immediate use cases that we see, or at least that we're looking at in the near term, would be around the balance or transaction reporting that Jared mentioned.
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From our perspective, we get intraday balance reporting in the form of MT942s or CAMP team messaging.
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However, it's all pushed to us, right?
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And it's incremental.
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It could be as fast as every 15 minutes, 30 minutes, or even an hour.
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depending on the bank and the country that we're dealing with.
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But can we flip that upside down now?
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Can we potentially look to leverage API connectivity, replace some of our push bank reporting that comes, right, with that a tremendous amount of volume that our systems have to keep up with, and maybe push that around so that we can call that information as needed for cash positioning, cash management purposes.
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So that's really where we are.
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We're still exploring it, and we're hoping to continue to pursue this into 2022.
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Yeah, exciting stuff though, Peter.
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I think the challenges you raised there will resonate with so many other multinational corporates that are also multibanked.
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You know, the thought of having direct APIs with all of those different banking partners is quite kind of daunting.
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And yet, yes, it's possible to see the advantages of such a setup.
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So tell us a little bit more about that SWIFT Instant Treasury POC.
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What kind of timeline are we looking at?
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What are you massively hoping to achieve from
Technological and Cultural Shifts for API Success
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your side?
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What are the end goals there?
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Yep.
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Yeah.
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So I think the timelines around it are still a bit in flux, right?
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I think we're going to be kicking it off sometime in the first quarter of 2022.
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It's going to be with a select number of banking partners.
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And the other key for us is pursuing this is the partnership with our TMS and payment hub vendor.
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We're not going to go off and develop capabilities to manage these APIs on our own, right?
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So that was a key decision for us to kind of pursue it.
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And like I mentioned, the first phase of this is really going to be exploratory and it's going to focus on replacing those intraday banking or balance or transaction reporting statements that we're getting currently pushed to us through Swift in the form of the MTs or the Camp T messages.
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And Peter, do you think that there'll be any technology changes needed behind the scenes or process and culture changes in order to fully leverage the API connectivity that you're hoping to leverage in the future?
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Absolutely.
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Right.
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And again, it goes back to the partnership that we have with our vendors, right?
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Because we're not going to be going at this alone.
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So from that front, absolutely, there's going to be technology changes that are required.
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I think the beauty part about partnering with the vendor during the POC is that we can figure out what the use cases are and the best practices and what it's actually going to take to change this
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collectively as we move forward.
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And then furthermore, right, once we get that integrated within our core treasury management system or payment hub, there absolutely could be the need to further enhance other pieces of technology within our businesses.
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If we get this data in real time, starting with bank reporting or leveraging some of the other API technology that Jared mentioned before, you know, that's just step one to get it in the door, right?
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And then what do we do with it?
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How do we house it?
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How do we operationalize it?
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How do we
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potentially pass that back to business ERPs, right?
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So I think there's a lot of things that we need to consider as we go through this journey in order to leverage the data or the additional capabilities in the most effective manner.
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Yeah, yeah, absolutely.
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And I'm sure that a number of corporates will feel the same.
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Jared, what are your thoughts around this?
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It sounds very exciting what Peter's got lined up there.
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But what do you think needs to happen to facilitate greater adoption of APIs more widely among the corporate community?
Standardization in API Adoption: ISO 20022
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Peter rightly mentioned one quite large challenge, which is standardization.
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What are your thoughts?
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I think for starters, there's a really important point in there is that any treasury transformation is a journey, right?
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So this isn't an out with the old, in with the new, and everything's going to work perfectly.
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So there is a lot of work to do.
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And I think Peter mentioned a couple of things that are important in terms of, you know, managing to your technology, but using your vendors to help you along in the journey, because any particular client could be anywhere along that journey.
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And likewise, your banks will be in different places or have different approaches to it.
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With regard to standardization, I think it'll definitely help to facilitate even greater adoption of APIs.
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So, for example, I would think that corporate use of APIs will expand along with the industry's movement to ISO 20022, and not just Swift, but market infrastructures as well.
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Anything that provides a common enriched language should, in theory, make it easier to implement APIs.
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Now, from the bank's perspective, APIs are certainly being used and introduced for a lot of intrabank communication between systems.
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And then from the outside, the likes of Swift are introducing API connectivity from banks to its new services, like payment prevalidation.
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So all in, usage of APIs is accelerating rapidly and will continue to do so.
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But we'll really have to monitor along with partners, with vendors, with clients, where are we on this journey and how do we make sure we've implemented the right things
Banking as a Service: Opportunities and Implications
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at the right time?
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So again, it's not out with the old, then with the new, we've got to manage to the infrastructure that we have now.
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Yeah, yeah, absolutely.
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That makes sense.
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And on this journey, Jared, I think there's some wider shifts that might happen around APIs as well in the transaction banking ecosystem.
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And one of those is another sort of buzz phrase that we've heard this year, which is banking as a service.
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So tell us a little bit about that and what you see happening there.
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Well, I think banking as a service is evolving from a buzz phrase, thankfully.
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So banking as a service, it's certainly gaining some steam and it can encompass a lot of different opportunities.
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So maybe to start,
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Banking as a service involves banking, banks enabling customers to embed financial services into their own products, which is why it's sometimes it's called embedded finance or embedded banking.
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And, and through this embedded banking, our clients can offer the bank solutions to their customers and or their suppliers all through, we would hope all through seamless API based solutions.
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The possibilities for this type of engagement are broad and can range from payment capabilities to lending, insurance, investments.
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And so treasurers may very well find this on their radar within the next year.
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If you consider the potential of this type of engagement, this is a great opportunity for treasury teams to collaborate with their colleagues within their own product development and strengthen the sales proposition by embedding financial services into their products.
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By doing this, companies in many different sectors could see greater customer conversion and retention, which could ultimately translate into increased and more predictable cash flows.
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We're really excited about the space and we've seen that some organizations are also reinventing their own business models on the back of banking as a service development.
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It's really exciting to see Treasury teams pivot to adopt the capabilities that we and other transaction banks are offering.
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Yeah, and it's certainly going to be a theme for 2022, I believe.
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We'll see a lot more of that.
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And if anyone listening wants to find out more about what HSBC is doing in the space,
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I've got an article coming out very shortly with one of Jared's colleagues, Brian McKinney, looking into banking as a service and answering all of your questions.
Navigating APIs: Collaboration and Standardization
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So have a look on the TMI website for that one.
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Now, Peter and Jared, we've done a quick whistle-stop tour of what's happening in terms of APIs and also GE's journey and plan ahead.
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But what would be your key takeaway for treasurers wanting to take advantage of the API-driven ecosystem, Peter?
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Yeah, so I think it is a culture shift, a culture change, right?
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I think we need to continue to evolve and collaborate together.
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I think, as Jared mentioned, as we go through this, there may be things that we find beneficial.
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There may be things that we need to pivot along the way.
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Collaboration with our banks, collaboration with our vendors is key.
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And then one other thing that I would highlight that we shouldn't miss out on that Jared also hit is the evolution of ISO 20022, right?
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The other industry initiatives that are out there.
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I think as we go through this journey, I think strengthening those along with ISO is going to be important, right?
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Because we can't lose sight of just transforming and ensuring that we get the data consistency, leveraging the new standards that are out there.
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I think as we go through it, like I said, it's going to be a bit of an evolution and we're all in it together.
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Jared, your final thoughts?
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Yeah, look, I think that corporate treasuries may find themselves in a position where they're engaging more deeply with product development and with other parts of their organizations.
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So I'd say one piece of advice might be to engage deeply with your banking partners who are focusing a lot of time and energy and money on this, on the future of these topics and technologies.
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And while I might historically say to lean on your banks or your vendors, I think better to say remain close and open with your banking partners.
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We are entering a really new space where we're talking about more effective and efficient sort of integration between corporates and banks through new technology.
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And our opportunity now is to look for ways to co-create for the benefit of our customers and our customers' customers.
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Absolutely.
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And exciting times for treasurers, I think, being able to get involved in all of this that's changing the industry and have a say in the future.
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And Peter, we wish you all the best with your project at GE.
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And I hope you'll keep us posted on how that goes.
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Absolutely.
00:17:44
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Thank you.
00:17:45
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Well, that's a wrap on this podcast.
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But thank you both so much for giving up your time to be here today.
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We really do appreciate it as we know how busy you both are.
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And it's been a genuine pleasure to hear your insights on this topic.
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Thank you.
00:18:35
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Thank you for listening today.
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This has been HSBC Global Viewpoint Banking and Markets.
00:18:41
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For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.