The integration of open banking into existing apps and products enables any company to enhance their financial service offerings directly to customers. When solutions can be delivered seamlessly to customers, there is an opportunity to transform business models and create monumental potential for growth.
During the AFP 2021 Payments Hub Keynote, sponsored by Wells Fargo and Brinks, Bruce Edlund, assistant treasurer at Citrix Systems, and Chris Noe, senior vice president of Digital Management at Wells Fargo, took on this issue in an informative discussion. Following are some highlights.
At Citrix, open banking comes down to APIs, which are helping to power real-time connectivity. “When I started to really understand what an API could do, I got really excited,” said Edlund. The company is implementing a solution using APIs to get current balances in real-time, the same as if you logged into your bank portal: up-to-the-minute transaction details. “I feel very strongly that API is the technology that is going to take us into the future,” he said.
Anyone who doesn't have bank connectivity knows that if your AP team is creating a batch payment file, that file going on the network somewhere. And in Citrix’s case, they were logging on to Wells Fargo and the other banks to upload it, “and it doesn't take a genius to know that there's a huge fraud risk there,” said Edlund. So, they knew they needed to try to mitigate it; it was an obvious need for a bank connectivity solution.
APIs have been around for decades, yet we are just starting to see them gain popularity in financial services. For Wells Fargo, “It comes down to meeting our customers where they are, whether that's in the proprietary platforms you built, in ERP platforms, or treasury workstations,” said Noe.
Without any regulation, how are APIs being standardized across financial institutions? Back in 2015-2016, all the banks were doing the exact same thing, and a foundational team quickly came together under the realization that there had to be some degree of standardization. Wells Fargo is part of that foundational team, helping bring some structure and standards to API across financial services.
The investment in new API technology over the past four or five years has been significant. It will take some time for everyone to catch up, but most large financial institutions are able to support it. “We're not getting tokens just yet, but we're able to support a more streamlined experience,” said Noe.
The challenge with tokens is: how do you balance the user experience? You want it to be as intuitive and seamless as possible while balancing the fraud risk and the authentication side of it. Whether it's with APIs or open banking, there are opportunities to continue improving that experience.
IT’S EASIER THAN YOU THINK
“Our IT team downloads these apps from the provider and installs them in our SAP environment,” said Edlund. “We've iterated several times with updates already. It's really easy.”
Citrix’s API connection is directly between the company and the bank. Other providers sometimes loop it to the provider and then the bank, but not theirs. No data goes to the provider. This connection is primarily driven by a desire to secure sensitive information. “If it has to go to a third party that raises a lot of questions,” said Edlund.
Both Edlund and Noe stated the desire to get rid of tokens. “You can today, without APIs, get rid of your tokens if you want,” said Edlund. Citrix has file-based connectivity solutions. Edlund wasn’t comfortable enough from a treasury perspective. If he’s doing an urgent wire, repaying public debt or making an interest payment, he needs to know within minutes that the payment went through.
Seeing how the APIs work gives him hope that it's good enough that he could get rid of the bank tokens. “I already use it to look at current balances,” he said. “If you have the confidence that it's working, then you might be able to get rid of the bank tokens. I just think that the file-based technology isn't quite there from an urgent treasury perspective.”
One of the participants wanted to know if Edlund was comfortable enough with the controls in SAP that he would allow straight-through processing without requiring an approval step in the bank platform. “Regardless of the technology you use, that's how it works today, right? You sign your life away,” said Edlund.
If your system sends a payment file to the bank, the bank will take it without checking anything. Edlund was part of a transition from one SWIFT service years ago to another and a TMS change. He said you are super focused on where that payment file is that your ERP creates. It has to be locked down. No one can touch that folder, except maybe an IT person with some special privileges, because if you have access to the payment file, you can change it. And then it goes to the bank. With an API, there's no file. You create the payment that gets transmitted to the bank. There's nothing saved, so it's inherently safer in that respect.
It all comes down to the risk tolerance of the individual. You have the trust and controls, whether it's in the API or the SAP or the platforms you're using. Just like you would with a batch payment. Others may take a more conservative view and want to be able to leverage those tokens for high-value payments, so it's important to have the qualifiers or enablers to support that.
SEEING YOUR CASH POSITION ACROSS MULTIPLE ACCOUNTS
APIs, for both payment initiation and account services, are consolidating cash position across multiple banks. Wells Fargo is focused on a couple of key areas: reporting balances, transaction details, and check images. If you want it, you've got the ability to get it through an API. “And it really is as simple as saying, give me my current day balance or give me my previous day balance,” said Noe. “It comes back immediately.”
Noe said Wells Fargo is also focused on fraud mitigation, which means being able to verify account ownership or payments made in real time. He said they started off with ACH and wires, which have been around for years, but as they see this emergence of newer, faster rails, whether it's with RTP or what's coming with the fed soon, the bank is supporting that as well.
Seeing your cash position is the whole benefit, according to Edlund, who says he has a feed that's getting current balances from all of Citrix’s banks, which then feeds into the SAP and matches the account number with the entity, so he can group everything by entity or by country or currency or whatever he desires. “But normally I look at it by entity; I can see all my current balances for whatever banks I've got in there. I have it open all day, every day,” he said.
THE APIs YOUR CUSTOMERS WANT
Knowing which APIs they should be working on starts with the voice of the customer, according to Noe. He said they talk with their customers to see what services they are using, how they’re using them, and what they want to be doing in the future. “Once a client starts with a single API, they see the benefits,” he said.
If you think about everything you can do via a bank portal today, every bit of that should be enabled to be an API. That's where the banking industry is going, which is not to say that its portals are going away anytime soon.
Where is Wells Fargo going? “Right now, it's about building blocks, fundamentals. Like your cash position and balance. This is not sexy stuff, but in the future, you're talking about cash positioning, being able to tie payments together with invoice data, and to offer new services with supply chain finance or receivables finance. These advancements will enable us to do that faster than we've ever been able to do it before,” said Noe.
WHEN APIs CAN’T HELP
If the systems and processes behind the APIs at the bank aren’t synchronized or capable of providing data in real time, then the API doesn’t help. “APIs are not the silver bullet for every pain or challenge,” said Noe. It's about finding the targeted use case. If you have a technology debt or infrastructure debt that you're working through, it may be a little bit more of a challenge for you to work with your technology team to integrate some of these services.
Edlund advised talking to your banks. “Find out where they are in the journey, because not all banks are in the same place, just like the technology providers,” he said. Most banks offer current balances and transaction data, but they're not all there yet for urgent wire payments. And, and if they're not there, then you have to look at another bank.
LOOKING TO THIRD-PARTY PROVIDERS
From the perspective of a financial institution, third-party providers could bring more robustness to the banking side and banking systems, as opposed to trying to develop APIs internally. “The amount of innovation that we've seen over the past five or six years has been incredible,” said Noe.
Wells Fargo has historically been a build versus buy organization, according to Noe, which fits the mold of many of its peers, at least historically. But there's an acknowledgement that while they have strong technology partners who can do just about anything, they can't do everything right.
“But it's a way that we can bring solutions to market faster, and in a more intuitive way than we have before,” said Noe. We've seen all of this fintech innovation for a decade or more, but we're finally starting to see that same degree of innovation that we've experienced in our daily consumer lives.
The hard part with all this innovation is that we don't know as much about the fintechs. We come to the conferences, we've seen a lot of the big TMS providers for a number of years, but we know little about them. A lot of the fintechs are small; we're not really sure where they are in their stage of development, how much capital they have, or whether they’ll be around. That's a real challenge.
“You definitely have to do your due diligence,” said Edlund. “In our case, a bank partner’s endorsement went a long way, because we know the banks have tough due diligence.”
A DIFFERENT EXPERIENCE
Don’t look for things to be the same as you’re used to. You have to look at open banking as a completely different experience. As soon as you've got that real-time access, you need to make sure the right controls are in there. “It’s different than the way it has been historically,” said Noe, “but it's making sure that you understand the impact you have on your operations and your controls.”
Listen to the full Payments Hub Keynote here.