Opening up new opportunities
The use of open Application Programming Interfaces, or APIs, can enable seamless and secure data-sharing between an organisation’s technology systems and that of its banking partners. With steady adoption of a global standardised format for data-enriched payments across the financial system, the transformative benefits for businesses are coming into sharper focus.
What are APIs?
APIs have changed the technology landscape by enabling software applications to talk to each other, so that one application can access the data or functionality of another.
A good example is when a consumer is searching for the cheapest and shortest flight from Sydney to London on a specified date. In this instance, the API connects a booking aggregation site to the relevant area of airlines’ servers, and promptly returns with the data – a user-friendly list of the best flight options.
A new global payments language
Open APIs are the cornerstone of open banking. Through Australia’s open banking regime, coming into effect in July 2020, consumers can instruct their bank to share their personal financial data with authorised third parties. These third parties can then overlay new services designed to enhance customer experiences.
In the financial sector, ISO 20022 is the shared payments messaging language that banks and third parties will use to share data, connected through value-adding APIs.
Faster, more efficient payments
ISO 20022 underlies every fast payment system in the world, with around 50 to 60 countries already using the standardised format. Australia’s New Payments Platform (NPP), launched in February 2018, uses ISO 20022.
From March 2023 cross border payments will start to migrate to ISO 20022 with all payments to be made and received using ISO 20022 by November 2025. Cross-border payments will be greatly simplified as a result.
Benefits for businesses
One strength of ISO 20022 is the almost unlimited amount of data that can be attached to a payment. Examples include remittance advice or payment instructions, and extend to foreign exchange and treasury data, hence the power of combining APIs with ISO 20022.
In their easiest to explain form, APIs can link a bank’s vast amounts of data on a business’ financial transactions and account balances, with the organisation’s Enterprise Resource Planning (ERP) platform. This is comparable to some of the many apps that we all use on our phones that call data into one place.
Benefits of the ISO 20022 payment format for organisations include greater automation and reduced need for manual reconciliations, plus much improved data quality and ease of interaction. It will be possible to standardise payments, cash and treasury operations across business units around the world, while cross-border cash transfers will be much smoother.
Connecting with our client’s systems
The Commonwealth Bank is currently working with clients and vendors to ensure we have the best capability to integrate our banking technology with our business clients’ systems. Some of our business clients are migrating to automated straight-through-processing (STP) and can have consolidated balances in real time, regardless of how many banks they use.
They can track payments domestically and internationally, receive real-time confirmation as payments are made and received, and initiate payments from within their own platforms. All without human intervention.
The value of automation and dispensing with human intervention is all too apparent in the current environment of enforced lockdowns and substantial chunks of the workforce of many organisations working from home.
Data security is paramount
With a universal payments format, it will be easier for banks to detect and prevent financial crime and fraud. With analytics, the machine-readable data can yield greater knowledge and insights into an organisation’s cash and liquidity position, as well as its supply chains. That is particularly valuable at a time when virus-related supply and demand shocks are severely impacting the cashflow of so many organisations.
APIs will also spur innovation. They make it easier to fix pain points and enable the development of more value-add services and products. At times like these, they enable organisations to be agile and devise innovative solutions to the unprecedented challenges currently faced.
To realise the combined benefits of ISO 20022 and APIs, we will ensure we can hold the significantly larger volume of data, protect it, and, of course, only share the data that clients want to provide to their chosen third parties.
As dictated by the Consumer Data Right legislation that governs open banking, we will be making sure it is informed consent and that we have all the necessary permissions from within an organisation. Sharing data and moving it safely around the economy will be paramount before releasing the APIs we are developing. These focus on payment initiation, balance enquiries and payment tracking.
A new frontier
The migration to ISO 20022 touches every financial institution and most sections of a bank wherever there is data. At the same time, the amount of payments data generated in recent years, and the number of systems and platforms has proliferated. Thus, the scale of the migration to ISO 20022 and the promise of using APIs to not only connect users with their data, but also to overlay value-added services to clients, is unprecedented.
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