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Understanding APIs and the Need for Standards

  • By Magnus Carlsson
  • Published: 3/15/2018

magnus blog

It is clear that technology plays a very important role in payments—not just in a distant future, but right now. Treasury professionals need to keep up, or they’ll run the risk of falling behind.

At the latest meeting of the NACHA Payments Innovation Alliance in San Francisco, I was very pleased most of the topics centered on payments technology. Specifically, much of the discussion focused on application programming interfaces (APIs), including standards in this field. It may not sound very exciting to talk about standards when addressing new technology, but the fact is that without standard applications, it is very difficult to obtain any meaningful reach.

NACHA MAKES A MOVE
There have recently been a couple of significant developments in APIs, both via NACHA. Last month, NACHA’s API Standardization Industry Group (ASIG) announced it was teaming up with Accenture on API standards. ASIG identified 16 APIs that it believes could have an immediate impact on the payments ecosystem and has a goal of publishing some form of API Playbook that could be used as a tool for payments industry stakeholders.

NACHA also just recently announced that it is forming a “strategic combination”, basically a merger, with the Interactive Financial eXchange (IFX) Forum to further enhance the development of standardized APIs. The combination of NACHA, ASIG, Accenture and the IFX Forum shows that they are serious about creating a standardized API ecosystem. This powerful effort also has a real potential for achieving a critical broad usage reach in the industry.

As exciting as these developments are, I also realize there is a great need for education on APIs. Since technological development is moving rapidly in the payments industry, it may be difficult for corporate end-users to keep up. Corporates’ calendars are as full as they’ve ever been. Keeping up with technology development that may or may not have any positive impact on the organization must often be put aside for more pressing business related matters. So I completely understand why, when participants in a recent webinar were asked about their awareness and understanding of APIs, less than 10 percent of responded they had a good grasp of what it was, not to mention, how to benefit from it.

WHAT IS AN API?
In its most general form, an API is really a software that enables other applications to communicate. An airline can have an API that enables a third party like Expedia to grab flight booking information from its website.

In the banking world, the same thing could be facilitated if banks opened up their systems, i.e., open banking. Corporates could then ask their customers for permission to use their bank account details and potentially receive the payment straight from the customer’s bank, without any intermediaries. I don’t think all the potential uses for this technology are fully grasped at this point, and only imagination will set the boundaries. For example, ERP systems could interact via APIs, etc.

Of course, then there is the question of how much technological details corporates really need to know. I often hear that for corporates, it is more about what the technology can do, rather than how. But understanding a little about how the technology works will also help understanding what potential it may bring. It is probably not necessary to understand the details and programming behind it, but realizing what areas of the organization that could possibly benefit from various use cases would be important.

EDUCATION MATTERS
So yes, I do think the importance of education cannot be understated. The timing is definitely right when it comes to technology and payments. Certainly, in our recent AFP Conference Planning Task Force meeting, in which we selected sessions for AFP 2018 in Chicago, we saw a lot of session proposals aimed simply at educating corporate practitioners about new payments technologies that are emerging. I would say the year 2018 seems to be the year where technology marries payments.

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