To Improve Treasury Tech, Target The Developers

15. March 2018.








The financial services industry’s sudden support for application programming interfaces (APIs) has people talking about the power of data sharing. Certainly regulations like PSD2 and the U.K.’s Open Banking initiative encourage API development and adoption, with industry players acknowledging the technology’s ability to efficiently comply with data sharing rules.

But APIs can offer a different strategic advantage, especially to B2B FinTechs, according to A.J. Remlinger, Project Manager — Solutions for Business at foreign exchange technology firm OANDA.

Because APIs facilitate integration between two services, the technology allows FinTechs to innovate in their niche markets, rather than attempting to be a jack of all trades.

“I think financial institutions have been better at this than other industries in the past,” Remlinger recently told PYMNTS. “There is a culture of banking innovation; they understand what their core competencies are,and where to allocate resources most effectively.”

APIs enable FinTechs to address the particular points of friction in corporate finance, and financial institutions today have begun to understand that they can focus on their own core competencies while collaborating with other companies that have their niche specialties too.

“The role of innovators in the business services and FinTech space is to provide solutions with less friction, which are scalable and that can accommodate the needs of large financial institutions,” the executive said. “[APIs] are exploding now because technology seems a little less heavy, and we’re becoming more familiar with new capabilities and how it can enable us from a cost-savings and user experience perspective.”

For OANDA, that means developing a robust foreign exchange (FX) management solution for corporate treasurers — only the company isn’t targeting treasurers directly with the tool. Instead, Remlinger explained why the firm is going after third-party developers.

“We’re looking to partner with treasury management system [TMS] providers out there. We think that’s the best route, because we are FX experts and API experts,” he said. “We’re not sure that it would be optimal at this time to go directly to the end user. TMS providers have great platforms, and we have a great position in risk management as it relates to FX.”

OANDA recently announced an upgrade to its Exchange Rates API, which enables updates to FX rates in near real time, along with other features designed for developers in need of a foreign exchange data flow for their own solutions. The tool also facilitates integration with end users’ existing enterprise resource planning systems, treasury management systems, billing systems and other portals.

While the company positions itself in front of developers, enhancing its FX management capabilities could not have been done without keeping the end user — the treasurer — in mind. Remlinger said the upgrades are a reflection of growing demand among treasurers, chief financial officers and money managers.

FX management today has a more prominent role in the treasury department than in the past. Research released last year by Deloitte in its Global Corporate Treasury Survey 2017 found foreign exchange risk management remains a key function for treasurers. More than 50 percent of treasurers surveyed said FX volatility is a challenge, and Remlinger said this trend will continue to press service providers for more advanced solutions.

“We’re going to see an increase in transparency required for FX rates due to tax pressures coming in, and the qualitative nature of qualifying how you would or would not make a hedge,” he explained. “It’s also about having accurate, reliable rates trusted by global tax authorities.”

Millions of dollars are put on the line, he added, due to FX risk exposure, and it’s pressing corporate treasurers to remain on top of FX volatility.

“Treasurers are becoming more sophisticated as we move toward a more globalized economy,” he said.

It’s a sentiment echoed throughout the B2B FinTech market. Research from the Association for Financial Professionals and Marsh & McLennan published last year found treasurers are more often taking the lead in their corporation’s borrowing, investment, payment and working capital management strategies, all while juggling risks like FX volatility (cited by 49 percent of survey respondents as a top concern).

But it’s not just enterprise treasurers in need of solutions like these. According to Remlinger, small businesses (SMBs) are similarly experiencing the globalization of their supply chains, exposing their operations to FX risk as well.

“Even on the smaller and medium-sized business side, if you’re doing anywhere from $250 million in revenue and up, you probably have a global supply chain,” he said. “You probably have some sort of understanding of when cash flow will be coming in and out, and by having better access to FX rates, you’re able to make a better informed decision on how to count and record those funds, but also whether or not you should be making a hedge decision.”

Enabling small businesses to grasp FX risk mitigation and hedging can be a challenge, but analysts warn it cannot be ignored. In the U.K., for example, two-thirds of small businesses surveyed said they were adversely impacted by FX volatility in the last year, according to Bibby Financial Services. The report also found currency fluctuations to be global SMBs’ largest challenge, which, on average, led to a financial impact of more than $94,500 for each small business.

Companies are going global, and payments are becoming faster too. Remlinger said faster payments are “absolutely” adding to rising demand for real-time FX visibility.

“Actually having the right rate associated with a remittance, and being able to appropriately count for that, is going to be a huge open door in the future,” he said.

As companies of all sizes strengthen their demand for more robust financial services like FX management, the opportunity grows for FinTechs to become leaders in their niche specialties and take advantage of APIs to link their solutions out to larger players or partners.

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