The march of the APIs

Latin American financial institutions – particularly in the region’s biggest economies – are already embracing APIs and the challenge now is expanding ecosystems, a US banking executive told BNamericas.

A major resource for fostering innovation, APIs can be deployed across a range of retail and business banking areas, including international funds transfers, forex transactions and reconciliation. 

These digital manifolds give incumbents freedom to create services and to work with third-party financial technology solutions providers.

A key driver of API development is the need to address client demands, in areas such as immediacy, transparency and the user experience. In the global retail banking space, enriching the customer experience and easing friction is a major force behind API deployment. 

“Not only are they [Latin American institutions] prepared but they are using APIs right now,” said Dino Sani, global financial institution BNY Mellon’s head of treasury services for Latin America.

“We can mention Brazil, Chile, Peru, Mexico, Colombia. The point now is to expand this connectivity through APIs.”

Central America and the Caribbean – where institutions have started to deploy APIs – are catching up. “The need is there, and they want to embrace it,” said Sani.

BNY Mellon is among those already engaged in the area of APIs. Across the industry, development and implementation time is dropping as bank programming experts gain experience. 

In terms of API growth areas, Sani said foreign exchange transactions was among them, given the need parties have for real-time information.

“One of the areas where, pretty soon, we will see more and more connectivity through APIs is forex,” said Sani. “This is another important area because this market moves very fast and the customer needs the information instantly.”

Latin American institutions are primarily using APIs in the retail banking space, while a key market for API deployment is trade, Sani said, citing the paper-based nature of transactions.

He added that digitization of trade – along with stronger global trade collaboration – are central issues that need addressing.

In the international trade sector, efforts are underway to bolt together digitally and securely the different stakeholders, such as banks, insurers and exporters, to boost transaction speed and transparency and create business opportunities in spheres such as receivables financing.

Regarding receivables financing, Sani said processes that convert the likes of an invoice into a secure financial instrument would provide benefits. “The flexibility, the funding, the liquidity of this market will take off; it will be great,” Sani said. 

The Americas chapter of the International Trade and Forfaiting Association (ITFA) is working with fintechs to address some of these trade system pain points, including document digitization.

“It is happening,” Sani said. “This is a slow process. In the trade business, it’s not just financial institutions involved: you have ports, ships, different countries, and different regulations, and then you need to integrate all these players into this digital world.” 

NEARSHORING

Latin America is expected to benefit from moves by manufacturers to reduce their exposure to Asia and nearshore some production – a trend already underway prior to the COVID-19 pandemic.

The big question is if, when and by how much Latin America will benefit from this shift, although Mexico, Colombia and Costa Rica are seen as countries that could benefit the most. 

“We are hearing a lot of comments in the market, especially because of these [trade] disputes. In my view, it would be natural to have this shift to countries closer to the markets, especially the US,” Sani said.

Key requirements are skilled workforces and competitive production costs.

“I think the opportunity is here and I personally would like to see this move, especially for the Latin American region,” Sani said.