Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Insurance Companies
    9. Investment Managers
    10. Nonprofits
    11. Pension Funds
    12. Sovereign Entities
  1. Contact Us
  2. Search

Subscribe to Asset Servicing & Fintech Insights

Discover more information in our monthly publication, the AXIS newsletter, including industry trends, product innovation, Fintech and more from our team of experts.

    How Payment APIs Are Enhancing Institutional Banking

    Financial institutions offering Banking-as-a-Service are highly focused on Payment API’s and enhancing their capabilities for institutions around the globe.

    The landscape of cash movement and liquidity management is changing. Technological advances allow individuals and organizations to access their cash from almost anywhere and at any time. Application Program Interfaces (APIs) are at the forefront of this technology, and Payment APIs integrate one payment solution with another. It’s the reason one can pay a home contractor via Zelle or reimburse a friend for lunch via Venmo.

    On the institutional side, Banking as a Service (BaaS) is becoming more prominent and enhancing the use of Payment APIs. In the BaaS model, a licensed, regulated bank can provide digital banking services to asset managers, fund administrators and other organizations that are not banks

    As institutions increasingly demand real-time payments, APIs can allow for instantaneous movement of cash between accounts. Similar to consumer demand for instantaneous payments, institutions want to see things moving faster. Many organizations use wire transfers to pay their vendors, for example, and waiting three to five business days for bank transfers to vendors is no longer going to be acceptable.

    While Payment APIs are fundamental to integrated banking services, however, the technology requires an ecosystem of consistent data, regulatory oversight and banking expertise in order to succeed on a global scale. We expect client demand will drive development across three major areas to make integrated banking connectivity more common in the institutional world:

    • Data standards within and across payment utilities, such as the adoption of ISO 20022 message standards for securities payments by SWIFT. It has been a long road for ISO 20022, but tremendous strides are now being made. ISO will continue to be rolled out and is also the format that will be used by the FedNow service launching later this year for instant payments. ISO standardizes the format that can be used across systems and borders, so ultimately we expect support for making cross-border more real-time as well.

    Standardization of data schema and formats are necessary for real-time payments using APIs and potentially central bank digital currencies (CBDCs) on distributed ledger technology (DLT) networks. Beyond payments, progress in standardization can promote efficiencies in the account opening process and regulatory compliance, including anti-money laundering requirements (AML), sanction review, and “know your customer” (KYC) due diligence procedures.

    • Regulatory alignment for cross border payments is progressing. For example, institutional clients that do business in multiple jurisdictions need to understand and comply with regulations ranging from the requirement for investment funds to have a local bank account in order to execute cross-border payments to enhanced AML/KYC screening in some jurisdictions, which can require significant capacity and technology to comply. Banking regulations can vary significantly between neighboring countries in a market like Europe which is a significant factor when assessing the development and expansion of Global Payment API capabilities.

    As banking technologies such as blockchain and DLT become more advanced and sought after by consumers and institutions, regulations on these technologies and services will only continue to grow, so it is critical to monitor for regulation and also to understand and realize the additional benefits and safekeeping that can come from regulation as well.

    • Instantaneous reconciliation tools or utilities to enable real-time payment capabilities.

    Institutional clients require efficient movement of cash and automatic settlements on transactions, and increasingly will demand real time autonomous cash delivery. To accomplish this goal, banks need to provide real-time credit and liquidity risk monitoring and reporting. We see a rising sense of urgency around monitoring intraday balances and activity. This is true for clients as well as banks themselves. For clients, the need for real-time reporting around balances and settlement activity is becoming imperative. Broadly, there’s a consolidation of trends in terms of real-time reporting and payments and settlements which is merging with the need for intraday liquidity exposures.

    An open API network gives banks the opportunity see into cash positions to determine what is available to meet obligations. We are starting to see that level of technology being deployed within some cross-platform ecosystems. Not only are transactions being digitized, but the technology adds an extra level of assurance.

    Digital assets have the potential to drive further efficiency and transparency in banking and payments, with the benefit of real-time settlement on DLT networks. This type of technology can help support not only instant payments but streamline reconciliations and enable the real-time reporting that all eventual network participants – banks and clients – are seeking. Central bank digital currencies (CBDCs) are digital asset backed by a Fiat currency and central bank governments. Along with this will come other safeguards as well – the benefits of regulation and the trusted banking network.

    In this fast-changing environment for payments and banking, institutional users of banking services need to ask themselves: how can we leverage digitization to move to a more efficient and transparent environment? As Payment APIs continue to grow in demand, more and more financial institutions will look to grow with it. As with all evolving payments technology, enhanced controls, real-time capabilities and an improved client experience are the keys to success.

    Peter Sanchez portrait

    Peter Sanchez

    Global Head of Banking and Treasury Services
    Peter is an Executive Vice President at the Northern Trust Company and serves as Head of Banking & Treasury Services, a global division which was formed under Peter’s leadership in 2022 to bring together business in Global Banking, Benefit Payments, Treasury Management, Corporate & Institutional Lending as well as Cash Operations to meet the evolving needs across banking, lending, payments and treasury for Northern Trust and its clients.

     


    © 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. This material is directed to professional clients (or equivalent) only and is not intended for retail clients and should not be relied upon by any other persons. This information is provided for informational purposes only and does not constitute marketing material. The contents of this communication should not be construed as a recommendation, solicitation or offer to buy, sell or procure any securities or related financial products or to enter into an investment, service or product agreement in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. This communication does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it. Moreover, it neither constitutes an offer to enter into an investment, service or product agreement with the recipient of this document nor the invitation to respond to it by making an offer to enter into an investment, service or product agreement. For Asia-Pacific markets, this communication is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit northerntrust.com/disclosures. The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual. The following information is provided to comply with local disclosure requirements: The Northern Trust Company, London Branch, Northern Trust Global Investments Limited, Northern Trust Securities LLP and Northern Trust Investor Services Limited, 50 Bank Street, London E14 5NT. Northern Trust Global Services SE, 10 rue du Château d’Eau, L-3364 Leudelange, Grand-Duché de Luxembourg, incorporated with limited liability in Luxembourg at the RCS under number B232281; authorised by the ECB and subject to the prudential supervision of the ECB and the CSSF; Northern Trust Global Services SE UK Branch, UK establishment number BR023423 and UK office at 50 Bank Street, London E14 5NT; Northern Trust Global Services SE Sweden Bankfilial, Ingmar Bergmans gata 4, 1st Floor, 114 34 Stockholm, Sweden, registered with the Swedish Companies Registration Office (Sw. Bolagsverket) with registration number 516405-3786 and the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) with institution number 11654; Northern Trust Global Services SE Netherlands Branch, Viñoly 7th floor, Claude Debussylaan 18 A, 1082 MD Amsterdam; Northern Trust Global Services SE Abu Dhabi Branch, registration Number 000000519 licenced by ADGM under FSRA #160018; Northern Trust Global Services SE Norway Branch, org. no. 925 952 567 (Foretaksregisteret), address Third Floor, Haakon VIIs gate 6 0161 Oslo, is a Norwegian branch of Northern Trust Global Services SE supervised by Finanstilsynet. Northern Trust Global Services SE Leudelange, Luxembourg, Zweigniederlassung Basel is a branch of Northern Trust Global Services SE. The Branch has its registered office at Grosspeter Tower, Grosspeteranlage 29, 4052 Basel, Switzerland, and is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA. The Northern Trust Company Saudi Arabia, PO Box 7508, Level 20, Kingdom Tower, Al Urubah Road, Olaya District, Riyadh, Kingdom of Saudi Arabia 11214-9597, a Saudi Joint Stock Company – capital 52 million SAR. Regulated and Authorised by the Capital Market Authority License #12163-26 CR 1010366439. Northern Trust (Guernsey) Limited (2651)/Northern Trust Fiduciary Services (Guernsey) Limited (29806)/Northern Trust International Fund Administration Services (Guernsey) Limited (15532) are licensed by the Guernsey Financial Services Commission. Registered Office: Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3DA. Northern Trust International Fund Administration Services (Ireland) Limited (160579)/Northern Trust Fiduciary Services (Ireland) Limited (161386),  Registered Office: Georges Court, 54-62 Townsend Street, Dublin 2, D02 R156, Ireland.