Unleashing the potential of currency management with APIs

In his recent interview on the CurrecyCast Podcast, Alistair Cotton, Co-Founder and CEO of Integrated Finance, spoke with Agustin Mackinlay, Senior Financial Writer at Kantox, about the crucial role of fintech infrastructure, APIs and currency management in the success of fintech companies.

Keep reading for the key takeaways from the episode or 🎧 listen to the full podcast here.

Technological advancements and APIs present both opportunities and challenges

The rise of APIs and the unbundling of the banking stack have presented a challenge to fintechs. While it allows companies to work with multiple providers which are the best-in-class in their service, it also presents the challenge of stitching together the different technology formats and interfaces.

Fintech companies must pick the right service providers for each aspect of the banking stack, and re-bundle them together to offer their customers what they need. This typically involves a huge number of unique APIs in different formats transmitting different data which can be a mess to deal with. Alistair shares this is the vision of Integrated Finance, to be a universal socket for companies to plug and play different best-in-class service providers into their ecosystems.

Fintech companies need to be more globally-minded

Traditionally, there were only a few currencies, the G7 currencies as Alistair calls them, that were used by most large institutions. However, now companies need to be much more global in their outlook. They must deal with a much larger number of currencies, as their market place becomes far more globalised which can bring with it risks and complexities. Especially in today's forex markets where volatility is high, operating in so many currencies can become very costly if you do not have the right infrastructure in place to manage the volatility.

The return of fee-based pricing

The currency industry is going through a transition at the moment according to Alistair, where investors and the wider FX market is swinging back around to fee or interest based pricing with one major caveat: full transparency. Companies leading the way in the B2C space include TransferWise. However, this is also being seen in the B2B service providers which are enabling businesses to manage their FX: clear and transparent upfront pricing is being favoured in the market over opaque and sometimes invisible, commission based costs of the FX providers perhaps more popular over the past decade.

Individuals and businesses want full traceability and transparency of their costs so that they can make the best decisions for them in such uncertain market conditions.

Software is a key skill for the modern financial services worker

As Marc Andreessen famously said, "software is eating the world." The financial services industry is no exception to this rule. Traditional financial services workers with MBAs are increasingly being replaced by those fluent in building software. This trend is driven by the aforementioned unbundling of the typical banking stack into individual service providers specialised in providing best-in-class services in their niche.

The ability to stitch the required services together into a unique new service that can be offered to customers and businesses to solve a problem - best done through the use of APIs - is a competitive advantage for modern fintechs and enterprises.

The case for APIs in currency management

Alistair explains the specific needs for APIs in the currency management space. Businesses do not want to be logging in and out of different platforms to check prices, execute deals and provide confirmations. However, the provider for each of these services can at times be different. The trend in the industry going forward is to keep integrating these different providers into common systems - and going even further than this to include it in the company’s ERP or TMS.

If you integrate these systems correctly, you can also automate your currency management systems to take advantage of forward premiums in your favour. This can allow a company to not only hedge better, but even potentially drive profits.

Technology trends in currency management

Both Agustin and Alistair agree that although there is a lot of hype around AI and the possibilities for automating workflows, currency management does not seem to be pulling it in as a strong need at the moment. With the strong hedging capability already existing in the market, the financial benefits of AI based forecasting are not as interesting as some would hope.

One opportunity for AI which Alistair and Augsutin agreed on however is the ability for text to code development - allowing less software technical people with good market knowledge to develop APIs using simple english prompts into AI tools. An interesting idea, however still very far from execution.

A technology which is sorely needed in the financial services industry in all aspects is anything enabling standardisation. Alistair mentions that Integrated Finance is building the embedded finance equivalent of what Mastercard and Visa did for card payments, and is excited by other similar initiatives such as the Linux Foundation’s work to try and standardise the digital wallet space.

Further standardisation will only allow a better customer experience, by enabling the embedding of financial services into all aspects of our life to make the number of touches the end user needs to make even less. Allowing Whatsapp payments or Facebook credit card detail entry would only make the user experience better, and standardising the embedded payment space will move all of that forward.

In conclusion, the use of API technology in the foreign exchange workflow is crucial for companies to stay ahead in the ever-evolving fintech industry. This includes both at the corporate level, but also that of the individuals in the whole Financial Services market.

With the right approach and technology, companies can navigate the complexities of global markets and thrive in the competitive world of Fintech.

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