Leveraging APIs to improve Treasury efficiency

Be API-ready and take your company to the next level. In currency management, application programming interfaces, or APIs, can be beneficial for reducing the time to hedge currencies and streamlining data flows.

Any Treasurer or CFO willing to have an API-ready strategy and be digitally prepared can improve the efficiency of their Treasury operations.Let's take a deep dive into the role of APIs in currency management and the benefits this level of automation can bring.

Why use APIs in currency management?

First, what's an application programming interface? An API is a software-to-software interface that allows two or more computers to communicate with each other.The main application of this technology in currency management is automating the FX workflow from end-to-end. Therefore, Treasurers and CFOs don't have to spend excess time conducting manual tasks, such as executing swap transactions or processing exposure data.Instead, they can think strategically about the specific rules and goals of the hedging program. Thus, improving the quality of their work and bringing more value to the finance function.With this in mind, we're going to take a closer look at how APIs participate in the FX workflow.

How APIs interact with the FX workflow

In currency management, APIs are used throughout the three phases of the FX workflow: the pre-trade, the trade, and the post-trade phase.

Real-time pricing

In the pre-trade phase, APIs help companies handle pricing with an FX rate, which involves using a currency rate in the pricing formula. But, how does the API handle that? Companies can choose the connectivity settings that best suit their priorities in terms of their IT resources and security requirements.There are two options for this integration: either a pull-based or a push-based connectivity.

Pull-based connectivity

In pull based connectivity, the API delivers data updates as requested by the Treasury team. A ‘Get API’ call, performed from company systems, allows teams to receive the latest FX rate.When it comes to pull-based connectivity, there are three things you should note:

1. there are no limits on how often the API call is sent or on the number of currency pairs that can be requested.
2. a response is immediately received.
3. the response includes the currency pair, the tenor of the exchange rate (with the spot rate provided by default), and a pricing markup.

Push-based connectivity

In push-based connectivity, webhooks allow Treasury teams to automatically receive FX and pricing updates derived from their own business rules. An ‘API post’ call is posted every time the market rate moves beyond a certain percentage level.In this type of connectivity, the main things any currency manager needs to know are:

1. there are no limits to the number of routes that can be set up.
2. it allows for a data-driven approach to pricing within an FX rate, as opposed to a less relevant time-driven approach.
3. companies can create customised rules, including pricing markup per currency pair and per client segment.

Automated currency hedging

Now, let's turn our attention to the trade phase, more specifically, the interaction between APIs and currency hedging. Here, companies submit pieces of exposure to FX risk known as entries: a forecast, a sales or purchase order, or an invoice.An API call to submit an entry includes: the date, the amount of currency, the counter currency, the direction to buy or sell, the spot rate, and the value date. Thus, an API enables real-time submission of the relevant information, optimising the process of exposure collection.

Quality reporting

Finally, in the post-trade phase, APIs greatly enhance the quality of your reporting by enabling perfect end-to-end traceability.This is done by giving each element of the journey –from entry to position to operation to payment– its own unique reference number and traceability.As a result, currency managers are able to analyse hedging performance and derive accurate, data-driven insights.

API readiness: the secret weapon

On top of the advantages cited in terms of pricing, hedging, and reporting, API readiness brings a number of benefits to CFOs and Treasurers. Those include:

• Exposure information can be collected from different company systems: ERP, TMS, booking engines, and others. This is a requirement, among others, in hedging programs designed to ‘defend’ the budget rate.
• Spreadsheet risk -including data input errors, copy and paste error, formula errors, formatting errors- is completely removed from many processes.
• Finally, the digital treasury becomes a reality as API readiness simplifies and shortens further automation projects.

Strategic Treasury

Just imagine the operational costs and risks involved in manually executing the many steps of the FX workflow. API readiness is not a ‘tech-only’ issue. Thus, the more API ready they are, the more Treasurers will be perceived as strategic managers within the enterprise.So, if you want to become an API-ready finance professional, our currency management specialists can help you implement the necessary technology to your FX currency workflow.Book your free strategy session and start transforming your currency management process.