The financial sector may be predicated on investments, deposits, and lending, but without data there wouldn't be an industry at all. Every day, copious amounts of data flow from one place to another – some is captured and harnessed to the advantage of the institution, and some is floating in cyberspace. However, thanks to application program interface (API) technology, institutions can not only organize the data they desire, but receive it faster than ever before. Today, APIs provide the digital roadways on which electronic information rides.
For the last 15 years, APIs have helped software programs quickly exchange information within the e-commerce space, but the need for faster access to data is just as critical in asset management: firms with better data can offer better investment decision making and service to their clients.
After a slow start, the API economy has expanded into institutional financial services over the last few years. Asset managers’ middle and back offices have been especially ripe for technological change, including via the use of APIs as a facilitator of real time information delivery across operating platforms and data sources.
The Supply Chain
APIs create the ability for system-to-system integration between asset managers and their service and technology providers. This integration is seamless and light weight, compared to heavier traditional file and message-based transfers of the past. APIs allow firms to employ best-of-breed capabilities for every activity in their investment management supply chain.
When Henry Ford manufactured his Model T a century ago, his only factory inputs were steel, coal, rubber, and black paint. Today, through a multi-tier, technology-enabled network manufacturing process and supply chain, Ford can integrate components, made by their pick of suppliers all over the world, into a single vehicle.
The emergent institutional API economy will permit managers to achieve a similar transformation through efficient, service-oriented architecture applied to internal business processes. While the automotive supply chain process evolved over decades, the analogous process in asset management should happen much more quickly because the manufacturing of investment products is all about easily digitized data.
Know Before You Go
To realize the full promise of APIs and other emerging technologies, asset managers and service providers need to invest in data governance, quality, security, lineage, real time transformation, and provisioning capabilities. Data should be flexible, fit-for-purpose, and asset managers should know exactly when they need it.
Data is the new currency, with accuracy and consistency as the core measures of its value. The key to unlocking that value is data timeliness and alignment with client process. Asset managers should have a solid understanding of what data they have and what data investors need in their own unique process. To achieve this, data must be aligned to process, role, and context.
The best way to give global managers the options they need is a modular approach to investment operations. They should be able to choose tools that support the full scope of middle and back office operational needs across trade management, cash administration, collateral management, settlement, reconciliation, corporate actions and IBOR data distribution. Each tool should be optional and linked via APIs, leveraging common data standards.
The New Economy Car: Horsepower AND Efficiency
How might an asset manager use APIs? A firm that wants to get valuations updated every time it processes a trade would use this technology to receive that information in real-time rather than wait for a file that might be sent at the end of the day. The faster they can get the valuation data, the better their investment models and risk assessments can be. Firms can also tap into other information, such as real-time economic data from the Federal Reserve and settlement instructions from the Depository Trust and Clearing Corporation to enhance their own reporting.
Now imagine two organizations that exchange dozens of trade status emails every day. If an asset manager links their trade management platform directly to an API framework and mapping service, it can allow employees to request encrypted, secure real-time access to trade information. This would replace hundreds of trade status query emails every month. Most importantly, the service could be built in just weeks using APIs to natively integrate into running processes, without requiring restructuring of existing applications, separate user interfaces, or major control environment impact. This is lighter from a change management perspective, and delivers material process improvement impact.
Fortunately, incorporating APIs isn't difficult to do. Firms are already developing technology that facilitates the exchange of information between various programs. In fact, the retail arms of many financial institutions are already using APIs, and developers familiar with the technology can apply it to the institutional side of the business. This allows outdated legacy systems to use APIs to get information they otherwise couldn't.
A Smooth Ride
When a manager implements several use cases across key business processes in the middle and back office it creates a scaling effect where the potential for efficiency gains and savings are dramatic. More importantly, the provisioning of real-time information is driving the next frontier of accuracy for better decision making and insights. There is an opportunity for hundreds of these use cases across a substantial enterprise – such as cash projections, corporate actions confirmations, income payment notifications, and reference data changes. Crucially, the use of the framework, once configured, is easily repeatable and data services components are reusable. Once a manager implements one API, it gets progressively easier to implement subsequent use cases.
Asset managers can leverage these technologies without having to completely retool the automation ecosystem they have in place today. Having quicker and easier access to more data sets helps firms become more competitive, efficient, and flexible. Staff who may have been gathering data by hand can now deploy their brainpower elsewhere, while investment and risk models can reflect real-time market conditions. Driven by competition and powered by technology and information exchange standards, firms that aren't taking advantage of APIs risk being left in the dust.
Think of APIs as an interconnected highway system. City streets can take you to certain locations, but a highway will get you to anywhere you want to go – and usually faster, too.
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© Brown Brothers Harriman & Co. 2018. All rights reserved. 7/2018 IS-04256-2018-08-20