As a result of the volatility within the banking world and the SVB collapse, APIs and API banking are becoming a greater priority than ever for liquidity management. That’s because everyone wants a healthy level of independence to manage their risk effectively.
Finance teams want to be able to manage multiple bank accounts and own their own data – instead of having it solely accessible via a banking portal. What open banking APIs offer (instead of legacy file transfers) is the ability to set up bank feeds, make payments directly, and enjoy more visibility and control than before.
Read on to learn more about API-powered bank feeds, why companies of all sizes should use them, how to set up your own, what to look for in a platform that leverages API bank feeds, and the real-world story of how Crowdstrike took full ownership of its financial data.
What is a Bank Feed?
A bank feed is a connection between software and a bank that provides a centralized, easily-accessible view of all balance and transaction activity for each enabled account.
As mentioned earlier, most modern bank feeds take advantage of open banking APIs which make connectivity quicker and easier than legacy connection types (I.e. BAI/sFTP).
At various refresh intervals, data is exported from the bank and imported into the third-party software, like Trovata, where it’s displayed from a single dashboard. Data refresh intervals include intraday (one or multiple refreshes per day), and prior day, depending on the specific API connection.
Of course, bank feeds can source information from multiple accounts. In other words, even large corporations with hundreds of bank accounts across various institutions can have a view of their cash. This makes viewing daily activity and establishing a cash position easier than ever before.
Why Should Your Company Have a Bank Feed Powered by APIs?
Own Your Financial Data
Just this week, in a panel at the McKinsey Cash Management Forum, one of the featured speakers, Bruce Edlund, Group Director and Assistant Treasurer at Cloud Software Group, made a closing comment that his company will re-evaluate partnering with banks that do not offer APIs.
This is because, in times like these, companies like Cloud Software Group want their data available at all times.
He explained how he and his team no longer want to wait for a file from yesterday and how they are fatigued with online banking security tokens, password resets, and so on.
With an API bank feed, you have your own financial data lake that you can access through a single platform at any point in time.
Enable Financial Transparency
Gaining clear insight into cash on hand and directionality of cash flows are two of the most obvious benefits of a bank feed.
But it’s not really the visibility itself, rather, it’s the plans and strategies you can develop from having this cash intelligence. By seeing your daily, weekly, or monthly cash flow, you can answer questions like, “Is now the time to expand operations or scale back?”
By earmarking specific bank accounts for different functions—say one for expenses and another for accounts receivables—bank feeds can provide a granular view of cash position and cash flow that help you optimize core processes.
Say you want to focus on marketing. A marketing forecast will require specific data related to marketing expenses and ROI from particular marketing venues. Bank feeds help you isolate that data and run it through the right formulas.
The other thing bank feeds allow you to isolate? Liquidity.
Liquidity is one of the most important indicators of the financial health of a business. It shows your ability to keep up with day-to-day operating expenses, but also gauges how quickly your company can react quickly to crises.
Having a clear handle on liquidity will also help you get access to loans, as banks want to see a strong financial position before they invest. Cash flow forecasts based on bank feed data can also help you strategize loans (i.e., help you time out loans so that they have only a positive effect on cash flow).
Free Up Time Normally Spent Gathering Data
The ability to see across potentially many bank accounts in real-time removes the need to manually record data.
Without current technology, the only way to gather data is by logging into each bank portal and recording everything in spreadsheets.
This takes time, which automatically means that, once everything is recorded, the information is out of date.
Manually recording data also creates a major risk of errors. Having flawed data not only guarantees time is wasted on reconciliation, but it results in poor decision-making as you’re acting on a slightly outdated view of your financial situation.
Automation powered by APIs solves both problems. You get a near real-time view—the bank feed provided on a daily basis reflects all transactions made during that day, so it’s current. There’s also no chance of transcription error.
When you stop spending so much time gathering data, you can make the switch from data-gathering to data analysis—a much more effective use of time that completely changes the role of the finance team.
How? Well, when finance teams are no longer spending such a large portion of their time gathering data, they have much more freedom to turn that data into actionable steps. They’re suddenly proactive, able to locate details and suggest strategies that will boost revenue and contribute to both the short-term and long-term stability of the company.
Save Time On Reconciliation
Reconciliation – the process of ensuring that accounting data (the books) aligns with what’s shown in your bank – is a lot easier when you have clear, consistent bank data. It mostly cuts out the step of gathering that data, enabling you to simply evaluate any errors and make the necessary adjustments.
Make Better Split-Second Decisions
If your company finds itself in a situation where it needs to take split-second action, the first piece of information you’ll need is its current cash position.
Not so long ago, the only way for companies to determine their cash position was by scouring spreadsheets, adding and subtracting potentially huge volumes of data to finally get a number that—hopefully—wasn’t based on error-prone data.
With bank feeds, you simply have your current cash position in front of you.
What we learned from events like COVID-19 and the SVB collapse is that you never know when you’ll need to make a quick decision. Ensure that, when they do need to make one, your decision is backed by the most current data possible. The only way to do this is with integrated bank feeds.
Know Your Cash Position: The Foundation for Liquidity Management
Determining your cash position with bank feeds is just the first step of successful liquidity management. Other components include cash flow forecasting and analysis.
With software like Trovata, cash flow forecasts are generated automatically based on aggregated bank feed data. You can hone in on one aspect of the business in particular, and can also build targeted forecasts based on tags.
Cash flow forecasting helps you balance expenses and liabilities so you don’t run into liquidity problems in the future. It acts as a guide for what actions you should take – for instance, whether you should lease or buy equipment (buying could affect your ability to make payroll two months down the line, whereas leasing would help you grow sustainably, for example).
You’ll even get a forecast for your day-ending position, and be able to make payments to adjust that position, all within Trovata.
Considerations for Setting Up Your Bank Feed
First, decide which bank accounts you want to connect. For instance, you may want to connect all accounts for a strategic, bird’s eye view of your overall situation, or, connect only a small cluster.
Remember, you can (and should) set up multiple bank feeds.
Next, think about any integrations you might need. Software tools that you connect your banks to oftentimes integrate with ERPs, such as Sage Intacct, allowing you to export data directly.
Use each bank feed to guide departmental or company-wide goals.
Finally, consider whether you will need to open more bank accounts in the future. Make sure to research if the banking partner you choose has developed an API so you can leverage its bank feed.
PRO TIP: Check Trovata’s bank connection monitor to see the status of all of the corporate bank connections in our library, which is the world’s largest library of corporate banking APIs.
Choosing the Right Software To Set Up Your Bank Feed
Easy-to-use bank feeds are made possible thanks to innovative software, specifically those that take advantage of the recent boom in APIs and open banking technology. Making sure you choose the right software is an integral part of setting up your corporate bank feeds.
To easily set up a bank feed that suits your needs, look for a cash management platform or software tool that:
Utilizes Open Banking APIs
Open banking APIs allow for communication between banks and third-party platforms. Many banks like J.P. Morgan or Wells Fargo have developed their own APIs, allowing their clients to make use of these third-party platforms APIs offering greater functionality.
With software that’s cloud-based, you can share information that aids in decision-making across departments. Each branch can operate according to the data. In other words, there are no data silos – a huge problem with traditional spreadsheets – and everyone is acting from the same updated information.
Automates Reporting and Forecasting
Cash flow forecasting is a critical function, but it can take a lot of time to set up and update manually. Software can make automating forecasting much easier.
Makes Use of AI and Machine Learning
AI and machine learning are critical components of the ongoing revolution in finance. It’s one thing to have bank data in front of you, but the work actually begins with analysis. The best software uses AI and ML to aid in that analysis, refining cash flow and providing precise, granular insights faster than humans could.
Machine learning is especially useful here, as it incorporates these insights into cash flow forecasts which users can tailor to become more accurate over time.
Requires Minimal to No IT Resources
Legacy treasury management systems (TMS) can take months to one year to implement. If your IT team is tied up on other tasks, they might not be able to begin the process immediately.
You want insight into your cash position and cash flow ASAP so that you can start reaping the benefits mentioned above. Software like Trovata can be integrated in as little as a few days, without any kind of IT involvement.
How CrowdStrike Set Up its Corporate Bank Feed with APIs
To demonstrate this, look no further than CrowdStrike. CrowdStrike massively grew its revenue by 147 % from 2020-2022. As you can imagine, its finance team spent a lot of time aggregating transactions, taking approximately 40 hours a month. They realized they needed to digitize, and first looked at some of the legacy TMS providers.
The issue they ran into with them is that these bulky platforms take, on average, nine months to implement. Further, its IT team was already at capacity given the massive growth the company was undergoing. So, they wouldn’t be able to begin the implementation process for a few more months.
Given the need for a faster solution, CrowdStrike’s Treasurer looked for an alternative solution and found Trovata. After receiving the go-ahead from their CFO, they were able to implement Trovata and rapidly gain a view of their data and transactions – with no IT involvement.
Connect Your First Bank with Trovata
To summarize, API-powered bank feeds offer these three substantial benefits for today’s proactive treasury teams:
- They save vast amounts of time compared to using file-based technology
- They allow you to fully own your financial data
- They help finance teams build data-backed forecasts and plans that guide the strategic direction of your business
Okay, that’s a lot to digest about how API-based bank feeds work and why they should be used.
To get a feel for how your bank feed could work and how useful it is to see your cash position, why not try it out? The best way to learn the value of an innovation is with a hands-on approach!
Schedule a demo or create your Trovata account today. You’ll quickly see why leaping away from spreadsheets will give your company a huge competitive edge.