Another acronym – why are APIs important?
Our world couldn’t function if we didn’t have a way for software systems to communicate with each other. “There’s an app for that” is only positive if all the different apps can work together – but they can’t without the help of an application programming interface (API).
An API is a way for two or more computer programs to communicate with each other. It is a kind of software interface that offers a service to other software components.
APIs in wealth and fund management
The wealth and fund management industry has changed radically over the past decade.
In South Africa, regulators have been more vigilant amid recent issues such as poor corporate governance – which in some cases has resulted in the loss of investors’ wealth. As regulatory compliance/reporting has become more stringent, the cost of regulatory compliance has steadily increased.
At the same time, regulators monitor fees and investment costs for investors to ensure that the fees charged are fair, reasonable and well-regulated.
This has implications for wealth managers. With costs rising and margins shrinking, they are increasingly concerned about how to best use their resources to do what they do best: invest and manage money.
As a result, they have been looking for ways to outsource non-investment related activities such as fund accounting, transfer agency, client reporting and tax reporting to professionals.
Third-party management service providers play a key role in advancing the fund management industry by not only taking on the administrative burden of wealth managers, but also taking on the investment costs through the use of the latest technologies.
APIs again play a crucial role as the effective use of APIs in the fund management services business essentially means improved internal controls, streamlined data management and time savings for wealth management clients. The promise of time savings always has a direct impact on the bottom line, as freed-up hours can be used for other revenue-generating activities.
JP Khaitan, Maitland Group’s Head of Technology Services for South Africa, argues that the effective use of APIs in the fund services industry is a sign and indicator of operational excellence.
Khaitan highlights some benefits of leveraging APIs effectively for the fund management industry:
- Improved fraud detection and compliance. With real-time data integration, organizations can access data as soon as it’s available, quickly identify anomalies and nip problems in the bud.
- Customer Insights. Various online resources claim that the world generates approximately 2.5 quintillion bytes of data every day. Hyper-personalization is being demanded by more and more consumers, making the analysis of customer data and the implementation of tailored engagement strategies paramount. APIs make this process easier.
- New sources of income. Fund management services can monetize their services when they share data via APIs in collaboration with fintech partners.
- Business agility and support. When you enable real-time integration of data via APIs, the business can make the right decisions at the right time. Also, the presence of effective APIs means organizations can retain their existing legacy systems without costly migration.
- Regulatory technology APIs significantly support fund services companies in tasks such as reporting, transaction monitoring, compliance, identity management and control.
One area where Maitland has used APIs effectively is in its trade matching and settlement operations. “We’ve built APIs that do these trades live and online, taking in data from multiple sources and ensuring a high success rate,” says Khaitan.
Real-time integration with third-party providers and clients’ internal systems is critical, ranging from discretionary fund managers, custodians and brokers to exchanges and data providers.
What about the risk?
Back in 2020, Forrester Research found in a report that while APIs provide a foundation for innovation, they also open security gaps and create privacy risks.
Khaitan acknowledges that risk management should be a top priority, but believes that with the right internal security measures in place, there isn’t much risk in using APIs.
“The UI is like a window shop where a shopper comes in and requests a package from you. You just have to make sure there’s enough security protocols in place to verify the buyer’s identity before handing over the package,” he says. “With our use of APIs, there are enough security protocols in place to ensure connections are secured and data transfer is not intercepted.”
Let’s get rid of people – or should we?
Whether via APIs, machine learning, artificial intelligence, or robotic programming automation (RPA), some believe the future prospect could appear distinctly non-human.
“People are not replaced,” he says. “The obstacles to better use of human effort are removed, not man.”
In the past, before APIs helped automate many of the data exchange operations required to keep the world running, people had to manually send and receive records and then feed them into systems or programs as needed.
“A person can complete certain tasks at a certain pace, but is inefficient and error-prone. Instead of wasting time on mundane tasks or copy and paste, the consolidated data is now presented to a human who can analyze trends and issues and act on them over time.
“We use the mind better,” says Khaitan.
Maitland Fund Services has been providing independent third party administration services since 1990 and Manco services since 2014. It manages funds for 120 direct investment managers and 22 fund sponsors and has $200 billion in assets under management and $17 billion in assets under management.
Presented by the Maitland Group.
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