Yet another acronym – why are APIs important?

Our world wouldn’t be able to function if we didn’t have a way for software systems to talk to each other. ‘There’s an app for that’ is only a positive if all the different apps can work together – but they can’t without help of an application programming interface (API).

An API is a way for two or more computer programmes to communicate with each other. It is a type of software interface, offering a service to other pieces of software.

APIs in wealth and fund management

The wealth and fund management industry has been going through radical changes over the last decade.

In South Africa, the regulator has been more vigilant in light of recent issues such as poor corporate governance – leading, in some instances, to the loss of investors’ wealth. With the tightening of regulatory compliance/reporting, the costs of regulatory compliance have been ever increasing.

At the same time, regulators are monitoring fees and the cost of investments for investors to ensure that charges levied are fair, reasonable, and well regulated.

This has an impact on asset managers. With costs rising and margins decreasing, they have increasingly been looking at how to use their resources optimally, in order to do what they do best: invest and manage money.

As a result, they have been exploring ways to outsource non-investment related activities such as fund accounting, transfer agency, client reporting and tax reporting to experts.

Third-party administrator service providers have been playing a key role in the further development of the fund management industry, by not only taking over the administrative burden from asset managers, but also taking over the investment cost in using the latest technology.

APIs again play a crucial role because, in essence, the effective use of APIs in the fund administration service business means improved internal control mechanisms, streamlined data management, and time saved for asset manager clients. The promise of time saved always translates directly to the bottom line, as freed-up hours can be spent on other revenue-generating activities.

JP Khaitan, head of technology services at Maitland Group 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 a few benefits for the fund administration industry in the effective use of APIs:

• Improved fraud detection and compliance. With real-time data integration, organisations can access data as soon as it becomes available, identifying anomalies quickly and nipping issues in the bud.
• Customer insights. Various online resources claim that the world creates roughly 2.5 quintillion bytes of data each day. Hyper-personalisation is demanded by more and more consumers, making the analysis of customer data and implementation of more bespoke engagement strategies of paramount importance. APIs facilitate this process.
• New revenue streams. Fund administration services can monetise their services if they share data through APIs in collaboration with fintech partners.
• Business agility and support. If you enable real-time integration of data through APIs, the business can make the right decisions at the right time. Also, having effective APIs means businesses can keep their existing legacy systems without the costly exercise of migration.
• Regulatory technology APIs provide substantial support to fund services companies when it comes to tasks such as regulatory reporting, transaction monitoring, compliance, identity management and control.

One area where Maitland has effectively utilised APIs is in its trade matching and settlement operations. “We have created APIs that take those trades on a live, online manner, ingesting data from multiple sources and ensuring a high success rate,” Khaitan says.

Integration with third-party service providers and clients’ internal systems in real time is critical, ranging from discretionary fund managers, custodians and brokers to exchanges and data providers.

What about the risk?

Back in 2020, Forrester Research stated in a report that while APIs provide a foundation for innovation, they also open security holes and create privacy risks.

Khaitan acknowledges that managing risk should be a top priority but feels that with the right internal security measures in place, there isn’t much risk in the use of APIs.

“The interface is like a window shop where a buyer comes and requests a package from you. You just have to make sure that there are enough security protocols to verify the identity of the buyer before handing the package over,” he says. “With our use of APIs there are enough security protocols that are put in place to make sure the connections are secured, and that data transfer is not intercepted.”

Let’s get rid of the humans – or should we?

Whether it’s via APIs, machine learning, artificial intelligence or robotic programming automation (RPA), some believe the future view could appear distinctly non-human.

Khaitan disagrees.

“Humans are not going to be replaced,” he says. “The roadblocks on better use of human effort are being eradicated, not the human.”

In the past, before APIs helped automate many of the data exchanges required to make the world go round, actual people had to manually send and receive data sets and then feed those into systems or programmes as and when needed.

“A person can do certain tasks at a certain pace, but is inefficient and prone to errors. Now, instead of wasting time doing mundane tasks or copying and pasting, the consolidated data is presented to a human being who can analyse and pick up trends and issues with time to spare.

“We are putting the mind to better use,” says Khaitan.

Maitland Fund Services has offered independent third-party administration services since 1990, and Manco services since 2014. It administers funds for 120 direct investment managers and 22 fund sponsors and has $200 billion in assets under administration with $17 billion in assets under management.

Brought to you by Maitland Group. 

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