Application Programming Interfaces (APIs) have helped revolutionise industries ranging from travel to hospitality. Toby Glaysher, Head of Global Fund Services, International at Northern Trust, outlines how they will play a similarly pivotal role in the digitalisation of asset management – encouraging collaboration to support enhanced efficiency, flexibility and creativity.
In an age where the use of data and digital technology is increasingly central to success, many asset managers are moving to digitalise traditional processes and practices – seeking to drive enhanced operational efficiencies and create new digital experiences for themselves and their investors.
Few areas of asset management will remain untouched by the digitalisation of our industry, which will see new technology disrupt both the manufacturing and distribution of funds. At the heart of this transformation will be the migration to an ‘API economy’ – a widely-used term describing a set of business models and processes based on the secure access of functionality and exchange of data.
Asset management is the next API economy
As they work to digitalise their operations, APIs offer asset managers and service providers exciting possibilities in how they use data. An API is a standardised interface or “adapter” that allows two applications to ‘talk’ to each other automatically. This enables different software components to communicate and share data in real-time, according to a set of clearly defined methods of communication.
Of course, asset managers routinely exchange data with third parties and require it for everyday business functions, from fund valuations to distribution reporting. As their fund administrator and global custodian, Northern Trust works with clients every day to produce and exchange information required for reporting, oversight, risk management and other activities.
But established industry processes for transferring data via delivery methods such as file transfer are generally inflexible and time consuming. Against this backdrop, the use of APIs for organisations to instantaneously exchange information offers obvious advantages.
This near-universal, secure means of sharing data among applications has fundamentally shifted how providers compete and what businesses expect today – from industries such as transport (via ride-hailing applications) to hospitality (where APIs are used to check-in or order room service). At Northern Trust we think similar changes are about to happen at significant scale across asset management – it is about to become part of the API economy.
Scaling up use of APIs in asset management
Today, there is no shortage of data available to investment managers. This is because new technology has driven an explosion of available data for our industry – creating a demand for more sophisticated and creative ways to analyse it and put it to good use. But hiring developers and designing proprietary, self-contained solutions can be expensive and time consuming.
As a result, businesses are evolving their focus to include the secure access and exchange of data rather than just the aggregation of it.
As the asset management industry works to digitalise outdated processes, and participants seek to gain competitive advantage, the speed of emerging technology means providers must quickly adopt and integrate it into their solutions. At the same time, users of digital services are becoming steadily more accustomed to accessing greater levels of interoperability and flexibility in the personal technology they use. They also expect the same at work.
APIs support collaboration and customisation
Forward-looking asset managers increasingly expect this kind of interoperability and flexibility. Asset servicers need to meet these expectations by rethinking their approach to strategy, development and value proposition.
They should create ways to easily obtain, share and apply technology, rather than try to build proprietary, stand-alone solutions. They will need to pair different combinations of data and systems to support speed of technology adoption – enabling APIs to be developed, secured and deployed quickly.
We believe that in the API economy, key participants in the distribution value chain will also want to choose elements of technology from their providers. For example, platforms could utilise the functionality to open a new account via an API to streamline administration – and create a better onboarding experience for their clients than is generally possible through current industry practices.
Asset managers will also seek to develop custom capabilities that solve problems or give them a competitive edge. APIs will allow them to do this in a fraction of the time required for traditional industry methods of exchanging data – minutes and hours, rather than days and weeks.
How Northern Trust is deploying APIs
Northern Trust has for the past 18 months been developing and testing how APIs can be used to provide new capabilities and connections, including via Northern Trust Matrix™. This is our enhanced platform through which we are digitalising our asset servicing business.
It combines several technology and operating model innovations to support new ways of managing and delivering data, enabling the digital transformation of our business. It also allows us to support our clients’ digitalisation initiatives in our role as their asset servicer.
As we roll-out Matrix’s capabilities across our business, starting with our services for European transfer agency clients, we are driving opportunities for them to expand their API capabilities to gain direct, reliable and secure digital access to data.
We have built an API Developer Portal so our clients’ developers will be able to “plug into” Matrix’s architecture and capabilities. This portal will provide our clients with their own API ecosystem – providing their developers with a platform to discover, understand and subscribe to available data. Think of it as an API ‘store’ that bridges the gap between providers and consumers, allowing clients and third parties to ‘self-serve’ and help themselves to critical data directly and securely.
Are you ready to participate in the API economy?
Using APIs, asset managers will have access to better technology and better data. Picking and choosing the right capabilities and integrating with those capabilities could uncover meaningful new innovations and lead to enhanced products and services.
We think APIs will play a pivotal role in the digitalisation of asset management – helping to make businesses more efficient, flexible and competitive. While organisations refine the quality of the data used by participants across investment management, APIs will transform how asset managers exchange data and the ease with which they can use it.
In this environment, we think asset managers should expect their providers to work with them and other vendors to provide secure, seamless experiences for them and their investors. The ‘plug and play’ functionality of APIs will have a transformative role to play in supporting this collaboration – and in helping asset managers derive the benefits of digitalisation.
You can read an extended version of this article here as well as access further insights and research materials available from Northern Trust.
© 2020 funds europe