Connected Finance: The new frontier is nearby.

Do we want a world of data-driven decision making or a world of decision-driven data making?

SEBASTIEN TAVEAU

JUN 1, 2023

The other day, I was having a chat with a former colleague and good friend now. We have a very similar professional background. We both started on the hardware side of technology, deep-dived into semiconductors and then jump into the tech service industry, him in the world of network protocol (and a big blockchain fan) and me in the less glamourous world of financial services.

As we were comparing how our industries evolved over the past 20ish years (thanks to Jean-Louis Gassée and his latest book “Grateful Geek” with the 5 waves of technology for launching us down that rabbit-hole), it became clear that some trends were repeating themselves but with new buzz words or better technology.

And we came to discuss the concept of connected finance. If I had to try to explain it, it refers to the integration and interconnectivity of financial systems, processes, and data through digital technologies. It involves leveraging advanced technologies, such as cloud computing, data analytics, artificial intelligence (AI), and application programming interfaces (APIs), to create seamless and streamlined financial operations. Lots of buzz words for just saying that finance should be invisible but always accessible in your life.

So, in short, it is a little bit of everything I have expertise in. If you had on the top of that the fact that tokenization and distributed network (DeFi) are also technically part of it as supporting elements, you got the perfect new era of Fintech which is super exciting.

In a connected finance ecosystem, different financial systems, such as accounting software, payment gateways, banking platforms, and customer relationship management (CRM) systems, are interconnected and communicate with each other in real-time. This integration enables data to flow seamlessly across various financial functions, eliminating manual data entry, reducing errors, and improving operational efficiency.

This is a component of the promise of Open Banking in its original concept (moving from bank to bank as a consumer without having to reset all my financial life)

[Following is some content generated by AI following my prompts and heavily edited by me for style, tone, and accuracy]

Connected Finance also facilitates the exchange of data and transactions between financial institutions, businesses, and customers. APIs play a crucial role in enabling secure and standardized data exchange, allowing businesses to connect their systems with external partners, service providers, and customers. This connectivity fosters collaboration, enables innovative financial services, and enhances customer experiences.

Key benefits of Connected Finance include:

1 - Automation and Efficiency: Connected Finance streamlines financial processes by automating tasks and eliminating manual intervention. This reduces errors, improves accuracy, and frees up resources to focus on more value-added activities. This can also support the new level of programmable payments in commerce or even regular BillPay systems, ensuring promptitude and portability.

2 - Real-time Insights: With interconnected financial systems and data analytics capabilities, businesses can access real-time insights into their financial performance, cash flow, and key metrics. This enables better decision-making and agile financial management. This is especially true with the rapid adoption of real-time networks and solutions around the world like Zelle in the US, or the latest iteration of FedNow or Bir in Sweden or Faster Payment Service in the UK. Talking about FedNow, Connected Finance can also play a crucial role in driving CBDC forward (Central Bank Digital Currency). It will be important to see if other networks like Securities or Trading Network will be able to benefit of such insight and speed capacity.

3 - Improved Customer Experiences: Connected Finance allows businesses to offer personalized and seamless customer experiences. By integrating financial systems with customer-facing applications, businesses can provide real-time financial information, customized offers, and convenient payment options. The other important element comes from the reality of ubiquitous wallets. While the competition remains on which type of wallets will dominate the top of the consumer choice eyeballs, it is an important element of improving the experience via Connected Finance to expand beyond and include Identity, tokens, and other non-financial assets. It’s obvious with ApplePay that you can have boarding passes and other legal documents stored and recognized in some countries or states. The Mega-Multi-Purpose-Platform-Wallet-Ecosystem found in Asia is lagging in the rest of the world but again, consumers have not yet been exposed to the full potential of such experience.

4 - Agility and Scalability: Connected Finance enables businesses to adapt quickly to changing financial requirements and scale their operations. Through API integrations, organizations can easily add new services, connect with third-party providers, and expand their offerings. API are close to my heart and have removed digital boundaries in a technology networking way but also in a socio-economic way. Payments can be done across institutions and physical borders with very little restrictions and much faster than in the past. It doesn’t mean rules don’t apply, they just must be adapted and enforced only when necessary. Government agencies are in a spot where whatever decisions they make impact not just the country they are in but also other connected countries.

5 -Data-driven Decision-making: By leveraging connected financial data, businesses can gain deeper insights into customer behavior, market trends, and financial performance. This data-driven approach enables informed decision-making and strategic planning.

As I said in my book “The Delivery Man”. We should be living in a world of data-driven decision making and yet, the reality is more a world of decision-driven data making. So, I would advise to take that one with a grain of salt as long as the human “rationality” of analysis can still overrule the AI / ML rationality of decision generating.

[End of AI content collaboration]

Overall, Connected Finance empowers businesses to transform their financial operations, drive efficiency, enhance customer experiences, and unlock new opportunities for growth and innovation. For the consumer, it must remain as invisible as possible and just be a convenience with easy choices and implied security in it.

When the concept of Embedded Finance was coming up, people were perplexed, yet it is so prevalent today that most don’t even know they are using it. Paying your hotel reservation via your phone? Embedded Finance. Checking out via your Apple Watch? Embedded Finance. Confirming access to your account via text message? Embedded Finance.

However, Connected Finance is taking it to a whole new level. This is a product, technology, infrastructure, and regulatory play across multiple industries. The disruptors and the winners may not be coming from the financial industry at all.

With Open Finance / Open API, the Pandora box was open. It evolved into Connected Finance because a lot of essential elements who were not available in the early days are now pervasive or on the edge to be. AI/ML, assets tokenization (and yes, NFTs had their moment of usefulness to help move forward), API standardization (including no-coding solutions) have all been brought to the fold of this revolution. Connected Finance is not a new concept, but the recent technology development is taking it to maturity rapidly. We just need to build it. Now. Let’s talk!