I’m not a fan of jargon. In the payments industry, we’re rather obsessed with it and we use too much of it. Jargon is a secret insider language most of the time; a word or phrase used that no one outside your business will understand. Having said that, I had a bit of a fear about the phrase in this headline. But I’m comfortable using it, and you should be too. Connected finance has moved beyond some kind of code word into a structure and strategy that will strengthen relationships and efficiencies within your company and with your customers.
First, let’s define it. For me, connected finance means the barriers within finance have been removed and with that, new doors open up. At one level it means that access to data, technology and customer intelligence is extended. It means that this access will enable the CFO or other finance leaders to have an impactful conversation with marketing, sales, operations, and IT. It means that the connected company has committed to the digital technology and infrastructure that will lead to better internal efficiencies and more relevant customer experiences.
One of the key actions any company can take to achieve this connectivity is tearing down the silos that exist between different finance functions. For example, treasury and accounting functions should no longer have a firewall between them, physical or digital. When that occurs you create a structure in which technology is the enabling layer for finance, not just the underlying infrastructure. This idea depends on two constructs, which I will expound on in this piece.
The first construct is the way in which your company sees the world. One view is seen through the prism of the ledger – the accounting view. Extremely important, I won’t underestimate that. Accounting is the rearview mirror needed to keep the score, so to speak. But technology enables you to see a real-time view of the actual operating cash position of your company. One does not cancel the other and one should never be completely separate from another. There’s AP and AR automation and the digital approach to the payments and cash lifecycle. They’re connected.
And when you think about payments and cash lifecycle, it’s not just a long-term view that is kept in a different silo from accounting. Connected finance is not about replacing an accounting or an ERP system, or even a BI tool that works across those. It’s about bringing payments and cash lifecycle solutions and treasury management systems closer to the real operating cadence of the business. And you measure that in terms of how you pay your suppliers, remove friction from the customer experience and how you interact with your trading partners. So connected finance is not a replacement. It’s an approach to financial management that includes the whole system, not just one office or one function. And it’s based on a real-time view of the business.
The second construct of connected finance is based on a real-time view. Banks and their partners need to move toward a much more transparent and real-time connectivity with each other. It’s not just within the four walls that a bank becomes connected, particularly when you have multiple banks, multiple bank accounts, multiple data sources and even multiple currencies. Now factor in open banking, which moves away from prior day reporting. Nothing wrong with a report that summarizes all transactions and balances for yesterday. But it is very effectively complemented by intra-day reports and even better, real-time reports. Just as a consumer can get a balance by opening a mobile app, connected finance can bring that same capability to an enterprise.
Connected finance, to me, is an evolution on the order of CRM systems and enterprise resource planning software. Connected finance has changed the very basic questions and answers about the roles of the office of the CFO, treasurer or other finance leaders. It’s not about who reports to whom, and strict divisions within a company. It’s not about the individual silos that are within the companies, it instead raises the question “how do they work better within the company?” How do we connect to our customers? How can we better align with our supply chain? Maybe it creates a new vision for cash forecasting that leads to changes in the working capital model and creates different risk scenarios. Then you can start to shift assets, whether they’re people assets, whether financial assets or technical assets that will lead to new products and a better customer experience.
The Bottomline: Connected finance is not just connecting. Look at it from the perspective of what it allows you to do. For example, APIs have allowed employers to offer earned wage access, which allows employees to access all or part of their wages instantly. For employees that use it, it’s arguably a form of cash forecasting. That’s the kind of vision connected finance can create. Connected finance is no longer just an ethereal concept. It impacts cash management, customer engagement and the basic constructs for financial reporting. In short, it can dramatically change the course of your business and you need to be ready for it.