A Connected Financial System

I kept surfing the internet to find a simple quote that describes the importance of the subject called Finance—then in fact ended up finding Finance to be such a complex matter that its importance would hardly be explained with a few words. However, my intention of writing this article is not to discuss about Finance or the importance of it—rather, I intend to discuss how Financial information silos could be connected and model a unified large solution in order to share the important and critical information between and among Financial institutes, utilizing powerful tools those are available in modern days.

Business of Finance

Finance is a subject that matters to everybody. Every person who uses money, involves in managing his/her own finances and wealth in a regular routine, dealing with the local financial institutes such as banks and lease companies. Banks or lease companies generate revenue by lending money to the customers at a certain percentage of interest so that they could earn profits. The more they lend, the more they earn profits!

However, this is not simple as we wish that to be; and the procedure of issuing funds to an unknown party may require some of their property to be submitted as security holds or a recommendation made by a known and a trusted party over the unknown party that the funds need to be offered. As the very next thing, the bank needs to perform a background check of that particular customer and analyse whether this person would be capable in settling the loan or the lease by settling the monthly installment on time. The income, repayment capacity, debts, the discipline of financial history and such factors may become critically important while building a trust between the bank and the customer.

Business has threats!

To convey the importance of a Connected and Unified Financial System in the most convincing manner, nothing else comes to my mind other than the fear and concerns that people hold in their minds about the possibilities of "Fraud". When taken into discussions, most of the financial institute including banks involve in lending business—the key to success in that is the credibility of the potential or the existing customer. To narrow the scope down and to maintain the richness of content, we may discuss mostly about the Banking sector in particular, which might also help focusing and discussing a few real use cases as examples.

A single person can do business with multiple financial entities, and a person who maintains a bad financial profile at multiple institutes can easily step inside another new financial institute and obtain more money as loans. Therefore, it is very important to get these financial information silos connected; then—within a large unified information system—maintain a single virtual financial profile each to represent each citizen, recording his/her entire financial history to analyse the frequent behaviors and predictable patterns.

Threats bring opportunities!

The bankers would hate to see the thieves or irresponsible lending customers walking in, however; they are not capable of seeing that particular person's financial history and connections with the other existing institutes including their competitors. Likewise, the other institutes including the competitors are desperately looking forward to get information about the people who have done business with this institute in history, then become their customers later and applies for loans and leases.

The irresponsible customers who do not settle their debts do harm the business. But they also open a door to a very new business, which may help the same institute in generating revenue with less cost in the long run. Banks have information; and information are as worth as currency notes in modern business context.

The opportunity of information business

Not only the information about existing customers and the level of their credibility, the banks also have so much information such as the records about titles of properties that they have mortgaged in history. If these information could be processed and exposed in a uniform manner to the outside, there are many other institutes and entities would be interested in purchasing these information; so that they could utilize this knowledge while making crucial business decisions.

Information as What?

Theoretically, these information could be exposed in so many ways following different methods. These can be sold as physical documents, text files or even as large excel spreadsheets. However—in modern times—we practically have so many effective ways of delivering this communication in a way efficient manner so that this would not kill the productivity.

Service Oriented Architecture, Web Services and API based information systems integration is known as the most popular solution that could be proposed for this particular purpose. The data need to be collected frequently and synchronized so that the central information base would become much accurate.

Generally, a different/separate body/entity can be formed in order to collect data, process those and expose information in a uniform standard way. With this approach, the banks will sell their raw data to this external entity at a lower cost, and will be purchasing information at a comparatively higher cost.

Approach 1

Instead of forming a separate entity for data integration, it also is possible for the banks themselves to act as nodes of a decentralized unified information system by adhering to the enterprise standards and standard protocols while developing interfaces of communication. With this approach, each bank will have its own/unique set of APIs or services, and the rest of the banks will act as subscribers to these APIs/Services.

Approach 2

Technically, either of these two approaches could be chosen for the purpose of sharing important financial information between and among institutes. Even if we have taken banks as an example, these could be any of the other financial institutes including credit information bureau, inland revenue, customs and the government treasury. Therefore, we can clearly understand how much of planning and execution effort that any of these institutes would require to implement a system that is compatible with the systems that the other institutes may have.

Approach 1, being doable—in the perspective of a single bank—it raises a few practical concerns while proposing as a solution for modern integration scenarios. Some of them can be listed as below.

1. Since, there has to be a single entity that is connected to all the other institutes acting as a centralized financial data repository, all the other institutes strictly have to stick to protocols suggested by this entity. Or else, the technical teams of this entity have to work on developing systems those are capable of receiving data in different formats and protocols.
2. The other institutes have to stick to the pricing strategy suggested by this entity. Hence, the institutes that have most important data might not get the deserving value.
3. This kills the innovative nature of the institutes, hence fail them achieving the competitive advantage they may have. The technical capabilities of a single institute can be much greater than the others, but they are restricted by the facade provided by this single entity.
4. The designing part of such a massive system can be very difficult. Designing a single system that would address everybody's concerns may require strong coordination between and among involving parties. Negotiating can become difficult, and the delivery of the solution may take much time. 
5. In a situation that either of the connecting institutes get a requirement for an integration with a (geographically) foreign party, there will be no reusable system components available for that. For example, if a local bank needs to provide an interface for a foreign bank for money remittances, the local bank has to develop the relevant interface just to serve that specific party. The existing components those are developed under the specifications of that single entity, will not provide the expected flexibility. 
6. The connecting institutes have to share the infrastructure related resources of the single entity; hence, have to tolerate speed, availability and bandwidth issues that may occur. 

Approach 2—providing more freedom and independence, at entity level—helps being innovative with all the existing capabilities; then win the deserving value in the market, taking the competitive advantage. This set of APIs can be exposed/sold to external parties as digital products, then generate revenue at a price decided by the institute, but not by any other party. This surely enhances the image of corporate profile in the market, allowing the institute gaining more popularity, attention and opportunities win worthy business partnerships. Because of the agile nature provided by this approach, upgrading the existing capabilities/APIs will also be very much independent of the external parties. Additionally, the same set of APIs with different access levels could be utilized for internal systems integration as well.

With the future articles, we may discuss how to develop solutions that would provide the above mentioned capabilities without depending on the approach that someone would select to deliver the internal capabilities in the form of service or rather APIs.