Breaking barriers: The interconnected financial ecosystem

There was a time when most financial needs could be met with one or two bank accounts: checking and savings. Now, people hold funds and manage their money across multiple accounts, investment services and wallets apps—sometimes across multiple countries. While banks and financial service providers focus on delivering great products and value for their customers, they aren’t always thinking about one key component: interconnectivity. In other words, how does one financial account, digital wallet or platform communicate with another? And what happens when money needs to move between them?

The answer: It’s complicated. Existing financial infrastructure wasn’t necessarily built to keep up with changing money movement needs among a growing universe of financial players. At the same time, providers seem to have focused development efforts inwardly and may overlook customer needs for interconnectivity between the different services they use.

Gone are the days of one-stop shops—people will use a combination of whatever services works best for them. As consumers increasingly favor options that allow them to move and store their money the way they want, banks, fintechs and financial service providers need to evolve.

The evolution of financial services

Creating more interoperability can provide additional value for users of financial services. It’s increasingly a must-have, not a nice-to-have. “Interoperability is front and center for a lot of Federal rules and regulations...The capability to connect and sustain interoperability is extremely vital.” said a Risk and Strategy Director at a retail bank surveyed by Visa Direct. In fact, banks have already demonstrated this evolution well—think of Zelle in the U.S. P2P transfers used to be restricted to members of the same bank, but now customers at different banks that participate in Zelle can send money to each other. It’s a prime example of opening systems and establishing interconnectivity to add value and drive loyalty.

Today’s consumers and businesses engage in numerous financial activities that necessitate money movement between different ecosystems, where greater interconnectivity could benefit users. These include:

• Sending money to friends and family
• Making cross-border transactions
• Accessing innovative financial products
• Managing finances and investments

Banks, financial service providers and fintechs at the forefront of change are responding by combining their existing strengths with new capabilities that enhance connectivity, enabling customers to move money more easily. This requires solutions that can overcome the natural barriers that sometimes exist between different countries, platforms and banks, including:

• Technical connectivity: Different systems can’t always interface or communicate with one another, making connections difficult
• Money movement: It’s not always possible to move money between closed systems or networks, and some methods may be too slow or cumbersome
• Data sharing: Businesses and financial institutions can’t offer tailored services or advice if they don’t have access to user data

How interoperability creates value

In an effort to increase integration and collaboration across systems and across the world, there are several initiatives underway that leverage newer frameworks and technology:

1. Open banking

Financial institutions are using standardized application programming interfaces (APIs) to securely share banking data with authorized third-party providers. This creates opportunities for new services while maintaining security and control, ultimately giving customers more choices within a trusted framework.

2. Strategic partnerships

Banks, fintechs and payment networks are finding creative ways to work together. For example, fintechs can now offer core banking services to their customers by accessing retail banks’ licenses and at the same time, retail banks are leveraging fintechs’ modern payment technology to provide seamless, digital user experiences.³ These symbiotic relationships are expected to continue, according to surveyed senior executives in financial services, so both players can deliver better customer experiences.³ This space, however, will continue to be competitive and in response, some mature players are acquiring smaller players to grow their digital capabilities and fully control the solutions they offer to their customers.³

3. Technological solutions

Advanced APIs and new technologies like blockchain or intermediaries are making it possible to create secure, seamless connections between platforms that may not have existed before while preserving the unique benefits that individual providers offer their customers.

Building connected financial services

One of the core components of interconnectivity is money movement between systems. Visa Direct’s network can play a crucial role in enabling these connections. By establishing a network of networks to overcome the natural barriers standing in the way of money movement, Visa Direct is linking endpoints across participating banks, digital wallets and apps. We provide the infrastructure that makes better connectivity possible and practical between systems that don’t currently have a way of interacting with one another or have only limited means of connecting with each other.

The Visa Direct portfolio exemplifies this approach, offering a platform that can securely move funds between cards, bank accounts and digital wallets, with the following capabilities:

• Funds in/funds out solution: Allows money to move between bank accounts and wallets and back again, a critical need for organizations developing fintech solutions
• Cross-border money movement: Enables moving money cross-border between institutions, with a wide variety of FX conversion options
• Real-time transfers: Moves money in real-time² when existing domestic and cross-border networks may not otherwise have that capability
• Multi-currency accounts: Develop multi-currency fintech solutions for consumers or accept payments in local currency without establishing foreign banking partners

The path forward

The future of financial services is about creating value through connections. By opening the door into once closed systems and embracing interconnectivity, providers can enhance their offerings while giving customers the flexibility they expect in today’s digital world. Banks, fintechs and financial service providers who embrace this opportunity to expand their capabilities through interoperability will be well positioned to meet the evolving needs of their customers.

To gain more insight into the shifting financial services landscape, download the whitepaper.

1. "Unlocking the future: banking on cross-border payment habits”. 17 June – 2 July, 2024. 13 coutries: U.S., Canada, Brazil, Mexico, UK, France, Germany, Sweden, Australia, Hong Kong, Philippines, Singapore, UAE. All studies, surveys, research, and materials owned or commissioned by Visa shall not be used, reproduced, copied, or recirculated without the prior consent of Visa.
2. Actual fund availability for all Visa Direct transactions may depend on receiving financial institution, account type, region, compliance processes, along with other factors, as applicable.
3. “Financial Institutions, Fintechs, and the Gray Area.” 15 June 29 July 2024. 11 countries: U.S., United Kingdom, Germany, Spain, UAE, South Africa, India, Singapore, Australia, Mexico, Brazil. All studies, surveyes, research, and materials owned or commissioned by Visa shall not be used, reproduced, copied, or recirculated without the prior consent of Visa.

All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with Visa.

Case studies, comparisons, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Visa neither makes any warranty or representation as to the completeness or accuracy of the information within this document, nor assumes any liability or responsibility that may result from reliance on such information. The Information contained herein is not intended as investment or legal advice, and readers are encouraged to seek the advice of a competent professional where such advice is required.