Digital Transformation of Ledgers Powers FinTechs and Money Mobility

The ledger is a cornerstone of finance and money movement, a system of tracking fund flows that dates back over centuries.

All manner of information has been lodged within those lined paper books and the 20th century moves to spreadsheets, ranging from debits and credits to the income statement and the balance sheet.

Instant Insights

In the digital age, however, the movement to faster payments demands instant reconciliation, and by extension an embrace of the cloud, artificial intelligence and other advanced technologies. The transformation of ledgers is changing FinTechs and how money moves across ecosystems. Financial reporting, including cash flow and other metrics that allow enterprises and financial institutions to track what’s owed and what’s owing, as well as where the money is, relies on data and a visible trail of that data.

Blockchain has helped change ledger-based activities, decentralizing record keeping and ensuring that records themselves are immutable, with automation on both sides of the transaction. For FinTechs that are enabling new efficiencies in money movement across verticals — and borders — ledgers track costs, pay-ins and payouts across all stakeholders. The data is granular, including transaction dates, the funding and recipient accounts, and the category of the payment itself.

Within the New Payment Rails

The January PYMNTS Intelligence report “The Modern Money Mobility Ecosystem” noted that ledgers are part of the composition of the rails underpinning modern money movement. Ledgers are essential for clearing and settlement in real time, which helps banks meet the demands of instant payments and newer payment mechanisms such as digital wallets.

By serving up those new payment rails, FinTechs help banks bypass the constraints of their legacy systems. Those systems were built decades ago, and for FinTechs partnering with those banks, time to market with new products and services (as they extend banking offerings to their end users) can be hampered by those legacy systems.

In terms of the ledgering activity itself, enabling the creation and maintenance of for benefit of (FBO) accounts (with fuller transparency) has become a key concern for bank-FinTech partnerships as nonbanks manage funds on behalf of their end users.

The Synapse debacle offers a warning of the dangers of incomplete tracking of money movement, where transactions can number in the thousands or millions daily.

“My sense is they tried oversimplification and potentially took millions of consumers’ money accounts and put them into a single commingled omnibus account without proper real-time or even daily reconciliation of very complicated money in and money outflows,” Ingo Payments CEO Drew Edwards told PYMNTS in November.

For FinTechs, outsourcing ledger functions helps sidestep the pain points of tracking money mobility.

Ingo, for its part, offers its partners a cloud-based, “bank-grade” modern ledger that updates balances and account information in real time.

Separately, firms such as Synctera offer ledger as a service capabilities for FinTechs, wherein those FinTechs’ financial transaction data resides within a ledger that runs parallel to the sponsor bank’s general ledger and is reconciled between the two.

Meanwhile, Travel Ledger announced in January that it enabled travel businesses in the United Kingdom and Europe to use Revolut’s services to automatically settle B2B payments with partners directly through the Travel Ledger platform.