Embedded finance will be fintech's second wave

Todd Latham, Chief Growth Officer at Currencycloud, argues why fintech will be embedded in tomorrow’s next-generation companies

Fintech businesses have built their reputations on making many aspects of finance cheaper, more accessible and effortless for the end-user. The industry and its progress to date has been predominantly about using digital services and apps to do traditional banking, wealth management and savings better. While these financial services have been much improved, they still existed in isolation, unintegrated into other services and sectors. There is a major change waiting to happen across the fintech universe, and the businesses that can work out how to embed their offers into other services and sectors will be tomorrow’s winners. 

Embedded finance will be the next stage in the evolution of fintech. Payments, wallets and banking-like services will become an integral part of internet-led companies spanning all aspects of the global economy – from health to retail, transport, media, property, and energy. By positioning products and solutions closer to the customer in this way, fintech businesses will be privy to an intimate level of insight that can be used to deliver a more personalised and seamless experience for business and consumer customers alike.

The benefits go both ways though, and Big Tech has already realised the power of being a key link in the transfer value chain, with Apple, Google and Uber all launching money services in 2019. This trend will undoubtedly ramp up in the next decade, with fintech becoming embedded in the technology stack of the most valuable next-generation companies.

Asia a lens to the future

The force of circumstance means that many countries in Asia are years ahead of Western fintechs in their development of embedded finance. With many businesses lacking card payment systems, and with large numbers of people remaining un-banked until relatively recently, internet companies in Asia circumvented the banking system entirely, jumping straight from cash to launching their own digital finance solutions.

WeChat, for example, enables customers to order a taxi through instant message, rather than opening a separate banking app. Additionally, to buy something in-store, you simply have to scan a QR code – saving businesses the hassle and cost of buying a card machine. By including a fintech component, apps like WeChat, as well as Alipay and Grab, have become common threads that run through and are relied on for virtually all aspects of people’s lives.

In Europe and the US, card payments and reliance on banks are still the norm, but incumbency cannot be a reason for complacency. Tech companies in the US and other parts of the world are taking lessons for Asia, and customer demand for greater personalisation and less friction will drive the shift to a more embedded model.  

How to win in the embedded future

While the Big Tech companies are currently leading the charge in the development of the embedded space, we need more entrants for the health of the market and so competition ensures that this new paradigm lives up to its promise of delivering better customer experience.

While some end-user tech companies may choose to build out their own money services, others will be deterred by the burden of regulation, infrastructure and operations that exist in finance. Partnerships, therefore, are imperative for banks and fintechs with ambitions of winning in this new embedded world.

Through APIs, financial services can be added on like Lego throughout the customer journey. Banks need to use this to their advantage, looking to see where they can add the most value across the customer journey, adding modulated services, such as currency exchange, lending and escrow.

This requires a shift in attitude, no longer viewing themselves as monolithic structures that must always own the client relationship, but providers of a more open form of financial services. They also have to realise their customers have a life outside their finances, and they may be able to best serve their needs by putting services such as payments in the background.

We should always welcome new phases in a market, as it brings new ideas, new companies and new use-cases. Banks and fintechs should not fear the entrance of Big Tech into financial services but look for ways that they can collaborate and embedded themselves in other sectors and ecosystems. The direction of travel is clear and fintechs and banks cannot afford to be left behind.

About  Todd Latham

With extensive experience in marketing leadership roles across the technology and financial services industry, Todd loves to make the most of new innovations to provide a first-class customer experience. Before joining Currencycloud, he delivered international marketing, product and customer satisfaction strategies for some of the world’s best-known brands, including American Express and Microsoft. These skills, together with Todd’s interest in how technology is changing the way we interact with money, ensure Currencycloud’s clients get the best possible experience with the next generation of business payment innovations.

About Currencycloud

Currencycloud is an API-based global payments platform built on smart technology that takes the complexity out of moving money. Launched in 2012, Currencycloud is based in London and has processed more than USD 50 billion to over 180 countries. Currencycloud works with banks and fintechs globally including Starling Bank, Standard Bank South Africa and Brookline Bank, as well as partnering with Visa to deliver innovation in travel payments.