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After summing up the crazy 2021, it's time to make plans and set directions for the new year. Despite intense turbulence, global trends in the financial sector remain the same: increasing inclusion, improving customer experience and developing the digital economy. Consumer demands determine the vector of changes in the industry.
If we talk about the comfort of the client, then it is logical that the attention of investors is directed to the convenience of payments. Making an online purchase quickly and effortlessly is ultimately more important to the user than the design and functionality of banking applications. This led to the emergence of the fintechs Stripe, Affirm and GoCardless, which specialize in embedded finance.
More recently, the client did not need much from the bank: to keep his hard earned money, as well as to be able to withdraw and spend it. Then fintech appeared and it turned out that you can solve your financial issues quickly, remotely and in a few clicks. As the ecosystem of these indispensable applications has evolved, tech companies have reimagined the once-complicated processes of opening a bank account, transferring money to friends and family, applying for a loan, or managing investments.
However, the next stage will be the exit of financial transactions beyond special applications, what is called embedded finance - when a non-financial company creates financial services for clients, embedding them in their products. The idea of “invisible finance” is not new, but thanks to advances in technology, the financial services pie is becoming attractive to the non-financial sector. With access to massive amounts of user data, e-commerce giants can create unique financial products that can easily sell to their own loyal audience.
One of the most talked about embedded finance projects was the Apple Card in 2019. With the help of Mastercard and Goldman Sachs, the company has created its own financial instrument built into the Apple ecosystem. You can remember Facebook Pay and VK pay, with the help of which users can purchase goods and services of the network's communities and partner companies, or make donations to charity.
eCommerce platforms today also offer built-in financial products to users, among which installment purchases are popular. Among the first to implement their own financial services, Shopify and Amazon eCommerce platforms. The convergence of financial services with other products is taking place in various areas. For example, Google maps allows users in the United States to find and buy parking spots through an app interface.
The provision of their own digital infrastructure for lease to online trading platforms has opened up new opportunities for banks (banking as a service - BaaS). Basically, a BaaS user leases the "capacity" of a financial institution at the required scale. As a result, the “tenant's” clients can perform standard banking operations (checking balances, payments, viewing transaction history) without interacting directly with the bank.
Nevertheless, players in the financial services market rightly fear such competition. The giants Apple, Amazon, Facebook, Google own a large amount of user data and a huge customer base. No fintech can compete with them in this. Moreover, the rivalry between companies will no longer be conducted at the level of a specific brand, but at the level of ecosystems from partner companies. However, this process is already irreversible. Payments, wallets and similar banking services will become part of Internet companies that will take market share from financial institutions.
The development of embedded finance makes the market more democratic. The client gets access to the service at the moment when he needs it and it is much more convenient than going to the website of the financial institution. Digital payments, loans, insurance can be offered depending on the need, which increases conversions for companies. Financial product providers, in turn, gain access to new audiences. In addition, the cost of the product itself is reduced. All this will allow us to rethink the essence and principles of providing financial services. But realizing these new capabilities will require a change in operating models. Financial institutions need to understand how they fit into other ecosystems, platforms, and the changing daily lives of customers.
If we talk about the comfort of the client, then it is logical that the attention of investors is directed to the convenience of payments. Making an online purchase quickly and effortlessly is ultimately more important to the user than the design and functionality of banking applications. This led to the emergence of the fintechs Stripe, Affirm and GoCardless, which specialize in embedded finance.
More recently, the client did not need much from the bank: to keep his hard earned money, as well as to be able to withdraw and spend it. Then fintech appeared and it turned out that you can solve your financial issues quickly, remotely and in a few clicks. As the ecosystem of these indispensable applications has evolved, tech companies have reimagined the once-complicated processes of opening a bank account, transferring money to friends and family, applying for a loan, or managing investments.
However, the next stage will be the exit of financial transactions beyond special applications, what is called embedded finance - when a non-financial company creates financial services for clients, embedding them in their products. The idea of “invisible finance” is not new, but thanks to advances in technology, the financial services pie is becoming attractive to the non-financial sector. With access to massive amounts of user data, e-commerce giants can create unique financial products that can easily sell to their own loyal audience.
One of the most talked about embedded finance projects was the Apple Card in 2019. With the help of Mastercard and Goldman Sachs, the company has created its own financial instrument built into the Apple ecosystem. You can remember Facebook Pay and VK pay, with the help of which users can purchase goods and services of the network's communities and partner companies, or make donations to charity.
eCommerce platforms today also offer built-in financial products to users, among which installment purchases are popular. Among the first to implement their own financial services, Shopify and Amazon eCommerce platforms. The convergence of financial services with other products is taking place in various areas. For example, Google maps allows users in the United States to find and buy parking spots through an app interface.
The provision of their own digital infrastructure for lease to online trading platforms has opened up new opportunities for banks (banking as a service - BaaS). Basically, a BaaS user leases the "capacity" of a financial institution at the required scale. As a result, the “tenant's” clients can perform standard banking operations (checking balances, payments, viewing transaction history) without interacting directly with the bank.
Nevertheless, players in the financial services market rightly fear such competition. The giants Apple, Amazon, Facebook, Google own a large amount of user data and a huge customer base. No fintech can compete with them in this. Moreover, the rivalry between companies will no longer be conducted at the level of a specific brand, but at the level of ecosystems from partner companies. However, this process is already irreversible. Payments, wallets and similar banking services will become part of Internet companies that will take market share from financial institutions.
The development of embedded finance makes the market more democratic. The client gets access to the service at the moment when he needs it and it is much more convenient than going to the website of the financial institution. Digital payments, loans, insurance can be offered depending on the need, which increases conversions for companies. Financial product providers, in turn, gain access to new audiences. In addition, the cost of the product itself is reduced. All this will allow us to rethink the essence and principles of providing financial services. But realizing these new capabilities will require a change in operating models. Financial institutions need to understand how they fit into other ecosystems, platforms, and the changing daily lives of customers.
