Fintech: redrawing the boundaries in embedded financial services

Leigh Martin, Director of EWG, explores the effect of technology and increasingly demanding clients on financial services, and how fintech firms are competing effectively with traditional players

Digital transformation has impacted all of our lives over the past few decades. There are very few industry sectors untouched by technological innovation, development and disruption. 

Entertainment, music, travel, manufacturing and education are just some that are affected by shifts in technology. Banking, however, has remained relatively unchanged. That is, until recently.

The rapid development of embedded financial services, along with increasingly knowledgeable clients who are now expecting more efficient and personalised services, means the customer experience is evolving very quickly. 

By the end of 2020, up to 1.9 billion individuals worldwide actively used online banking – and that number is projected to reach 2.5 billion by 2024.

In short, people globally want to manage their finances digitally and enjoy the experience anywhere and at any time. This ‘democratisation’ of data creates greater transparency, improves client experience and puts data in the hands of the client. 

The present and future of this is in fintech, an online alternative to high-street banking that is beginning to define the direction, shape and pace of change across almost every financial services subsector. 

At one time viewed as nascent and disruptive technology, fintech is now most definitely becoming mainstream. Existing banks, wealth managers and insurers are able to team up with non-financial businesses and create opportunities to find more clients.

It is time for finance to be client and digital first. Fintech is playing a pivotal role in this, offering numerous benefits by helping businesses work smarter and quicker, to reduce errors and operate more efficiently by optimising resources and processes. 

This new financial ecosystem is opening doors to a whole range of financial products, as well as providing consumers and end-clients with personalised services at a reduced cost.

Evolving client expectations are driving innovation towards prioritising speed, decentralised models and frictionless transactions. 

Unexpected lockdowns over the past two years forced the global economy to operate differently, so the need for a digital, accessible world became more urgent. 

New level playing field

The disruption of the status quo means fintech businesses are able to compete effectively with traditional players as a result of the levelling of the playing field through this digital transformation.

Banking as a service is where licensed banks integrate their digital banking services directly into the products of other non-bank businesses, also known as ‘embedded finance’. 

So, a non-bank business can offer digital banking services such as mobile bank accounts, loans, debit cards and payment services, without needing to obtain a banking licence of its own.

Embedded finance demand is quickly pushing financial and non-financial players together in order to serve their digitally discerning clients more effectively with seamless solutions. 

In the next few years, clients and consumers will expect companies to make the journey even easier and even less demanding. The question will be why a business has not made embedded financial services available, rather than if they have. 

There is already a recognised and growing dependence on technology and tailored solutions for businesses to gain an edge over the competition.

APIs (application programming interfaces) are another feature of this technological boom. These are particularly valuable for guaranteeing speed and safety in the exchange of information, while also offering the agility needed to provide greater transparency. 

APIs provide a fast, low-friction and cost-effective way in which to securely share financial data, and are an important factor for companies using embedded finance to be able to meet client needs.

If it is implemented correctly, embedded finance will open the door for forward-thinking institutions to create new routes to market and more efficient business models based on technology, value and customer service. 

It can also help drive a thriving financial service platform-centric ecosystem, where more of us are able to access meaningful financial products and services that will befit our modern lifestyles.

The era of embedded finance is here. And with an estimated market value of £2.7bn by 2030, it is clear that this is indeed the future. 

• This advertising feature was first published in the City Edition of Businesslife magazine in July 2022