Kay Swinburne, Vice Chair of Financial Services at KPMG sat down with FinTech Magazine at Innovate Finance Global Summit (IFGS) 2023 to discuss the future of embedded finance and what to expect from any future regulations.
A growing market
As embedded finance continues to grow, KPMG estimates the market could reach $230bn by 2025. Should it reach such a scale, there are doubts that technical infrastructures would be able to keep up with the demand for these services.
Despite doubts, this shouldn’t be a problem as far as Swinburne is concerned. “It’s a big number. But the reality is that every country will actually have its own payment system and central architecture that the payment system and fintechs will also play into. Given the locality, I don’t think infrastructure will get overwhelmed.
“In the UK, upgrade plans are underway at both the Bank of England and the National Payments Architecture with Pay UK. These two new upgrades should give massive capacity for new payments dynamics and for all embedded digital finance to proceed. I'm therefore hopeful that the infrastructure will keep up well with the potential future demand.”
Regulators to open the floor?
As in any growing market, the threat of tighter regulations is always a possibility. For embedded finances, however, Swinburne feels that regulators will be “putting themselves in a position where the onus is on the firms going forward.”
She continues: “In the UK, regulators are looking at whether the right product is going to the right customer, and the related safeguards. It’s about making sure the customers, whether they be individuals or businesses, are correctly informed.
“This approach to regulations is a huge step forward. UK high street banks would say they have always taken that stance, but they've had to demonstrate that a product is fit for the customer they're selling it to. The reality now is all of the tech providers are also going to have to start thinking about this when they embed a financial product into a system. They're not so easy to unpick for the end user, so the onus is on fintech firms to ensure the right product goes to the right customer.
“Putting the customer at the heart of the development programme as a FinTech is really important. If you have that vision from the very outset, you're less likely to go wrong further down the path, and the regulators are less likely to be concerned with what you are doing because you've already put in place those safeguards.”
The scope of embedded finances
Despite many of the industries’ embedded finance firms hailing from San Francisco’s Silicon Valley and a growing number of UK fintechs taking sizeable market shares, Swinburne feels that “Asian markets are going to see massive growth”.
“There are already huge global payments firms coming out of China. Asia is a very big market for this new payments mechanism. And for me, Asia has most of the earlier adopters, much more than some of the UK’s European neighbours. I think the UK is somewhere in the middle in terms of adoption.”
For Swinburne, it’s important that embedded finances serve the needs of local markets. “Cash is still going to be around - in certain European countries, cash is still very dominant. In the EU you’ll find there are countries at the opposite ends of the spectrum.
“You have Estonia, which is known for doing everything digitally. Then there’s Sweden and Finland which are also very advanced in their technologies and adoption. But on the other hand, you have countries like Belgium where, for a long time, you'd have to take cash with you everywhere because a lot of institutions didn't accept anything other than cash.”
KPMG supports embedded financial services
KPMG’s role in supporting embedded financial services is “broad ranging”, according to Swinburne, given its history of working with large legacy banks and big market infrastructures.
“We're doing a huge amount of work with our fintech and payments team which work with both smaller fintechs firms and large banks. We’re making sure that we now have them married together, that they're actually walking in step, and that we're able to support both ends of the spectrum.
“We’re helping banks who may need a fintech partner by assisting them in establishing partnership agreements and implementing their related technology. We also work directly with fintech firms by assisting them on their growth journey, including seeking regulatory approval and helping them scale their operations.”