There has been significant progress made in the development of embedded finance and has proliferated across many markets and industries since the passing of PSD2 in 2018. But is it yet to become ubiquitous?
Set the stage for us: How much potential have we tapped into for the development and application of embedded finance?
Embedded finance has made more progress than many may think. The space has seen notable innovations in sectors such as e-commerce, in which businesses have started integrating payment services, lending, and insurance offerings directly into their platforms.
Collaborations between fintech companies and traditional financial institutions have led to the creation of embedded financial services in various contexts, from digital wallets to investment platforms.
In industries like airlines, consumers have been reaping the benefits of this model for years. Banks and financial institutions have been handling the backend experience, while the branding belongs to the established entities.
What we’ll see in the future, as the intricacies of fraud, compliance, and/or the technological underpinnings of financial services are further developed, are more frequent collaborations that will seamlessly integrate through the bank.
Despite heightened regulatory oversight, the focus will be on streamlining and effectively managing the customer journey. It's important to note that embedded finance isn't driven by direct consumer demand; rather, it's about delivering a more straightforward and user-friendly experience.
It’s about building a future where everything in finance just works – no exceptions.
What might ubiquity look like in the context of embedded finance?
For financial services to be available and accessible to everyone, they will be seamlessly integrated into various aspects of people's lives, enhancing convenience and overall financial well-being.
To achieve this, we need an infrastructure free from geographic constraints, with an inclusive and transparent foundation. My personal experience has shown me how daunting it can be to secure essential financial services.
These obstacles could be as straightforward as lacking a current US mailing address or a Social Security number. To ensure equitable access to these services across the globe, it becomes imperative to establish a unified store of value that transcends borders.
This system would include integrated local payment methods and universal identity verification.
What are the outstanding critical areas of innovation required to make embedded finance accessible to everyone?
There are four critical domains that we need to crack:
- Enablement layer: Essentially, we're speaking about the foundational Banking-as-a-service (BaaS) layer - APIs giving direct access to DDAs, cards, loans, and more. This is already a reality; thanks to platforms like Synapse, Lithic, and Marqeta, any developer who knows their stuff can roll out financial products without the need to become a bank.
- Machine learning (what I deem as “Intelligence”): Having access to financial instruments is one thing, but it’s vital to add intelligence to this mix. In an era of data, we have the capacity to build intelligent systems that automate fraud detection and compliance and deliver tailored financial advice.
- Convenience: We're on the edge of a user experience revolution. Picture a world where no-code widgets and data lakes are the norm, and manipulating financial data becomes as straightforward as texting a friend. This will foster unprecedented convenience that crushes the traditional barriers of technical expertise.
- Ubiquity: The future of finance must be without borders. Financial services should be universally accessible, and that’s why we need infrastructure that caters to all, irrespective of geographical boundaries. This involves seamless integration of local payment methods and requires more R&D in universal identity verification.
Can you define the “enablement layer” in more detail? Why is it crucial in the development of embedded finance?
The enablement layer is the bedrock of embedded finance: it is the technological bridge that allows businesses to tap into embedded finance’s potential.
It simplifies the process of integrating financial services into non-financial platforms, making it easier for users to access and utilise financial functionalities seamlessly.
This layer includes foundational elements such as APIs that allow developers to roll out financial products without needing to navigate the complexities of becoming a bank.
This layer can facilitate the secure exchange of data between the non-financial platform and the embedded financial services, ensuring that user information is accurately and safely transmitted through identity verification, encryption, and fraud prevention mechanisms.
It allows businesses to customise the financial services they offer, integrating them seamlessly into their existing platforms.
Can you elaborate on the role of machine learning and intelligence in embedded finance?
Intelligence allows the opportunity to offer smarter, more personalised, and efficient financial services that improve user experiences, mitigate risks, and provide valuable data-driven insights.
The potential for applying this intelligence to guide real-time financial decisions is enormous and largely untapped.
For instance, intelligent systems can automate fraud detection and compliance, while also delivering personalised financial advice. Intelligent algorithms can analyse data to assess credit risk and detect fraudulent activities in real time.
By embedding these algorithms into payment or lending processes, platforms can offer safer transactions and loans while minimising the risk of default.
This technology can also analyse user behaviours, spending patterns, and preferences to offer specific product recommendations and identify potential financial vulnerabilities.
This helps platforms provide users with tailored offerings - increasing engagement – and helping to prevent fraudulent transactions.
How does convenience factor into the future of embedded finance?
Convenience entails the utilisation of low-code or no-code development approaches. It’s a world in which using no-code widgets and data lakes becomes the standard, rendering the manipulation of financial data as effortless as importing a function.
For brands, this translates to the elimination of extensive tasks. It’s about benefiting from an unparalleled level of convenience that demolishes the traditional barriers of technical expertise. I think this concept is a revolution waiting to happen in embedded finance.
How would a wide-scale transition to embedded finance affect brands?
A wide-scale shift to embedded finance means any developer, from startups to established brands, can easily integrate financial services into their platforms without issue. This goes beyond granting accessibility and levels the playing field for players of all sizes.
This will lead to an increase in brand engagement, adding value for customers where these businesses would otherwise have to send or refer them somewhere else. The financial experience will now become native to their environment.
What is your ultimate vision for the future of embedded finance?
Our company’s mission is to ensure that everyone around the world has access to best-in-class financial products, regardless of their net worth.
Embedded finance has the potential to tear down barriers, democratise opportunities, and return financial power to where it belongs - the people.
The promise of truly universal embedded finance isn't some distant dream, it's a reality we're aggressively driving towards.
Can you share a bit about Synapse's future initiatives towards advancing embedded finance?
Synapse is at the forefront of the enablement revolution in embedded finance. We're pioneering APIs that increase direct access to financial services.
These APIs empower developers, regardless of their background, to embed financial services tools directly into their applications. We're also deeply invested in crafting a simplified user experience with our no-code solutions.
As part of our commitment to creating a borderless financial future, we've developed Global Cash, which enables brands to serve customers across the globe.
We're also working on advanced intelligent systems that will not only enhance fraud detection and compliance but also help guide real-time financial decisions.
We envision a future where anyone, anywhere can access and benefit from financial services, and we're actively working to make that future a reality.
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