On the 8th of December, we held our third Money 2030 event. This time we invited speakers from across the technology and financial services sector to discuss the future of embedded finance.
The theme for our most recent event was “Embedded finance – a bubble or a paradigm shift?”
Co-chaired by our Paynetics UK CEO Mike Peplow and Co-founder Ivo Gueorguiev, our expert panel of speakers included:
- Andrea Notaro – Managing Director, Rothschild & Co
- Alex Mifsud – Co-founder and CEO, Weavr
- Alison Donnelly – Director, Fscom
- Tony Craddock – Director General, The Payments Association
Over the next few weeks, we’ll be sharing two additional blog posts discussing the key insights we gained from the speakers, highlighting the range of topics covered during the event.
For this week we’ll look at the first two questions directed at our speakers, “What are the key market factors driving the growth of Embedded Finance?” and “Which sectors have embraced embedded finance the most, and what can be done to get other sectors to adopt it?”
Tony Craddock started the discussion by addressing the market factors propelling the rise in embedded finance. He noted that although the sector was fast-changing, the underlying driving factors had stayed the same. The three key market factors he felt were driving the growth of embedded finance were changing consumer needs, technology, and regulation.
Tony recognised that now more than ever, consumers crave convenience, and want instant access to information and optimised friction. On the technology side, increased adoption of digital mobile payments, cloud based systems, digital identities, and the open finance ecosystem – backed up by API enabled technology – have all helped make the proliferation of embedded finance possible.
Alex Mifsud, Co-founder and CEO, at Weavr, built on Tony’s point, providing a timeline of how embedded finance has developed over the years. Starting with the introduction of card finance by the Ford Motor company in 1919, which allowed consumers to have greater choice over the cars they could afford to buy thanks to financing. He noted that it enabled dealers to sell more cars and lenders were able to acquire customers for their loans much more efficiently.
Alex went on to provide a more contemporary example, citing B2B Software as a Service (SaaS) businesses that provide restaurants with a digital platform for organising menus, managing staff roster, and tracking stock. He explained that the SaaS companies that integrate banking into their offering, will be equipped to provide extra benefits to the restaurants they service. Allowing restaurateurs to use the platform to pay staff, manage tips, and pay suppliers. The same value story seen with Ford in 1919 applies here. Restaurants benefit from the efficiency of not having to manually input lots of data to convince bank managers to give them a loan, as they now have their money management system integrated into the SaaS platform.
Moreover, the SaaS business will acquire more restaurants as a result of the greater value they are giving to customers. And the financial service provider also makes money from the arrangement. So it becomes a win-win-win equation for everyone involved.
Andrea Notaro, Managing Director at Rothschild & Co also commented on the change in consumer expectations. Andrea said that consumers no longer see a bank or insurance company as the only option for financial services. Consumers now want financial services to be provided by the brands they already know and trust. He continued to discuss regulation. Stating that regulation would be a key challenge for the future that could change the dynamic but also help the growth of the embedded finance market.
Alison Donnelly commented on the extent to which regulation can be a force for market growth. Discussing the Payment Service Directive in Europe, Alison said it has done what it was set up to do. It opened up the market to competition by bringing new firms into the payments sector. She also highlighted how it has made consumers better trust that the payment services they receive would meet the security and privacy standards they expect.
Having said that, Alison did acknowledge that some of the rules will restrict and constraint what firms can do. Meaning that some newer innovative companies might struggle to meet the higher, and more costly regulatory standards that are being set.
Mike, CEO of Paynetics UK, then led the panelists on to the second question, “Which sectors have embraced embedded finance the most, and what can be done to get other sectors to adopt it?”
Alex started this discussion by saying that a sector’s readiness for embedded finance is dependent on how quickly the sector is digitising. There are four sectors ripe for embedded finance – the future of work and the gig economy, health, education, and property.
Alex went on to say that the pandemic drove the digital transformation in the way people work. Companies have now adopted a hybrid working model whereby employees are able to work from home and join meetings virtually. Similarly, the education sector was accelerated digitally by lockdown and the need to teach online. Education providers had to adapt to provide the same level of service without face to face lessons. Online health care also rose in popularity with online therapy and online consultations becoming more of the norm. When it comes to property, he noted that the way we manage property portfolios, tenancy agreements, and household bills have all been impacted by digital innovation. All these sectors are being streamlined using online services.
Andrea agreed with Alex, that adding embedded finance presents a huge opportunity, especially as consumers stop seeing banks as the sole provider of financial services.
Ivo added an additional question for the panelists: “How can embedded finance help with inclusion into the financial sector?”
Alex Mifsud commented that one of the biggest barriers is not being educated about what financial services can do for you. Many people are excluded from the benefits of saving and investing. Embedded finance can help with this by creating awareness for the consumer and putting things into context so they understand these benefits.
Alex used phone insurance as an example of this. Mobile phone insurance wasn’t thought of until people started buying it as a bundle with their mobile phone. Now it’s a common thing to have as part of your mobile phone plan and provides peace of mind to the consumer.
Alison Donnelly, concluded that one of the objectives behind the regulation was to improve social inclusion by encouraging new market entrants to offer more targeted products to consumers who have not traditionally had access to relevant financial services.
Our next post will dive into the last couple of questions: “How significant is the customer demand for non-traditional banking businesses to offer financial services?” and “What are some of the regulatory and data sharing concerns that could slow down the adoption of embedded finance?”