Information and Analytics about Embedded Finance, BaaS and Open Banking
In the ever-evolving landscape of risk management, pivotal factors are reshaping the role of risk executives. Financial crimes compliance, a crucial element of risk management, demands vigilance and innovative strategies, as highlighted in Fintech Global News. Among these, four key factors — Revenue, Cost, Ethics, and Regulation — emerge as paramount forces propelling risk leaders into the future. In a recent blog post by Quantifind, a leading provider of AI-driven risk intelligence automation, these four pillars are explored, shedding light on what the future may hold for risk management. 1. Revenue: The first pillar, revenue, plays a central role in shaping compliance programs related to financial crimes. Aligning financial health with crime prevention forms a symbiotic relationship. Metrics like customer onboarding speed and identifying low-risk prospects are crucial in ensuring that compliance efforts seamlessly blend with revenue objectives. 2. Cost: The cost of compliance presents a continuous challenge but also offers opportunities for innovation. Balancing resources between personnel and technology is crucial. Integrating Precise Language Models into compliance strategies empowers distributed intelligence, providing insights into complex risk domains such as trafficking. This balance allows costs to drive innovation rather than hinder it. 3. Ethics: In today’s world, where ethical considerations are at an all-time high, conducting business ‘the right way’ is paramount across all sectors. The societal impact of financial crimes makes ethics a core component of risk management, even more so than in other areas. Collaboration with law enforcement and NGOs strengthens ethical standards that must be adhered to. Employing ethical AI upholds a high standard of conduct, protecting enterprises globally. 4. Regulation: Navigating the complex regulatory landscape is a constant challenge. However, regulations should be seen as guides for innovation rather than constraints. Embracing regulatory compliance as a driver of innovation ensures staying ahead of compliance challenges and fostering organizational growth. It’s a battleground where RegTech companies test their mettle against the competition. In the dynamic field of financial crimes compliance, success lies in recognizing the interconnectedness of these four pillars. Revenue, cost, ethics, and regulation must be leveraged as catalysts for innovation. Viewing compliance as a strategic asset propels programs into the future, reshaping the narrative of risk management. It’s time to move past the outdated connotations of red tape and constraint. Instead, compliance standards and legislation should be seen as the building blocks for the future. Creativity and innovation will spring from these regulations, and market incumbents must embrace this latest challenge to thrive in the ever-evolving world of risk management.
Embedded finance is poised to reshape the landscape of software platforms and marketplaces, promising a host of opportunities and innovations. However, despite its immense potential, several hurdles need to be cleared for widespread adoption within the Software-as-a-Service (SaaS) industry. Luke Latham, General Manager of Australia and New Zealand at Airwallex, and Tom Randklev, Global Head of Product at CellPoint Digital, shared valuable insights with PYMNTS about what businesses should comprehend regarding embedded finance solutions and why they are essential for merchants seeking success in financial services innovation. Small- to medium-sized businesses (SMBs) often grapple with numerous challenges when it comes to managing and adopting financial services. These challenges range from handling payments and disbursements to dealing with the complexities of multiple payout methods and currencies, along with a lack of automation. Latham emphasized that software platforms and marketplaces, due to their close relationships with customers, are ideally positioned to seamlessly integrate financial services and products into their user experience. Latham noted, «If you think about an eCommerce marketplace interested in providing credit or loans to their customers, they already have visibility of all the payment flows, which is essential to embedding a robust risk management framework to make that product viable and which positions them to play a leading role in the next phase of the evolution of embedded finance.» Embedded finance isn’t just about one-click payments; it’s about ensuring security, compliance, and navigating the intricate regulatory landscape. A strong foundation is critical for the success of embedded finance initiatives. One of the reasons embedded finance is so appealing is that it intersects with the increasing digitization of daily life and aligns with users’ behavioral expectations. Latham pointed out, «Any financial product or service that has traditionally involved a departure from the user experience, or an additional set of activities, is there for the taking.» Randklev added, «The end user believes [payments are] an expected part of their user experience, and that is the mindset that platforms are needing to respond to.» However, businesses considering embedded finance must make a crucial decision: whether to buy, build, or partner. Both Latham and Randklev advocate for a strategic approach, highlighting the complexities and costs involved in building financial services in-house and underscoring the importance of finding a reliable partner with expertise in compliance, governance, and financial services nuances. Latham emphasized that when choosing a FinTech partner, platforms should consider product offerings, geographic coverage, and revenue models. He cautioned against merely trying to catch up without aligning embedded finance with their core competencies and defining key performance indicators (KPIs) and success metrics. The consensus is that partnering often represents the most efficient and cost-effective approach to entering the embedded finance space when compared to buying or building. Randklev added, «To the extent that [partnering on embedded finance] becomes infinitely successful, then businesses have the ability to build themselves out of that partnership.» Looking ahead, by prioritizing compliance, forging strategic partnerships, and embracing future trends, software platforms and marketplaces can unlock the full potential of embedded finance, delivering users a seamless and enriched financial experience. Randklev expressed excitement about the possibilities of generative AI in the embedded finance space, while Latham anticipates the integration of advanced AI and data analytics to offer personalized financial products and services tailored to specific industries. Latham and Randklev foresee continued global expansion of embedded finance, with platforms leveraging these services to reach a broader audience while catering to industry-specific needs.
Cashfree Payments, the renowned Indian payments and API banking company, has introduced its groundbreaking ‘BBPS-Biller Solution,’ aimed at simplifying and streamlining bill payment collections for Indian businesses, according to The Fintech Times. The innovative Cashfree Payments BBPS-Biller solution serves as a unified integration platform tailored to businesses dealing with recurring payments, empowering them to efficiently gather bill payments on a large scale. Unveiled during the Bengaluru Tech Summit, the BBPS-Biller solution aligns seamlessly with the Reserve Bank of India’s vision of providing comprehensive, easily accessible, and interoperable bill payment services while ensuring transaction security across diverse regions. Cashfree Payments’ BBPS-Biller Solution leverages the BBPS network, effectively reducing collection expenses by up to fourfold. Businesses can benefit from real-time reporting and instant alerts, enabling them to achieve a 90 percent faster reconciliation process and twice the speed in bill collection. This is further facilitated by Cashfree Payments’ user-friendly onboarding process and robust technical support. Akash Sinha, the CEO and co-founder of Cashfree Payments, expressed his thoughts on this groundbreaking development: «The launch of BBPS-Biller Solution will unlock opportunities and bring simplicity and ease to the process of collecting bill payments for Indian businesses. This product will play a pivotal role in streamlining collections and settlements for businesses while fostering connections with millions of customers across India. At Cashfree Payments, we are committed to building innovative products and solutions that will not only empower businesses but also contribute towards strengthening the digital payments ecosystem in the country.» Cashfree Payments has cemented its position as one of India’s leading online payment aggregators, with a dominant market share in bulk disbursals through its ‘Payouts’ service, capturing over 50 percent of the market. Highlighting the company’s significance, the State Bank of India, India’s largest lender, has invested in Cashfree Payments, emphasizing its pivotal role in fortifying the nation’s payment ecosystem. Cashfree Payments collaborates closely with all major banks to establish the fundamental payments and banking infrastructure that fuels its suite of products. Notably, Cashfree Payments seamlessly integrates with major platforms such as Shopify, Wix, Paypal, Amazon Pay, Paytm, and Google Pay. Beyond India, Cashfree Payments’ solutions find utility in eight other countries, including the USA, Canada, and the UAE. Cashfree Payments continues to be a trailblazer in the Indian fintech industry, empowering businesses and advancing the digital payments landscape, both domestically and internationally. With the launch of the BBPS-Biller Solution, it is poised to revolutionize bill payment collections, bringing unparalleled ease and efficiency to Indian businesses.
In a recent survey conducted by Finastra, the global financial services sector’s determination to embrace cutting-edge technologies has come to the forefront, as outlined in Finextra News. The annual «State of the Nation Survey» shed light on the industry’s fervent investment in Artificial Intelligence (AI), embedded finance, and Banking-as-a-Service (BaaS). The comprehensive survey, which collected responses from 956 industry professionals spanning countries like France, Germany, Hong Kong, Singapore, Vietnam, Saudi Arabia, UAE, UK, and the US, painted a vivid picture of the sector’s enthusiasm for innovation. An overwhelming 87% of participants expressed their excitement about the rapid pace of change, while 83% eagerly anticipated the new opportunities these advancements would bring to their financial organizations. An equally impressive 81% shared their excitement about witnessing industry-wide transformations. One of the standout findings from the survey was the financial institutions’ keen interest in Generative AI. A staggering 83% of respondents indicated their industry’s eagerness to deploy AI technology, with 37% having already implemented or enhanced their AI capabilities in the past year. A significant 32% of respondents revealed plans to utilize AI to enrich customer experiences and offer more personalized services. Other prominent areas for AI implementation included ESG (Environmental, Social, Governance) analysis, automation, KYC (Know Your Customer), AML (Anti-Money Laundering), and risk management processes. Furthermore, the survey uncovered a rising fascination with Banking-as-a-Service (BaaS). Nearly half of the respondents reported either having used BaaS or enhancing their BaaS systems within the last 12 months, indicating a significant uptick compared to the previous year. Despite the challenges posed by the economic climate within the tech sector, the survey brought to light the industry’s optimism. A remarkable 69% of institutions believed that their investments would resume during the first half of 2024. Additionally, the majority of respondents acknowledged the transformative power of open finance, with 46% revealing that half of their users were leveraging open banking-enabled services. Simon Paris, the CEO of Finastra, shared his insights on the survey’s findings, stating, «Despite the challenging economic climate, it’s clear from our research that investment in AI, BaaS, and embedded finance remain key priorities for financial services organizations over the next 12 months, particularly as they seek to further enhance and personalize the customer experience. We share the industry’s ongoing commitment to ESG initiatives, to collaboration around open finance, and excitement in using advanced technologies like AI to help deliver on the opportunities ahead.» This Finastra survey underscores the financial industry’s unwavering commitment to leveraging technological innovation to redefine customer experiences and drive the sector’s evolution in the coming years.
As we approach the end of 2023, it’s a time of both reflection and anticipation in the fintech industry. The Fintech Times has taken the opportunity to look back at the developments and trends of the past year while also looking forward to what lies ahead in 2024. We’ve reached out to a community of fintech CEOs and industry leaders to gather their thoughts on the major trends of 2023 and their predictions for the coming year. One of the standout trends of 2023 has been the rise of generative artificial intelligence (AI). OpenAI’s introduction of ChatGPT in November 2022 marked a significant milestone in AI development. Since then, ChatGPT has become the world’s most popular chatbot, boasting over 180 million users. According to research conducted by the Gillmore Centre for Financial Technology, 93% of fintech professionals believe that generative AI will continue to revolutionize the fintech and financial services sector. This sentiment was echoed in a survey of 250 senior decision makers at UK financial institutions and banks, revealing that 91% foresee Gen AI playing a pivotal role in driving financial democratization, fostering accessibility and inclusivity. The adoption of GenAI tools has been widespread across various sectors, including customer operations, software development, sales, marketing, and research and development. McKinsey Global Institute estimates that these efforts could contribute significantly to the global economy, potentially adding $2.6 trillion to $4.4 trillion annually. Another significant development in 2023 was the implementation of the Financial Conduct Authority’s Consumer Duty in July. This marked a substantial shift in regulatory expectations, emphasizing a commitment to consumer protection. With Consumer Duty now in effect, banks are not only prioritizing customer trust-building but also preparing to report on critical areas. KPMG’s quarterly Global Analysis of FinTech Funding Reports has provided valuable insights into the fintech funding landscape. The first half of 2023 brought its share of challenges, including soaring inflation, rising interest rates, geopolitical unrest, sluggish valuations, and a lack of exits. Despite these hurdles, fintech funding in the Americas surged from $28.9 billion in H2 2022 to a robust $36 billion in H1 2023. Logistics and supply chain-focused fintech reached unprecedented funding levels, amassing $8.2 billion. Additionally, ESG-focused fintech secured $1.7 billion, surpassing the figures for the entire year of 2022. Looking ahead, challenges will continue to persist, but the fintech industry remains resilient. While overall fintech activity may remain subdued, sectors such as payments, insurtech, and wealthtech are poised for sustained and potentially accelerated funding. AI will continue to be in the spotlight as a driving force behind innovation in the financial services sector. 2023 has been a transformative year for fintech, with the widespread adoption of generative AI, the implementation of Consumer Duty, and notable funding trends. As we enter 2024, the industry faces both challenges and opportunities, with a strong focus on AI-driven advancements and a commitment to serving consumers’ needs.
Generative AI has taken center stage in discussions about its potential to reshape the financial industry. While many hail it as a superpowered technology stack capable of revolutionizing finance, a recent panel at the AI in Financial Services Forum in London offered a different perspective, as highlighted in Fintech Global News. The panel, titled ‘Revolutionising Financial Services,’ was chaired by Viktoria Ivan, a senior data scientist at Ebury, and featured notable figures like Andrew Allright from State Street EMEA, Tim Mason from Deutsche Bank, Dion Kraanen from M&G, and Ash Garner from Tomoro. During their 45-minute discussion, the panel explored how technology is reshaping financial services, with a particular focus on the transformative potential of generative AI. Generative AI has garnered immense attention over the past year, with businesses worldwide eager to integrate it into their operations. A Salesforce report revealed that 61% of workers are either using generative AI or have plans to implement it. One exciting use case that has gained traction is its ability to enhance customer-facing services. According to the same Salesforce report, 68% of respondents believe that generative AI can improve customer service. Ash Garner from Tomoro shared a compelling example from an Australian bank that used generative AI to personalize customer communications. Instead of sending standardized messages, the bank employed a large language model to tailor messages based on individual spending habits, personality, and location. The result? A remarkable 100-150% increase in customer engagement with educational content. Dion Kraanen from M&G also emphasized the importance of personalization with generative AI, especially in the context of investment apps. He highlighted the potential for generative AI to engage users in meaningful conversations about their preferences, such as sustainability and ESG factors, enabling deeper personalization beyond simple checkbox forms. Deutsche Bank’s Tim Mason discussed the various use cases his firm is exploring with generative AI, including improving chatbots for both retail and corporate clients. Understanding and interpreting the vast volume of emails and documents received by the bank each year has become more efficient thanks to language models, leading to happier customers. State Street’s Andrew Allright outlined two primary use cases for generative AI at his firm: chatbot models for client communication and interactive reports that provide users with an overview of operations. These applications enhance communication and decision-making for global companies. The panel also delved into the internal benefits of generative AI. When asked about use cases for reducing costs and improving processes, panelists provided valuable insights. Tim Mason stressed the importance of using language models to understand unstructured content, such as emails and documents, which can significantly streamline workflows. Ash Garner highlighted Tomoro.ai’s work in helping clients assess unstructured data, transforming it into coherent information and knowledge graphs. Dion Kraanen envisioned the next level of generative AI, where it can synthesize data sets, providing unique insights that users couldn’t gather themselves. However, he noted that this capability requires a combination of large language models and other machine learning algorithms working in harmony. The panelists agreed that generative AI excels as an orchestrator of other systems, rather than as a standalone solution. It can effectively coordinate predictive machine learning models, CRM solutions, and knowledge bases, enhancing organizational processes. Despite its potential, generative AI is not without challenges. Tim Mason expressed concerns about the technology’s misuse, particularly in customer chat, where it might produce inappropriate language or tones. Hallucinations, where the AI generates false or fabricated information, pose a significant risk to trust and brand reputation. Proper training and tone assessment are essential to mitigate these risks. The AI in Financial Services Forum provided valuable insights into the transformative role of generative AI in finance. While it holds immense promise for enhancing customer experiences and streamlining internal processes, organizations must navigate challenges to harness its full potential responsibly.
Buy Now Pay Later (BNPL) products have gained popularity among consumers in recent years primarily because of the speed and convenience they offer. Nevertheless, they are not without their own set of challenges, according to Fintech Nexus. BNPL, with its Pay in 3 or Pay in 4 options and no interest, has become a hit with consumers. However, it has raised concerns about untraceable debt, as many providers accept loan requests at the point of sale (POS) without credit checks. This has led to a demand for fair and responsible products from regulated financial institutions. And for this reason, many entrants preferred the path of less resistance—online—where there still may be a dose of integration, but it is more minimal. Integrating BNPL into physical stores is complex and time-consuming due to various third-party software and hardware providers at checkout. This process is not only tedious but also expensive. However, embedded lending, which has emerged as a prominent topic of discussion in the world of finance and retail, offers a potential solution to BNPL’s in-store checkout problems. Embedded lending technology has emerged as a promising solution. It allows banks and lenders to seamlessly embed their loan products within the buyer’s journey at the POS. This provides individuals and businesses with easy access to financial options tailored to their needs, including installment loans, lines of credit, split pay, and business-to-business (B2B) payment plans. The types of loans supported by embedded lending programs tend to cater to larger ticket items and are repayable over a longer period of time. As in-store purchases tend to be of higher value than online orders, these types of bank loans are a good fit for in-store transactions. Embedded lending supports larger transactions, making it suitable for in-store purchases. It isn’t limited to specific industries and can be deployed for essential products and services across various sectors, from healthcare to professional courses. Embedded lending technology, first and foremost, takes into account the ability to embed within existing systems, dedicating time and resources when building its infrastructure to pre-integrate with as many terminals and POS systems as possible. Embedded lending focuses on technological enablement, making it easier to integrate with existing systems. It offers flexibility and robustness by utilizing tools such as virtual cards, digital wallet web provisioning, and QR code payments. By giving customers a convenient financing experience across channels, an embedded lending platform can enable financial institutions to grow their loan revenues, reach new customers where they already are, and remain competitive in today’s ever-changing lending and payment landscape. While BNPL has become a popular payment method, it faces challenges in streamlining offerings across channels and tailoring payment options. Embedded lending technology addresses these issues by seamlessly integrating bank financing capabilities into merchant POS systems, both online and in-store. This flexibility empowers banks to provide customers with financing options aligned with their unique needs.
In 2023, the world of Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance is witnessing a new set of challenges and trends, according to a recent survey conducted by Fenergo, as outlined in Fintech Global News. The survey, which involved over 1,100 C-suite executives from global Financial Institutions (FIs), sheds light on the evolving landscape of anti-financial crime processes. Fenergo’s comprehensive report titled ‘KYC in 2023’ offers valuable insights by comparing the latest data with that of the previous year. This year’s banking industry finds itself navigating a complex environment characterized by persistent inflation, geopolitical tensions, stricter regulations, and increased competition from digital-first FinTech companies. FIs are confronted with the dual challenge of meeting growing KYC demands while grappling with limited resources and outdated technology. Nevertheless, the report also highlights positive developments in technology adoption and regional efficiency improvements, resulting in a reduction in regulatory enforcement actions. Historical data from Fenergo reveals a notable shift in how financial institutions approach regulatory compliance. The report points out a significant 22% reduction in enforcement actions for non-compliance in 2022, amounting to $4.2 billion, compared to the previous year. Globally, the KYC workload has somewhat decreased, with a 14% decline in staff numbers dedicated to KYC-related tasks. However, the cost of conducting a single KYC review has risen by 17% since 2022, averaging $2,598. The reliance on manual processes plays a role in driving these high costs. In addition to these challenges, FIs must prepare for upcoming regulatory changes, including those introduced by the Anti-Money Laundering Act (AMLA) of 2020, along with updates in beneficial ownership reporting and enhanced whistleblower protections. These reforms, particularly in the European Union, Canada, and Australia, introduce layers of complexity and increased costs in customer acquisition and maintenance. Fenergo’s report dives into the adaptations FIs are making in their KYC and AML operations to navigate these regulatory shifts. It explores various aspects such as the evolution of KYC practices in commercial and corporate banking, the rising costs associated with KYC, the key areas for technology investments in 2023, and the impacts of global financial and geopolitical challenges.
Use credit cards for online transactions and have icons about money management. The future of global virtual card spending, which reached a value of $3.1 trillion in 2023, hinges on the adoption of API-based virtual card issuing platforms, as revealed by research conducted by Juniper Research, a leading fintech and payments markets research firm, as reported by The Fintech Times. Virtual cards, characterized by randomly generated and typically temporary card numbers linked to a payment account, have emerged as a secure and efficient means of processing payments while safeguarding genuine payment details. These cards also offer an effective way to manage spending limits. The implementation of API-based virtual card issuing introduces a seamless and cost-effective approach to card issuance. This enhancement in efficiency paves the way for an array of possibilities within B2B and consumer payments, potentially leading to a staggering 355 percent increase in global virtual card spend over the next five years, reaching $13.8 trillion. Juniper Research’s latest market research suite stands as the most comprehensive assessment of the virtual card market to date, featuring analysis and forecasts encompassing over 39,000 data points across 60 markets over a five-year horizon. It includes a ‘Competitor Leaderboard’ and delves into future market prospects. Daniel Bedford, a research analyst at Juniper Research, commented on the report’s findings, emphasizing, «Virtual cards offer an adaptable solution that can be heavily customized, including spending limits and restrictions. They enable businesses to significantly improve their spend management while reducing costs.» The Competitor Leaderboard report from Juniper Research highlights Stripe, Revolut, and Marqeta as the established leaders in the virtual cards sector. Moreover, the report underscores the significance of intuitive API-based platforms with user-friendly functionality for secure card deployment and spending restriction management as pivotal factors for success. In an intensely competitive consumer virtual card market, Juniper Research recommends that vendors consider offering loyalty- and rewards-linked cards to set themselves apart. Additionally, exclusive incentives such as offers on partner products, rewards points, and cashback on specific merchants can effectively boost virtual card spending and customer retention. To achieve this, virtual card platforms may need to establish robust partnership ecosystems by collaborating directly with merchants or pre-existing loyalty service providers.
PayTabs Group, a leading payment orchestration company in the Middle East and North Africa (MENA) region, has recently introduced its latest innovation, the PayTabs Issuance platform, as highlighted by The Fintech Times. This new offering is designed to streamline the prepaid card issuance process and marks a strategic move to bolster the company’s presence in the global cards market. According to the company’s announcement, PayTabs Issuance is a comprehensive solution aimed at facilitating the acquisition, issuance, management, and control of payments. It enables financial institutions, retailers, and corporations to issue co-branded Visa, MasterCard, debit cards, and local cards in various currencies, offering a versatile solution for businesses in the region. The global cards market, valued at $524.9 billion in 2022, is projected to reach a staggering $1.2 trillion by 2032. PayTabs is positioning itself to tap into this lucrative market by simplifying the complexities and costs associated with prepaid card issuance. The goal of PayTabs’ orchestration platform is to empower businesses of all sizes, in any market, to become self-reliant in terms of payment processing technology. Powered by banking as a service (BaaS), PayTabs Issuance leverages a wealth of global expertise and data-driven insights to streamline the card issuance process, from conception to optimization. This approach allows brand owners to focus on enhancing customer experiences and expanding their operations. Abdulaziz Al Jouf, CEO and founder of PayTabs Group, highlighted the company’s mission, stating, «Using smart tech orchestration, we’re making it possible for thousands of businesses to execute transactions, access data, and scale their operations. Being able to offer a card program gives PayTabs a unique positioning by offering the best of both acquiring and issuance as a bundled solution.» Vikas Om Choudhary, head of issuance at PayTabs, also emphasized the growth potential of this venture into the issuance business, saying, «For businesses in the PayTabs network, this signifies not just cost efficiencies, but the creation of multiple growth opportunities through our issuance orchestration platform, shaping a future of unparalleled fintech offerings.» PayTabs Issuance aims to cater to various segments of the prepaid card market in the MENA region, providing tailored solutions for different card types, end-users, and markets. With its commitment to simplifying payment processing and fostering innovation, PayTabs is poised to make a significant impact on the evolving landscape of financial technology.