Time for Embedded Finance: The Convergence of Technology and Trust

The concept of «Every business will become a bank» is no longer just a prediction but a reality, particularly exemplified by Apple’s foray into the financial space, as stated in the article written by Isabelle Castro Margaroli at Fintech Nexus News. The combination of embedded finance and open banking is paving the way for this transformation. As banks’ proprietary advantage diminishes due to open data sharing, and digital solutions become more accessible, brands can now offer their own financial products more easily and affordably.

Brian Hanrahan, the CEO of Nuapay, describes the current market as a unique blend of embedded finance, instant payment rails, and open banking. This convergence of previously separate elements is creating unprecedented opportunities for scaling providers and maximizing revenue and gains for businesses with consumer touchpoints.

Meanwhile, trust in traditional financial institutions has experienced a significant decline. Recent surveys by Edelman reveal that trust in financial services, which had already been fragile since the 2008 crisis, reached an all-time low, particularly in the United States and Europe. Interestingly, digital payments were the only subsector that resisted this trend. Younger generations, such as Gen Z and Millennials, exhibit even greater skepticism toward banks, with only 28% expressing trust in their fairness and honesty regarding financial products.

Conversely, trust in businesses has seen an increase, presenting fertile ground for brands seeking to incorporate financial services into their product offerings. Consumers, in search of reliable financial products, are more likely to trust and follow their preferred brands when they venture into the financial realm.

Embedded finance has long been a driving force toward this brave new world, enabling non-finance companies to seamlessly integrate financial products into their offerings. The digitization of the sector has supercharged this concept, providing personalized opportunities to meet consumer needs. Hanrahan illustrates this shift by comparing the pre-digital era, where services like loans were offered at a car dealership, to the present, where products and services are brought to the point of need through digitalization, APIs, and mobile banking.

Open banking, the latest addition to the landscape, further enhances the potential for embedded finance. By disrupting banks’ monopoly on customer information, open banking opens up avenues for increased customization and tailored offers based on better data. It allows decoupling of the value chain layers, empowering consumers to choose from multiple banks while accessing great apps and alternative payment methods like direct fund transfers. This convergence of embedded finance and open banking empowers businesses to create unique financial products tailored to their customer base, ultimately differentiating themselves and potentially increasing revenues.

Moreover, this shift enables companies to not only engage with their customers on a broader level but also take their financial health into account. By assessing customers’ affordability, companies can make more responsible decisions when considering loan requests. In the UK, new Customer Duty laws further support trust and compliance, emphasizing that businesses must act in the best interests of consumers.

According to Hanrahan, the current landscape presents an exciting time with boundless possibilities. The financial services sector is one of the largest industries globally, and companies that engage with it have the potential to differentiate themselves and significantly boost their revenues.“It’s a pretty exciting time in terms of what’s possible,” said Hanrahan.