Embedded Finance: Currency Transformations
Embedded finance, a rapidly growing trend of integrating financial products or services into non-financial platforms, is reshaping the global economy, states John Doe in his article for Finextra. According to Bain Capital, the value of financial services embedded into software platforms is projected to exceed $7 trillion in the United States by 2026. Meanwhile, McKinsey consultants predict embedded finance operators could generate approximately $20 billion in revenues in the coming years.
Amidst this revolution, one crucial but often overlooked innovation is the inclusion of international payments and currency management services, including customer onboarding, in the product offerings. This development presents a win-win situation by opening new revenue streams for industry players while allowing them to maintain close proximity to their customers.
Embedded finance represents the convergence of technology, business services, and banking, enabling any brand or merchant to seamlessly incorporate financial services into their non-financial platforms. This integration encompasses payment processing, debit and credit card services, insurance, and more.
The use of Application Programming Interfaces (APIs) plays a vital role in the embedded finance model. APIs serve as the connectivity enabler of choice, favored by banks, fintechs, and payments companies as they strive to integrate financial services into non-financial platforms. As highlighted by the McKinsey study, this model is being propelled by technology-induced cost reductions and the emergence of «digital native» managers, eager to provide a comprehensive digital customer experience. The B2B embedded payments market is estimated to reach $2.7 trillion by 2026 in the United States, according to Bain Capital.
However, the true potential of embedded finance goes beyond creating a memorable digital customer experience. It is primarily about delivering tangible business impact and opportunities. For instance, a logistics company could enhance customer loyalty and generate more business by enabling credit and payment solutions on its platform.
While the demand for embedded finance continues to grow in deposit, payments, and lending, one area remains largely untapped but holds great promise: currency management. Adding currency management solutions to their product portfolios will be crucial for players to differentiate themselves in the fiercely competitive embedded finance landscape.
Foreign exchange (FX) markets can play a significant role in boosting revenues within the embedded finance ecosystem. With the advent of automation technology, banks, fintechs, and payments companies can now offer a wide range of international payments and currency management solutions. These include seamless FX market operations in multiple currencies through easy implementation via APIs, integration of SWIFT and SEPA international payments across various currency pairs, guaranteed FX market rates during specific time periods, and streamlined customer onboarding and KYC compliance processes.
These currency management solutions not only create new revenue streams by sharing the underlying FX market spreads among partners but also enhance the competitive position of embedded finance players. By leveraging technology, these players can lower end-users’ hidden fees and boost vendor revenue, challenging the high conversion rates charged by established market players.
According to Philippe Gelis, CEO of Kantox, this move towards currency management is more than just an additional revenue stream; it represents a significant step closer to full disruption in the fintech industry. Additionally, offering seamless currency management solutions further strengthens the digital customer experience, as surveys consistently demonstrate that end-users highly value the ability to transact in their preferred currencies.
In the embedded finance landscape, successful partnerships between tech-savvy banks, fintechs, and payments companies will differentiate themselves by providing currency management solutions sooner or later. The time to act is now, as this represents an opportunity for players to leverage currency management to stand out and thrive in the evolving embedded finance space.