BL Magazine feature: Redrawing the boundaries

July 29, 2022

Leigh Martin, Director of EWG, explores the effect that technology and increasingly demanding clients are having on financial services and how FinTech firms are competing effectively with traditional players.

Digital transformation has impacted all of our lives over the past few decades. There are very few industry sectors untouched by technological innovation, development and disruption. Entertainment, music, travel, manufacturing and education are just some that are affected by shifts in technology. Banking, however, has remained relatively unchanged. That is, until recently.

The rapid development of embedded financial services, along with knowledgeable clients expecting more efficient and personalised services, mean that the customer experience is evolving very quickly. By the end of 2020, as many as 1.9 billion individuals worldwide actively used online banking and that number is projected to reach 2.5 billion by 2024. In short, people globally want to manage their finances digitally and enjoy the experience anywhere, anytime.

This so-called democratisation of data creates greater transparency, improves client experience and puts data in the hands of the client. And the present and future of this is in FinTech – an online alternative to high street banking – which is starting to define the direction, shape, and pace of change across almost every financial services subsector. Once viewed as nascent, disruptive technology, FinTech is now most definitely becoming mainstream. Existing banks, wealth managers and insurers are able to team up with non-financial businesses and create opportunities for finding more clients.

It is time for finance to be client and digital first. FinTech is playing a pivotal role in this, offering numerous benefits by helping businesses work smarter, quicker, reduce errors and operate more efficiently through optimising resources and processes. The new financial ecosystem is opening doors to a whole new range of financial products, providing consumers and end clients with personalised services at a lower cost.

Evolving client expectations are driving innovation towards prioritising speed, decentralised models and frictionless transactions. Unexpected lockdowns over the past two years forced the global economy to operate differently, so the need for a digital, accessible world became more urgent. The disruption of the status quo means FinTech businesses are able to compete effectively with traditional players as a result of the levelling of the playing field through this digital transformation.

‘Banking as a Service’ is where licensed banks integrate their digital banking services directly into the products of other non-bank businesses, known as ‘embedded finance’. So, a non-bank business can offer digital banking services such as mobile bank accounts, loans, debit cards and payment services, without needing to obtain a banking licence of its own.

Embedded finance demand is fast pushing both financial and non-financial players together to serve their digitally, discerning clients more effectively with seamless solutions. In the next few years, clients and consumers will expect companies to make the journey even easier and less demanding. It will become a question of why a business has not made embedded financial services available, rather than if. There is already a recognised, growing dependence on technology and tailored solutions to gain an edge over the competition.

APIs (Application Programming Interface) are another feature of this technological boom and particularly valuable for guaranteeing speed and safety in the exchange of information and offering the agility needed to provide greater transparency. APIs provide a fast, low friction and cost-effective way in which to securely share financial data and are a key factor for companies using embedded finance to be able to meet client needs.

If implemented correctly, embedded finance opens the door for forward-thinking institutions to create new routes to market and more efficient business models based on technology, value and customer service. It can also help drive a thriving financial service platform centric ecosystem, where more of us are able to access meaningful financial products and services that befit their modern lifestyles.

The era of embedded finance is therefore here. And with an estimated market value of £2.7 billion by 2030, it is clear that this is indeed the future.

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