In recent years, a new wave of young neobanks has emerged and transformed the landscape of consumer banks. This year is expected to be the year of integrated finance, tha is, financial services integrated with traditional non-financial services
In particular, embedded financial services revenue was $16.1 billion in 2020, but is projected to reach $140.8 billion in 2025. However, this is only the beginning of a real FinTech revolution.
Integrated finance has emerged in the last 18 months, representing a new model through which financial services can be offered. It allows non-financial companies to integrate banking and payment services into their applications and ecosystems through the use of an Application Scheduling Interface (API). This means that these companies can offer financial services to their customer base as part of their existing products or they can create completely new ones, quickly and easily using program-friendly integrations.
So far, this has led to a split in consumer banking offerings, providing technology to financial institutions and allowing neobanks to compete with traditional players. However, thanks to the advent of Banking-as-a-Service (BaaS) providers, who lease access to individual departments of banking and payment data, companies can access the specific services they require, deducting significant costs associated with exclusive compliance, development and regulatory coverage.
As businesses revisit their value chain, they will seek to improve their operations, create new sources of revenue and reduce costs. The advent of integrated finance, also known as Banking-as-a-Service (BaaS), allows them to do all three - minimizing the hassle and cost of hiring new service developers and ensuring that they comply with regulations. The rise of BaaS providers means that companies can offer financial services that meet their unique requirements and do not require the same investment they would have made before.
Therefore, embedded finance offers businesses the opportunity to attract new and existing online audiences by generating new revenue streams, for example by allowing the customer to shop "directly" from the brand through embedded payments.
We observe six key trends in the field of integrated finance and banking as a service. Understanding and monitoring these trends can help banks and those hoping to delve deeper into the technology, identify opportunities and protect against threats.
The embedded financial revolution is happening now. To create a real innovation, however, we must reject our long-standing claims about what it means to access banking services, from whom we might be willing to access them, and the role traditional players will take. Only then will we be able to unlock the next wave. In addition, although the costs required to complete a bankruptcy proceeding are low and the legal framework is satisfactory, it takes a long time to complete the necessary procedures.
*Greek version of this article is available on Naftemporiki.