There’s no denying that 2020 saw major progression within the realm of fintech. Even before the Covid-19 pandemic, things were already changing in how users were served, with fintech’s “baked in” digital mantra becoming increasingly more critical as platforms looked to solutions that successfully delivered real-world value.
Fortunately, data aggregation is already a huge part of the financial technology industry, which has been unlocking new value and opportunities for financial services, customers, regulators and societies at large. A variety of new applications that have frictionless payment systems built directly into them has not only shown consumers what is possible but also where more products must go.
The rise of the sharing economy, data, digital delivery, and commerce has been adopted by innovators like Uber, Airbnb, Shopify and Amazon — demonstrating how a nearly frictionless value exchange between platforms and customers can be made possible by leveraging embedded fintech.
The success of these applications has already led to most consumers expecting a similarly high level of convenience from almost any new product. With the rising availability of powerful, data-driven APIs (application programming interfaces), there’s no reason why any company couldn’t integrate similar functionality into whatever type of platform they offer. Whether the system is geared for payment, insurance or investment, embedded financial technology is the key to a satisfying user experience.
There’s no sector where this becomes more relevant than finance. Innovations in cryptocurrency are compounding these effects on legacy money models and can no longer be ignored when making decisions with regard to this embedded finance trend. While cryptocurrency itself may still live on the fringe to a large degree today, we can expect to see individuals taking more control over their value, how it is invested, how it is stored and how it is moved.
With the increase in interest in embedded financial services and the rising number of companies that can provide them, here’s how adopting a data-first mindset is essential to capitalize on the next evolution in fintech.
Use decentralized finance as a model
We begin by looking at the innovations developed in the decentralized finance (DeFi) sector just in the last year. Decentralized exchange protocols are transacting over a billion dollars in value, and they include assets that are sometimes only hours old. Liquidity pool staking allows individual retail users the opportunity to put their value to work at unprecedented levels. There is no doubt that risk is high for early participants in this area. As these systems ossify and service providers step in to mitigate these risks, we will continue to see financial innovations like never before. Thus, it is becoming imperative that existing financial companies take the best of these systems and adapt their own services around them.
The importance of ease and interoperability
Consumers have witnessed what is possible thanks to these latest innovations, and moving forward, they want their banking and other financial integration to be simple, frictionless, and secure. Accessing funds and making payments in just clicks is a significant start, but more and more users will be expecting interoperability.
Having to open multiple apps to manage finances or investments will become increasingly unacceptable, and consumers will likely flock to one-stop options. Fortunately, the data-aggregation possibilities of modern software mean that it’s a problem that won’t be around for much longer. The coming years will likely bring new breakout products to accommodate these needs. As these solutions mature, expect to see a dramatic rise in the number of platforms offering services like “checking accounts” or “insurance” or “loans” under their banner.
These types of products are already beginning to pop up across numerous sectors. For example, the recent launch of Shopify Balance, a no-fee banking account designed for independent businesses — this single platform lets merchants see their cash flows, pay bills and track expenses all in one place. This type of application not only streamlines finances but more importantly, can also save businesses money.
Integrated fintech can reduce costs
Fewer moving parts mean higher efficiency, and it has been estimated that integrated fintech could increase revenue per customer by as much as two- to five-fold. By having software handle much of the data aggregation, payment processing and transaction verification, there will be fewer employees to pay. Furthermore, automation will also allow your application to serve more customers faster, with the integration of many embedded finance solutions needing little developer time.
Lastly, the overall positive interaction should bring even more users into your service. It’s a win-win for all. This fact alone makes it clear that moving in this direction is inevitable and should make commerce more convenient all around.
At this point, there really is no going back. Legacy businesses, banks, and insurance companies will need to adapt to keep up with the companies that are already paving the way. Cryptocurrency and DeFi have exacerbated this trend but also have offered the model for solutions that any organization can integrate. Modern users demand streamlined and straightforward systems, and thanks to many of the latest options available for app developers, there’s no reason any business can’t embed financial services into their platform.
2021 is poised to be an impressive year for innovation, and fintech is one of the areas that stands to truly benefit. We can’t stand back and simply watch and imitate. If we want to survive the new economy, we need to innovate.