Through Ivo Georgiev, Co-Founder and Executive Chairman at Paynetics
Embedded finance is undoubtedly one of the most exciting developments we have seen in recent years. It is revolutionizing the way consumers and businesses make payments as more brands integrate financial products into their core offering.
Consumers are increasingly able to access the services they need when and where they need them, and pay for them without additional steps. For example, it is possible to order an Uber, apply a promotion, share the fare and pay for your share with ease in just a few clicks, all without leaving the application.
Removing the need for consumers to “go to their bank” paves the way for businesses to build stronger relationships with customers, which is essential for maintaining loyalty in the face of increasing choice and competition, as well as only to develop new sources of income. Integrated finance brings the bank to the consumer, rather than the consumer having to go to the bank, as has been the case for centuries.
It’s really exciting, but what’s even more exciting is that we’re just getting started. Over the next few years, integrated finance will become an integral part of the way companies deal with customers – and this is a very significant paradigm shift for investors, consumers and businesses.
An attractive investment opportunity
Embedded finance is poised to disrupt the entire payments ecosystem. The total European payments market represents more than €400 billion in revenue, the majority of which is now reserved for specialized financial institutions, mainly banks. What integrated finance will do is transfer much of this revenue to non-financial players as they begin to integrate payment solutions into their own ecosystem. That’s why it’s such an attractive prospect for investors, the potential for growth is huge.
For example, instead of outsourcing payment to banks or acquirers, merchants can integrate payment into and be part of their flow. They would still need to work with a financial services provider for the actual constituents, but they would control the flow and share the revenue.
A smooth shopping experience
Today’s consumers want innovative products that make their shopping experience simple and convenient, whether online or in-store. Apps like Deliveroo allow customers to buy their favorite takeaways without having to leave the app once. Consumers can seamlessly navigate the entire buying journey on a single platform.
Additionally, integrated finance is reshaping business models – for example, for many customers, BNPL is seen as a simple and inexpensive form of credit that allows them to expedite the purchase of goods and services. It’s essentially the digital equivalent of store cards from a decade ago. Having a BNPL option at the payment stage mitigates the risk of payment abandonment as they no longer have to go through multiple payment stages and end up on a third party interface. This allows businesses to maximize revenue and provide customers with a seamless shopping experience.
Extend benefits for businesses
So far, integrated finance has focused on the retail consumer market. However, over the next few years we will also see it used more commonly in the corporate world, especially in business-to-business transactions. This will be particularly true for SMEs where inefficiencies prevent them from accessing higher value-added services. Integrated finance will change that. There are over 50,000 companies in Europe that provide various services to SME merchants. Soon they will all be able to bundle payments and banking services as part of their offering. This will translate into better access to capital as new loan products become available for SME-type businesses.
Integrated finance is also a perfect instrument for companies with a large customer base because it allows them to better leverage the customer relationship, enrich it, build loyalty, reduce churn and design new sources of income. Industries ripe for embracing integrated finance include utilities, telecommunications, and hospitality, especially large chains with a strong regional or global presence.
Other sectors affected by the possibilities offered by integrated finance include companies whose models make substantial use of cash. This is very much the case with the home care industry where we have a growing sector that is almost entirely dependent on cash payments, which creates many logistical, security and reporting issues. By embracing integrated financing, sectors like home care are able to make funds available in real time, manage expenses to ensure they are appropriate, and provide access to retailers online and online. store.
The winding road to seamless financial services
Clearly, the appetite for integrated finance is growing as companies realize the benefits of integrating financial products into their product offering. With Delivery Hero and UberEats leading the way, we expect to see accelerated growth coming from other large-scale platforms connecting consumers to merchants.
As with any new technological development, there will inevitably be obstacles on the road to adoption. For example, tighter regulatory controls are likely to be put in place to limit the ease of access to specific products such as BNPL, which have come under scrutiny due to the debt they carry. can generate.
But regulatory changes within the market present both an opportunity and a challenge. Longer term, organizations will appreciate the ease of integrating technology built by established regulated fintechs rather than trying to build their own in-house capabilities and deal with the regulatory headaches that come with it.
Embedded finance means that soon every company will be able to offer fintech products seamlessly and consumers and businesses will reap the benefits. Frictionless financial services are coming our way – just watch this space.