Private Equity firm Lightyear Capital estimates the additional revenue that Financial Services providers could earn from Embedded Finance to reach an amount to the tune of ~$250bn within the next five years.
Traditional banks have the opportunity to capture some of that by leveraging their brand, distribution and existing customer relationships.
Banks will have to leverage their Open Banking capabilities (as well as partnerships in the ecosystem they have been, and will be, able to build) in order to enable Embedded Finance and come up with new models for their clients.
After all, they have the customers, the capital, the regulation knowledge and the regulators access: they clearly have a role to play.
It will be up to them to make the most of the opportunity.
Undoubtedly, many FinTech companies will continue to enjoy great success and keep contributing to the deep transformation of our financial system.
As Plaid CEO noticed, these days you don’t even have to be a FinTech customer to actually reap the benefits of their services. The ecosystem is changing thanks to increased competition and innovation – both arguably ‘forced’ into the industry by these new players.
Traditional Financial Services institutions might want (or perhaps “will need”) to partner with the best FinTechs around. As a side effect, banks could be able to increase trust from the public in their offerings, by providing financial services to more and more people at lower costs.
Embedded Finance promises to provide more high quality data to banks and other Financial Services organizations.
This has profound implications. If traditional Financial Services institutions are able to use this data to improve speed and accuracy of the services they offer (for example, credit decisioning and loan issuing), that will contribute to tremendously improve the perception of their brand by the general public.
That’s a good thing!
The trend is clear. Digitazion of Financial Services will advance at high speed. Banks and FinTechs will keep partnering to offer new, useful services to customers.
The velocity of innovation won’t decrease.
New technologies, paradigms and business models, including crypto and Decentralized Finance, will introduce more ‘openness’ into the system.