Like Conquering Embedded Financial Services Europe
Anyone who follows the international Fintech news knows that hardly any other topic is being discussed as hotly as the embedded financial services (short: EF). But what is hidden behind it? Who has something of it? And is this actually just an international trend, or will we German payment providers also hear more about it in the future?
In simple terms, embedded financial services are banking products and services that are located in the front-end of the non-bank portfolio. The companies operating behind them do not necessarily have to be traditional banks, but can also be payment and finance companies and other financial institutions.
The U.S. bank Goldman Sachs recently announced that it will provide access to capital through its new software and cooperation with Walmart marketplace vendors. While these new developments are spilling over from the US, embedded financial services are already commonplace in Asia with WeChat and AliPay.
Two very strong, yet different, developments of EF in the US and Asia – so I asked myself when and how the trend will take hold in Europe? Let’s first take a closer look at the situation abroad. Michael Deleon has divided EF’s manifestations into two categories:
Category 1 – USA: Buttom up embedded finance
In the USA we are increasingly seeing “unbundled”, i.e. unbundled embedded financial services. This means that traditional banking services are being “unbundled” as start-ups are created to offer narrow, specialized businesses that focus on only one component of the banking product range.
Category 2 – Asia: Top Down embedded finance
In Asia, on the other hand, we see Alipay and Wechat as primarily “rebundled”, i.e. newly bundled embedded financial services. These services are combined on a single platform and made available to the end user.
WeChat’s monopoly position in the Chinese market is partly the result of the high investments made in the company by its parent company, China’s largest Internet group Tencent. And: from the “Chinese Wall”, which makes it difficult or impossible for western networks to operate in China.
“The Chinese wall makes it difficult for Western networks to operate in China.”
And in Europe? Unbundled, rebundled or something completely different?
Although foreign countries, and Asia in particular, are often at the forefront of digitization and payments, I see a mixed trend in Europe: a combination of re- and unbundled embedded financial services.
And here’s the deal:
While (traditional) banks are being unbundled, Fintechs are becoming established as middleware between digital providers and banks, enabling platforms that offer banking services to their end customers.
In contrast to Asia, this form of appearance does not concentrate on a monopoly platform, but allows any platform to be “financially enabled” with the help of the new technology.
A trend that, thanks to Fintechs’ innovation, gives banks access to a large customer base (the merchants) and helps platforms to meet growing customer demands by building a financial ecosystem. And to stand out from the ever-increasing competition. Example
Regardless of the form of appearance, one thing is certain in any case
Embedded Financial Services is not just about financial services connecting with other sectors to become Internet enabled. It is about integrating financial services into each sector and industry to enable them to provide financial services to their own customers.
Fintechs, such as Banxware, provide the necessary infrastructure and link platforms to payment and banking services. This is a future trend that does not exclude any players, but brings everyone on board and lets them benefit from innovation.
Sources:
- Graphic: Tearsheet