Wavestone report details how embedded finance can form a key part of future business models
Providing a ‘core banking’ services platform for partners opens up new revenue streams for financial institutions.
Even if the distribution of white label services has existed for many years, it is noticeable over the last few years that new players have positioned themselves in the provision of white label core banking services. In this model, the bank provides ‘core banking’ bricks to third parties who wish, for example, to offer white label accounts or payment cards to their customers. These bricks mainly revolve around creating an IBAN account, issuing payment cards or making SEPA payments. Fintech Treezor, recently acquired by Société Générale, is one of the most advanced players in this field. It now provides its service platform to fintech companies such as Qonto, Anytime, Lydia or Swile (ex-Lunchr).
Promising positioning: embedded finance
Exposing an activity or process to the outside world, particularly via a real-time and scalable technological base, opens the door to new partnerships. For several years now, another partnership strategy has been on the rise: embedded finance.
This involves the insertion of financial services within the offer of a digital third party, in order to create a ‘solution’ for the customer, complementing the partner’s core business. Some banking players are investing heavily in the development of these ‘embedded finance’ services. This is the case, for example, of BBVA, which has partnered with Uber in Mexico, enabling a digital bank account to be integrated into the Uber application. Amazon and Goldman Sachs have also announced a partnership to offer up to $1 million in credit to merchants selling on Jeff Bezos’ platform.
Pure digital players are interested in this inclusion of financial services in several ways. First of all, they can represent new sources of revenue, diversifying the sources of turnover. Moreover, these services, tailor-made to their core business and to the needs of their customers, present a natural cross-sell opportunity, especially as their integration into the customer experience and customer journey can be seamless. Finally, thanks to the prerequisites developed by banks (digital and contractual bases in particular), the implementation of these services can be almost instantaneous.
The market potential of embedded finance today represents a major growth lever for financial players. It is estimated, in the United States alone, to reach 3.6 trillion dollars in 2030 compared to the software market in the USA, which will peak in 2019 at 3.4 trillion dollars (including Amazon, Google, Facebook, Netflix and Salesforce for example), or the stock market value of the 30 largest banks in the world in 2020, which it equals.
Above all, the first initiatives in this market foreshadow future developments. While today partnerships are made by addition, i.e. the addition of banking functionalities on a third party base, the future may lie more in the construction of a mixed banking base, composed of solutions proposed by the bank, but also by other players (Fintechs, etc.), put at the service of partners retaining the distribution channels and the user interface.
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