Consumers Want, Expect Interconnected Banking and Embedded Finance

Not all that long ago, at the dawn of the millennium, money movement was no easy task.

Netspend President Kelley Knutson told Karen Webster that much has changed in two decades — giving rise to what might be termed Banking 3.0 and shifting the way banking services can and should be delivered.

Back in 1999, Netspend set about forging a niche as one of the pioneers of challenger banking. The initial goal of the company was to provide more people access to open bank accounts and to load money onto prepaid cards.

Now? Consumers want sales financing, short-term lending and access to rewards and loyalty-based offerings. Peer-to-peer (P2P) transfers, bank-to-bank transfers and debit card transfers have changed how people move money out of their primary bank accounts and into these branded ecosystems.

As a result, consumers are naturally gravitating toward the brands that they’re used to conducting business with — or aspire to, Knutson said.

With many of the banks and FinTechs, the traditional mindset has been to set up walled gardens — and keep consumers there. But amid the great digital shift that has been a hallmark of the 21st century, it’s imperative to find a way to bridge the divide that exists between banks and FinTechs.

The urgency is there. The individuals that have been, and still are, active in pushing money across various activities and providers are going to expect that they are in the driver’s seat when it comes to commerce, and they will turn to organizations that give them flexibility.

The good news: Consumers will pay for that flexibility.

Knutson pointed to the emergence of various streaming media models as precedent. Individuals and families have embraced streaming packages, including going as far as to pay the gateways that offer access across several branded ecosystems. We’ll start to see some of that happen in broader retail and commerce — and especially in payments, he said.

But no matter the ecosystem, when consumers find themselves within one of those branded environments, in the midst of conducting commerce, they want it all to be simple and frictionless. And they want to decide the appropriate payment transaction, Knutson said.

A Spirit of Collaboration

With the desire on the part of consumers to move seamlessly across brands, across payments, across various continuums of everyday life, through a digital front door, formerly dog-eat-dog competitors have a chance to collaborate to everyone’s benefit.

The formerly clear lines between banks and FinTechs are blurring — and their strategic priorities are overlapping. Many FinTechs don’t want to become full-service banks, Knutson said. But they do want to get involved in at least some banking mainstays, including moving money and (possibly) lending. At the same time, banks want to ensure that they play a key role in the entire payments process.

As a result, he said, “It’s becoming ever more critical for banks and FinTechs to lean in together to provide comprehensive solutions for businesses and consumers as they seek access to competitive products and services.”

What Consumers Want

At least for the moment, consumers are thinking a lot less about interest rates than payment plans. More likely, they are seeing offers they want to take advantage of, housed within the ecosystem, with an array of payment options — including buy now, pay later (BNPL) — conveniently available at checkout. The shift, then, is away from a destination, a place where people go to conduct banking to having transaction and payment options available, in real time and in context.

“It feels good to them that they are given a choice without having to go through a laborious process,” he said.

Consumers are becoming interested in bettering their financial health alongside (and in tandem with) those services that are available contextually inside any branded ecosystem.

In the bid to improve financial education, users will gravitate toward certain brands that they trust to get financial advice, help them repair their credit and get access to credit on the best terms, Knutson said. They’re already familiar with the advantages. Investment firms have made it easier for individuals to make equity and stock trades, to move money into cryptocurrency as investment and payment tools. The recent mandate by the President Joe Biden administration to examine cryptos and digital dollars has legitimized those assets, he said.

But consumers are going to need help wading through it and understanding if they are doing the right thing with their money, Knutson said. As money goes increasingly digital, it will be easier than ever for consumers to lose track of their financial health. Consolidation of financial activities into a single point of digital access will be critical — across a broad range of providers and ecosystems.

Financial health is especially important now given the fact that, as PYMNTS research has found, an increasing percentage of consumers — 64% as of the most recent research — live paycheck to paycheck.

Visibility and transparency will be prized within financial ecosystems, he said.

As he told Webster, the great digital shift is not just about making it easier to transact but making it easier to get data back to people so that they can reconcile their daily spending and make plans.

Banking in 2025

Looking ahead just a bit, Knutson said there will likely be more FinTech and bank partnerships three years from now. The banks will bring the traditional core banking services to the table. They’re the entities that are regulated and have a history that stretches back over decades with consumers.

We may also see consolidation within financial services, he said, with banks acquiring FinTechs (and their capabilities) so they become broader financial services hubs. Retailers will try to create those hubs too (with the help of open banking) to exist as financial centers that might not dominate transactional activities but will record the financial activity.

For all of this to happen, he said, FinTechs and banks must really make sure that their capabilities and the solutions are safe, secure and seamless.

“That’s what we need to do collectively from a payments industry point of view, and to make sure we’re giving a variety of options to the end consumer,” he said.