“If the FinTech ‘revolution,’ post-financial crisis, is in its early innings, then embedded finance is in its first inning.”
Matthew Valente, head of product strategy at FIS, told PYMNTS in a recent interview that as traditional financial firms and FinTechs band together to offer everything from bank accounts to lending products to a broader audience across digital channels, we’re just scratching the surface.
Valente clarified the nuances between embedded finance and BaaS, where many observers might use the terms interchangeably. He described it like this: Banking-as-a-Service is the “enabler” of embedded finance, and embedded finance is the actual “experience” delivered to the individual consumer or corporate client.
And, as he noted, the banks are essential to enabling it all, as they’re the regulated entities that help non-banks (FinTechs, independent software vendors and PayFacs among them) offer deposit accounts, cards and embedded payments.
“We’re seeing an evolution of what embedded finance can do,” he added.
While Uber may stand out as one of the earlier examples of how to make payments a seamless part of the customer experience, Valente noted that retailers, restaurants and software platforms have been getting on board, too. Valente said that banks — especially the ones served by FIS — have become increasingly interested in providing BaaS.
For the banks, there’s the incentive and the desire to monetize deposits and debit interchange, to name but two revenue streams. The banks, he said, have been able to expose their offerings to new audiences with the aid of BaaS middleware layers and application programming interfaces (APIs) that can help third parties connect with the financial institutions’ (FIs) systems.
BaaS and embedded finance, he said, will continue to see growth despite the macro headwinds that are already in place. Most companies — large and small — are re-evaluating their investment agendas for the year ahead. But expanding financial services, payments and lending will be on those agendas because, as Valente put it, the demand is out there.
Valente said that building banking offerings into a slew of new use cases will be easier as FIs and FinTechs team together to pool resources and expertise and “shore up” KYC and AML (critically important in cross-border payments) considerations as they come to market.
“2023 is going to be a year of rigor around KYC,” he told PYMNTS.
There’s particular potential in transforming B2B, he said.
“What we’re seeing is that even in the larger bank space — in the B2B, middle market corporate payment space — this is a growth accelerator for them,” Valente told PYMNTS.
Embedding that payment experience directly within a corporate client system such as NetSuite or SAP, he said, can transform accounts payable function and cash management, too.
“The B2B opportunity is incredibly attractive,” Valente noted.
The corporate clients, he said, benefit from a reduced burden on treasury and other back-office teams and allow those employees to focus more on long-term strategy.
Looking ahead, he said that banks would continue to revolutionize and modernize B2B by offering lending products and dynamic discounting to enterprises, which will improve supply chain dynamics.
“There’s also the opportunity to bring in some new payment types,” he said of the banks and the FinTech providers, “and new payment methods, including real-time payments, and layer it all on top of the things that banks do very well.”
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