Adam Cohen, general manager of enterprise at Payoneer, told PYMNTS that embedded finance is nothing new: “When you think about it, embedded finance is quite an old concept, and it’s been around for decades.”
Airlines and retailers have had cards and loyalty programs in place for a while, where the payments and the financial lures of taking on a service or product had their appeal in an offline world.
At a high level, Cohen said, embedded finance can be defined as the use of application programming interface (API)-driven banking and payments to integrate financial services within other environments and ecosystems — particularly online ecosystems.
“It’s the merging of a non-financial service provider, like Shopify or Amazon, with a financial service such as payments processing, lending or insurance,” he said.
Another way to think about embedded finance: A brand “leases access” to the tools and services offered by the embedded finance providers, using them to build its offerings without investing in the tech underpinning of those services or the compliance — thus speeding the time to market.
Cohen noted that embedded finance had been driven by the same trends that have been driving digitization. Consumer behavior, of course, has been changing, as people shop more than ever across digital channels amid the pandemic.
As a result, companies have had to rethink their entire value chains and what they consider their core businesses. Cohen said they have to re-examine their legacy business and strategize their digital presence — and perhaps they’re investing in embedded finance as part of that.
See also: Consumer, Merchant Appetite For Efficiency Drives 2nd Wave Of Payment Orchestration
Another trend, he contended, has been the rise of alternative financial services providers, including challenger banks and other types of FinTechs and payment service providers (PSPs). Banking as a Service, he said, is helping companies better manage their own operations.
Increasingly Open to Data Sharing
“Consumers and businesses are increasingly open to working with non-bank institutions,” he said. As a result, these companies have greater access to customer data than ever — which is critical for financial services companies to market to individuals, perform know your customer (KYC) checks, and underwrite compliance or financial risk.
As Cohen said of the financial services ecosystem at large: “You need to at least provide the ability to access data in an easier way — but you also need to do it in a controlled way.” Against that backdrop, he said, data laws such as the General Data Protection Regulation (GDPR) in Europe and other parts of the world are helping to delineate how the responsibility for data is upheld and the rights of the consumer when it comes to their own data — the right to delete it, for example.
“This gives consumers the trust that they can provide data and others can use it [safely],” noted Cohen. Ride-hailing companies like Uber and other platform firms have garnered that trust and keep it, with payments embedded into the mix.
Direct-to-consumer firms are also looking to embed payments to ensure a smooth customer experience — a key element of their strategy based partly on a goal of diversifying into new markets — and away from marketplaces.
“They want to control their own fate,” said Cohen, “and my bet is that we’re going to be seeing more partnerships [with providers] and more sellers going the direct-to-consumer route.”
Read also: Payment Orchestration Helps Conversion Rates – And Merchants’ Margins
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