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Views on… is a new series from The Banker gathering thoughts and commentary on impactful issues shaping the future of financial services. Liz Lumley talks to Solaris.
We are gathering Views on… embedded finance, which is widely regarded as having enormous potential for financial services and wider industry sectors.
In our third instalment, Andrea Ramoino, managing director for electric money business, UK and EEA at Solaris looks at the greater opportunities embedded finance presents.
Tune in next week when we meet Christoffer Malmer, head of SEB Embedded.
Q: What are the key differences between banking-as-a-service (BaaS) and embedded finance?
A: Embedded finance is the offering of financial services by non-financial firms. This often means placing a financial product into a customer-facing system or journey. For example, a company might offer lending or insurance as part of the checkout process.
BaaS is one of the products that can make embedded finance happen – along with other options like platform-as-a-service, cards-as-a-service or crypto-as-a-service.
Q: Which holds more potential for banks?
A: Embedded finance is a broader term and offers greater opportunity, given the range of services it can encompass. The future of financial services is not about transactions, but interactions. Banks that prosper in future will embrace the fact that they will often be offering their services by way of another brand.
Another question is: for which banks will embedded finance unlock the most value? Traditional banks on legacy systems may struggle to create modern BaaS products. However, neo-banks with innovative technology are more easily able to create slick user-friendly products which the modern consumer has come to expect.
Q: What type of financial services are consumers and businesses looking for?
A: Embedded finance can seamlessly sync financial services into everyday life, creating a smoother user experience for consumers while increasing brand loyalty for businesses.
For consumers, this could include a debit card from a favourite brand that offers loyalty rewards, a point-of-sale loan to spread the cost of a purchase, or an insurance product tailored to the contents of our shopping cart.
The type of financial services that businesses look for depends on the sector. However, own-branded cards are proving extremely popular among our partner base. Also in demand are services that enable companies to offer digital bank account identification and lending solutions, as well as digital asset services.
Currently, we work with more than 90 partners, including large global enterprises and innovative fintechs, to embed financial services into their offering. Each of them has their own aims and vision for their strategy, which is why this is such an exciting space.
Q: Will demand for embedded finance grow backward as the global economy recovers?
A: No. The pandemic simply accelerated the trend towards digitalisation that was already well underway, and we expect to see embedded finance become an ever-more popular concept as cash spending declines and we spend more online.
Q: What have been the barriers to embedded finance so far?
A: The development of an array of high-quality, compliant products takes time and specialist expertise, meaning there is not a wealth of options available in the market, which is one barrier to rapid, wide-scale adoption. Organisations are wanting to be able to easily integrate multiple embedded finance offerings from one partner rather than have a different supplier for accounts, payments and cards, for example. As organisations begin to be able to offer multiple solutions, the rate of adoption will also rise.
In some cases, education is also a barrier, with some still learning about the potential benefits embedded finance can bring their organisation.
Q: What is the growth potential of this market?
A: We envision a future where banking is contextual, and financial services are offered directly by big brands and innovative fintechs.
Research from McKinsey shows that the addressable market for embedded finance providers will grow at around 25% year on year, with European revenue in this sector reaching €35bn by 2027.
To answer this from a Solaris perspective, we presently have 7.2 million end-customer accounts, have issued 4.6 million cards, and process over 11.5 million monthly card transactions. Combined net revenues in 2022 amounted to around €130m, which we project will more than double by 2024.
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