By John Tucker
Angela Strange, a general partner at the venture capital firm Andreessen Horowitz, crystallized a timely issue in payments when she said that as we go forward, "every company" will become a fintech company. This will occur through the process of embedding financial services into the everyday experience of customers in a way that is almost ubiquitous.
And Strange isn't alone in her hypothesis: many payments, banking and other finance leaders believe that embedded finance is fueling the next wave of fintech. Indeed, Simon Taylor, co-founder and head of ventures at transformation and advisory services firm 11:FS stated, "Fintech is only 1 percent finished."
Since my theme as quarterback of Street SmartsSM this time around is to home in on embedded finance, I'll begin this article's discussion by examining the three waves of fintech. I'll examine how (and why) we got to the point where embedding financial services is the present and the future of fintech. I'll also explore what this could mean for the payments industry in general going forward.
Many believe that the term "fintech" didn't arrive until the aftermath of the Great Recession of 2008, but in actuality, the term has been around since 1866. According to reports from leading researchers at The University of New South Wales, one of Australia's leading research institutions, the following are the three waves of fintech.
While some startup disruptors entering the market are endeavoring to work alongside the traditional financial services providers, research shows the bulk of them are coming in as alternative players to either steal away market share or create brand new market share by bringing financial services to under-represented areas of society.
Today's 3.0 wave of fintech is at the point where software/technology companies, media platforms and other non-finance companies are becoming financial services companies. This is because a large chunk of their revenue is derived from financial services they fully embedded into the already existing daily experiences of their customers.
Fintech researchers Simon Torrance, author and presenter at New Growth Playbook, and Matt Harris, a partner at Bain Capital Ventures, estimated that by 2030, embedded finance will be a $7.2 trillion global market opportunity, with $3.6 trillion of that coming from the United States alone.
A huge driver of this market opportunity is the embedded payments portion. Rather than having the payments process as a separate isolated experience, companies are and will continue to directly integrate or embed the payments portion right into the mobile application, POS software, ecommerce shopping cart, etc., that their customers are already using. A great example is how Uber and Lyft have completely embedded the payment process into their application.
With the ability to white label the embedded payments feature, non-finance companies can now, in essence, become finance companies by using their own brand names for the solution, with the power behind said solutions coming from an innovative banking-as-a-service provider that secretly manages the nuisances of the transactions.
This entire movement is likely to lead to the creation of more payment facilitators (payfacs). Payfacs register with the card brands and allow their customers (sub-merchants) to accept bankcard payments with a much faster, more efficient and streamlined onboarding process.
Join me in the next edition of Street SmartsSM, as I continue this discussion around embedded finance and zero in on the benefits, drawbacks and nuisances of the payfac model.
John Tucker is U.S. enterprise sales director for TreviPay (www.trevipay.com) and has over 14 years of B2B sales experience in commercial finance. Tucker is an MBA graduate and holder of three bachelor's degrees in accounting, business management and journalism. To connect with him, feel free to send him a connection invite via LinkedIn at www.linkedin.com/in/johntucker99/.
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