Integrated finance to revolutionize the payment structure

Banking Industry CIO Perspectives | Monday, October 31, 2022

Clear frontrunners are growing in the race to provide banking and payments infrastructure for integrated finance, but there is still room for established players and new entrants to carve out a slice of this exciting industry.

FREMONT, Calif.: Most new businesses these days are too small to deal with a traditional bank. By logging into their online store or accounting software, they can get a deposit account and a debit card and take care of most of their financing needs. Banks are not the typical operators of these services. Instead, they are software companies that work with banks and other providers to make it easier for customers to access various financial services in one streamlined location. The integrated finance revolution is enhanced by this new mode of cooperation between banks, technology providers and distributors of financial products through non-financial channels. The payments industry, which sits at the crossroads of retail, banking and commercial services, is the ancestry of many potential integrated financial service providers.

According to McKinsey’s market sizing model, integrated finance will generate $20 billion in sales in the United States alone by 2021. The value of this integrated customer experience helps explain why.

Placing a financial product in a customer experience, journey, or non-financial platform is embedded finance. It is not revolutionary in itself. Private label credit cards issued by companies other than banks have been widely accepted in stores, supermarkets and airlines for decades. Appliance retailers and car dealerships are two more common sources of embedded financing.

These agreements allow the banks that support them to connect with their target audience.

The next generation of integrated finance is incredibly efficient because it integrates financial products into digital interfaces that customers regularly interact with. Examples are accounting programs, shopping carts, and loyalty programs for repeat customers. Purchasing financial services for individuals and businesses using these interfaces becomes a natural extension of non-financial experiences such as online shopping, employee scheduling, and inventory management. The use of this type of on-board finance, which is more entrenched, has developed strongly in the United States in recent years.

Changes in the business landscape, consumer habits and advances in technology have all played a role in the rise of integrated finance. The opportunity to integrate finance into interactions with non-financial customers has increased dramatically as commerce and business administration have become increasingly digital. With 33% of all card purchases made worldwide coming from online transactions, it’s no surprise that digital solutions have become increasingly important for small and medium-sized businesses in the United States. More and more people and businesses are willing to get all of their financial services online due to the growth of the digital native population. Third-party fintech companies can now access consumers’ banking data and even the power to transact on their behalf thanks to open banking innovation, which has been bolstered by mandates in the European Union and a market-driven adoption in the United States.

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