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The impact of Embedded Finance in non-financial sectors

Rise, created by Barclays

In this article from Rise, created by Barclays, we explore the growth of Embedded Finance, an area that’s gaining a lot of traction in both B2C and B2C markets and may well have a part to play in the future of UK FinTech. The latest edition of Rise FinTech Insights, our flagship thought leadership publication, explores this subject and the opportunities for FinTechs in more depth. Download the report.

Non-financial companies are turning to Embedded Finance to enhance, or even transform, their value propositions significantly by associating these with financial products. By embedding financial services (from payments and lending to savings and insurance), new customer journeys emerge that solve real-world problems for consumers in many sectors, including retail, health, education, transportation, agriculture and music. Improved experiences for customers allow companies to strengthen brand loyalty and grow sales. Forbes estimate that the opportunity for Embedded Finance in the US alone will be worth $3.6 trillion in ten years’ time.

FinTechs play an important role not only by applying new technology to create better experiences, but also, in some cases, by providing infrastructure to do so more effectively and efficiently. These FinTechs, known as Banking as a Service (BaaS) providers, allow brands to distribute a bank’s financial products and take on the additional compliance burden normally carried by the bank. This creates a ‘win-win-win’ for BaaS providers, incumbent banks and consumers: providers get to reimagine aspects of core financial services, banks can more effectively integrate their products into new value propositions from brands, and consumers can experience those brands in newer and simpler ways.

Embedded Finance has wide-ranging potential and creates opportunities in many sectors. For example, ‘embedded investments’ enable non-financial institutions and consumers by simplifying the investment process and broadening the distribution of the investment product. In this space, Spark Change (a graduate of the 2019 London Barclays Accelerator programme) provide a technology platform and financial product ecosystem for institutional and individual investors who are seeking exposure to physical carbon allowances but who are unable to directly access existing markets. As carbon price exposure plays an increasingly important role in investors’ portfolios, the company is creating a new generation of financial instruments that allow that price to be fundamentally embedded into equity and fixed-income portfolios. In this way, it’s accelerating the rate at which society can achieve its climate goals.

The music industry is not something you’d naturally link to financial services, but here too, user experiences can be improved. In this sector, concert ticket sales alone represent over $30 billion a year of revenue and for a typical artist they represent more than 80% of their income, so the opportunities are significant. DICE, a platform that lets fans discover the gigs taking place in their city and evokes personalised experiences for them, has helped thousands of artists become profitable by supporting smarter decision-making about touring. Key to these capabilities are DICE’s huge data sets and innovative technology that assist with pricing, timing and avoiding conflicts with similar artists.

Music fans don’t care what time zone a gig is in. They just pay and attend whichever location has the most convenient livestreamed gig. As a result, currencies are less important to them (just like gamers) than the gig (or game). It makes you wonder what ‘currency’ will actually mean in, say, five or 10 years’ time.

 

In addition, London-based Kobalt has created a centralised platform that allows artists and creators to access their payments, royalties and data through APIs linking directly into global music hubs such as Spotify, Apple and YouTube. Algorithms acting on new types of music usage data let artists forecast future earnings, which lets them better understand their cash flow and take more informed financial and life decisions. This increased velocity of cash flow especially matters for up-and-coming content creators and young artists who need to maintain a critical income threshold to survive, often through financial products like revolving credit or SME loans.

Another sector that demonstrates the power of Embedded Finance is healthcare. 2016 London Barclays Accelerator graduate Seldon’s ‘model-as-a-service’ (MaaS) paradigm uses ML-based decisioning to automate the packaging and containerisation of ML models. In HealthTech, this has proven beneficial in drug discovery for major pharmaceutical organisations, speeding up the time it takes to deploy models key to making breakthroughs in the research process. Seldon enables users to screen massive numbers of new chemicals to predict their properties, like permeability, solubility or toxicity without having to physically perform the tests in the wet lab.

With the possibilities so varied, Embedded Finance holds opportunities for FinTechs to innovate at pace, for banks to tap new relationships with brands and, most importantly, for consumers in many sectors to have simpler and better experiences.

Read more about Embedded Finance in the latest edition of Rise FinTech Insights

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