The platformification of finance: Conclusions from the Tearsheet Embedded Conference

The acceleration of digital financial services spurred on by the coronavirus pandemic loomed behind the 2020 Tearsheet Embedded Conference, a virtual event which brought together industry practitioners, brands and platform providers. Participants explored the state of the industry shaped by the pandemic and beyond. 

Embedded finance solutions allow brands to seamlessly plug into financial plumbing to enhance their capabilities and facilitate continued customer acquisition and retention. The concept encompasses two core components: the ability to integrate financial services with another, typically non-financial service (e.g. payments and banking services within a ride-hailing app or e-commerce platform); and the provision of financial services on a customer’s own terms  — anytime and anywhere.

Participants concluded that the notion of embedded finance is evolving into an ecosystem of platform providers offering solutions to help brands blend financial services into a range of use cases. For some, this may mean integrating financial services seamlessly into the offerings of other industries, such as retail or health care, and for others, this may mean an embedded offering that helps reach a specialized customer group. 

It’s no longer a battle between incumbents and upstart players, but which platforms will meet client needs as quickly and easily as possible.

Among the conclusions:

The future of embedded finance is about enabling platforms instead of single-product offerings.

Fintech 1.0 companies, as some participants described them, were single-product companies that sought to take market share from incumbents. They often developed in-house tech stacks on top of infrastructure provided by partner banks.

“We used to enable what I call Fintech 1.0 businesses, [I think of] brokerages that went after the incumbents and tried to take market share,” said Itai Damti, CEO of Unit, a fintech platform company. “What we’re enabling this time around is what I call Fintech 2.0, which is companies that are in the business of software, which have engaged audiences and are looking to expand into financial services.”

Over the past decade, Fintech 1.0 businesses garnered significant user adoption. However, there are significant challenges bringing these products to market, particularly with the need to build tech and compliance layers on top of partner bank architecture. That amounts to a significant investment for many upstart fintech players, and many Fintech 1.0 companies failed because they could not mimic the scale and customer reach of incumbents, participants argued. By contrast, platforms which let companies integrate into an ecosystem of services argue that plugging into their networks can be cheaper and more efficient for fintechs and brands looking to roll out embedded offerings.

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Platform businesses see opportunities as fintechs and brands zero in on specialized customer groups.

“When [1.0] fintechs want to launch a financial product,  they need to go build it themselves, which involves a lot of plumbing, finding the sponsor bank, getting the right processors and vendors, such as KYC vendors, and building that plumbing,” said Roy Ng, CEO of Bond, a company that helps brands incorporate banking and financial services into broader product and service offerings. “Being Fintech 2.0 is [about] leveraging platforms, so that the fintechs and brands can focus on their customers, and leave the plumbing pieces to us.”

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