There are an increasing number of fintechs dedicated to making banking-as-a-service (BaaS) a reality—essentially bypassing legacy banks and delivering key products and services, from accounts and payments to lending, directly to consumers and businesses.
The reason banks have a ‘legacy’ in the first place, however, is because they are long-entrenched, with all of the necessary infrastructure in place to service huge numbers of clients in a variety of different ways.
A fintech launching a new business has to build this infrastructure itself or seek out many different providers to meet its needs.
As the fintech scales, piecing this all together while keeping up with pace of technological and regulatory change can be time consuming and costly.
Integrated Finance, a financial infrastructure platform, aims to alleviate this process for fintechs with a service that puts this financial stack back together.
FinTech Intel spoke to Integrated Finance’s co-founder, Alistair Cotton, to discuss his company, as well as embedded finance, open banking and the future of financial services.
How does Inegrated Finance help businesses grow?
We platform all of the boring stuff that fintechs have to build that is really important to provide the service, but customers don’t care about.
We transform six to eight months of development time undertaken by a team of engineers into a monthly subscription. And for the customer that means building whatever they are trying to build in six weeks.
If you’re a new startup or a business and you want to bolt on a new feature, move to a new geography, or add a new product, you would do that on our infrastructure.
How does this bring benefits to customers?
We allow customers to pick and choose the best partner for them. Then we combine different partners together to create the best mix of services that is going to enable them to win customers.
How will embedded finance change the supply of financial services?
I think the delivery will be completely changed. And high street banks will stop being accessed through internet banking. All of their services will be consumed through other pieces of software, where we increasingly spend our time.
There may be an intermediary step like making payments via accountancy software, but financial services are all going to end up on your smartphone.
One thing about embedded finance is its interoperability. I think embedded finance will bring all forms of payments closer together, including digital currencies.
Cards, open banking, crypto or however you want to pay for something, it will be available to you. And there will be multiple embedded finance players coming together to offer that unified service.
Do you think there will be a lot of partnerships going forward?
There is unbundling and bundling. We have gone through a whole period of bank stacks being unbundled into APIs.
Businesses such as Integrated Finance now allow you to re-bundle that together. We are in the bundling stage of the financial stack now.
The initial stage is lots of players working together independently, but as soon as the monetary conditions change, I think private equity firms will buy and roll them up into single businesses again.
We have gone through this entire cycle and we will end up with an institution that looked like one 30 years ago, but with much improved technology powering it.
How will it change expectations of financial services? What will consumers and businesses demand?
Ultimately, it is removal of friction. The expectation for consumers is that within the journey of purchasing something, they are going to be able to pay for it. And/or if it’s broken, reclaim the payment for it.
Any service that breaks that expectation—if you have to leave the environment to do something—is going to be in trouble because people are going to use whatever is most convenient. This is why phones are the end goal, because they control the ability to do all this within the environment.
The case for Apple, even though it is the biggest company in the world, is everything is going to migrate on to their hardware.
From an ecommerce perspective, the infrastructure is so good—you order something and it turns up at your door in days. If there is any friction in paying for something you are just going to lose that customer.
Another reason for embedded finance is to allow companies that want to accept financial services to earn revenue as well.
Currently, some fintechs are earning quite good money accepting money, from Amazon for example. Why isn’t Amazon earning that money themselves? Embedded finance will enable businesses to capture more customer value.
Why is open banking arguably not working as well as it should?
Because you can’t do refunds. The great thing about cards is if I pay for something and it doesn’t turn up or it’s broken, I can get a refund. Visa enforces it. With open banking it doesn’t work.
Actually, the next three years will be interesting for businesses such as Integrated Finance, because those open banking providers need bank accounts to manage refunds.
You can start to see all of the infrastructure players starting to come together to be able to offer services that look like and work in the same way as cards.
It’s always the reversal of finance that causes the problems rather than the payments, because things go wrong or people get defrauded. But they are actively working on it. I reckon in two years open banking will be as good as cards.
Do you think there needs to be more regulation in open banking?
I think there needs to be less regulation. Everything is so tightly bound it is too slow moving. Regulation will drive it forward, but it is much slower.
Let them do their thing, see what works and what doesn’t. Then try and regulate once you can see that it’s working further down the line.
I don’t think you can necessarily imagine how it should be working before time. You have to kind of let capitalism do its thing.
What’s in store for embedded finance?
What Shopify has done for ecommerce, where you can do everything from one platform, that’s what will happen with financial services. This infrastructure will enable many, many more fintechs to be created long term. Because ultimately, it is just a message exchange. It is pretty simple, even though it is really complicated. The technology is available now, it is just combing it together into useful combinations.
Also, traditionally big institutions served a lot of customers. As the cost of the technology is coming down, it’s allowing many more small companies to be created, serving smaller audiences, but more niche and more tuned to their specific needs.
That’s the great thing about this re-bundling. Everyone doesn’t want the same financial services. The infrastructure is now available to serve niche markets with quite different products. It’s quite cool, everyone is getting what they want.
Image: Integrated Finance