EXCLUSIVE: ‘Embedded finance: A combined effort’ – Eli Rosner, Finastra in ‘The Fintech Magazine’
Global financial software solutions company, Finastra, recently hosted a panel looking at the future of contextual finance and BaaS. These are the key takeaways…
Customers are required to place a lot of trust in their banks: they rely on them to take actions on their behalf that will benefit them. The events of the past two years could be seen to have tested that trust, bolstered it, or made it more necessary than ever. That was the opening gambit in a Finastra panel discussion earlier this year, which looked at the future of contextual finance and banking-as-a-service (BaaS), and the best way to handle potential challenges ahead.
The event was hosted by Finastra’s Angus Ross with contributions from Eli Rosner (Finastra), Andy Hirst (SAP), Mark Williamson (HSBC), and Valli Ardalan (Visa). For Mark Williamson, maintaining the trust that HSBC has earned over more than 150 years, with both retail and corporate customers, is incredibly important. Embedded finance, he believes, will help cement the bond. HSBC’s goal, he said, was ‘putting finance in the right place, at the right time, for our customers’. Which is precisely what contextual or embedded finance sets out to achieve, too: being able to access services and make transactions at any time, from any place, and do it in a way that’s accessible, efficient and woven into the customer journey. And if providers can deliver those benefits at pace – preferably, immediately – then even better.
Visa’s Valli Ardalan saw the pandemic as a catalyst for change, a trigger for the evolution of embedded finance.
“Businesses have been forced to re-examine the way that they pay and get paid, to stay ahead of it and, ultimately, thrive in today’s environment,” Ardalan told the panel.
So, who holds the keys to this evolution? The banks, the retailers and their payment processors, or the fintech aggregators and ‘embedders’? The panellists tended to agree that, in this age of contextual finance and BaaS, there was no single winner. What there was, however, was a recurring theme of collaboration. No one has all the numbers on the bingo card. Rather, it is the communication between all the various actors that drives the market forward.
Finastra’s Eli Rosner described it as ‘a push-pull game’. He painted a picture of money coming in from big brands and corporations; larger institutions like HSBC and Visa analysing the dynamic demands, so that they could step forward and provide the capabilities necessary to meet them; and, at the heart of the operation, organisations like Finastra, which bring the two sides together through an open financial ecosystem, connecting thousands of relationships. So, if you follow the money, what you see is a supply chain that requires clear roles, with all players doing their bit.
The panel heard that global, regulated banks like HSBC are continually looking at how they can embed financial services into the digital ecosystem. Visa sits at neither the beginning nor the end of a payment transaction, but it is working on its network-of-networks strategy with a view to being a single point of connection for people to move money. Customers want lower cost, efficiency, security, customisation and reach. SAP, meanwhile, has the technology, security and API knowledge. While it’s not a bank, said Andy Hirst, SAP commits itself to hosting workshops and empowering banks so that technology, digital services and applications become more widespread and more widely adopted.
“One of the things I think we’re all acknowledging, including, of course, Finastra, is that none of us can actually complete the whole mission on our own,” said Rosner. “The notion of collaborating and working together is critical here.”
So, where are the obstacles?
What’s stopping this golden age of contextual finance and BaaS from kicking into overdrive? The panel acknowledged that all parties involved have to be as cautious as they are ambitious. But there is a tendency to focus inward, not outward. Any person in any particular role is likely to concentrate specifically on what they know, what they can do, and what their part is. But it’s also good to understand the bigger picture. All sides agreed that, in the context of finance and banking, it helps to look at the supply chain as a whole, to understand all the pieces.While the old saying ‘know what you’re good at and be good at what you know’ can be applied, it is also important to understand that key players like treasuries are often the last to see innovation.
Not only do we face challenges in that, but banks and financial institutions are not always noted to be in favour of increasing their risk appetite. That said, we have to realise that every action a bank takes has to be beneficial. We can, however, understand where the potential lies, should banks take that step forward. By sharing distribution channels, by collaborating more closely with other organisations, there’s the potential for exponential growth. Contextual finance is always evolving. BaaS is in high demand. The two things combined mean we will see great growth over the next 18 months, the panel agreed. Every side of this ecosystem, from the banks to the fintechs, to the points of sale, is important.
No one side can truly claim itself to be the most important element. They all have a key, and the door has multiple locks. The panel concluded that, as we look to the future of embedded finance, and the ecosystem that has emerged from the pandemic, we’ll see unprecedented growth for customers – retail and corporate, big and small.
Orchestrators like Finastra are at the heart of that; connecting and collaborating with thousands of customers from all sides of the financial ecosystem.
This article was published in The Fintech Magazine #22, Page 40-41
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