Fintech Meetup: how collaboration holds the key to the future of embedded finance

Is partnership-led innovation about to blossom in financial services? It certainly looks that way, if this year’s Fintech Meetup in Las Vegas is anything to go by. From card issuers and crypto exchanges to banking platforms and B2B lenders, the event earlier this spring was a case study in knowledge sharing and collaboration.

But one area where joint effort is set to be truly transformative is embedded finance - something I explored during an insightful panel titled ‘Winning Partnership Models in BaaS.’ Drawing on my experience at both FIS and Bond, the session was a chance to share perspectives on the current state and future trajectory of BaaS. I’ve summarized my key points and reflections below.

How do we define Banking-as-a-Service?

In truth, Banking-as-a-Service or BaaS is really a subset of embedded finance, and it has certain capabilities such as payment cards, money movement, accounts, and lending.

However, at FIS we take a broader view and we know that BaaS is an enabling technology for all kinds of businesses. That’s why we provide thousands of banking cores to financial institutions, non-banks brands, and merchants. It’s really about providing the technology to empower anyone to offer an embedded finance program.

What are FIS’ embedded finance capabilities enabling?

We’re here to help banks modernize systems in the simplest way possible, while remaining secure and compliant. One way we do this is with our ‘Side Core’ model, which takes an existing FIS core and slims it right down to focus on key capabilities and remove complexity. Ultimately, banks want to keep their programs simple.

However, supporting this, we offer a full suite of solutions around fraud prevention, KYC, and transaction monitoring, which are essential to running a bank, or offering embedded finance.

For non-banks the question is, how do we make these functions and features consumable? The answer - which is based on what our customers tell us they want - is to provide a core that acts as a superset of these features. At the end of the day, all brands - whether a financial institution or not - want a trusted provider who offers a complete solution.

That’s why FIS’ strategy is built around supporting the entire money movement life cycle - money at rest, money in movement, and money at work.

How have business models shifted since the Covid-19 pandemic?

Not that we didn’t prioritise compliance beforehand, but there’s no mistaking that regulation has significantly impacted business models over the past five years. This compliance drive has been spurred along by the growth of digital technology in financial services - accelerated by the pandemic - and high profile banking failures.

At FIS, our response has been to consistently raise the bar on standards in critical areas such as lender reconciliation and KYC. And I see this as a major differentiating factor for our business.

I’m in no doubt that the focus on compliance will become even more intense, as new non-bank brands adopt embedded finance products. Firms that turn to FIS for our expertise and technology in this area can be reassured that we: A, are established, and; B, have demonstrated an ability to weather severe societal and economic turbulence.

The Fintech Spring: who’s driving the evolution of embedded finance?

While we offer program management to early stage brands, a big part of our strategy is based around the bank-centric model. This entails providing all the technology infrastructure and knowledge to empower banks to offer embedded finance programs to their clients.

Right now, I see embedded finance currently crossing a huge chasm. Historically, the landscape has been composed largely of smaller banks and innovators looking for a way to monetize data and gain customer insights.

That’s changing, and today we’re seeing larger financial institutions, merchants, and brands wanting to participate. These businesses will use the data to better target their customer base and it’s why I’m very bullish on embedded finance - it does feel like we are in the midst of a Fintech Spring.

Indeed, embedded finance is just getting started. And at FIS, we’re poised to help major corporations enter the space through bank partnerships and outstanding technological support.

The final word…

For me, the Fintech Meetup panel highlighted a positive vision for the evolution of embedded finance, built on a robust, bank-centric model powered by comprehensive technology and a deep understanding of regulatory requirements.

I believe the future will be driven by the participation of larger institutions and the strategic leveraging of data. There are without doubt many compelling opportunities ahead for those who harness the capabilities of resilient and innovative partners like FIS.

• With thanks to panel host Jason Mikula, Head of Industry Strategy, Banking/Fintech, Taktile, and co-panelists, Chris Dean, CEO & Co-Founder, Treasury Prime, Itai Damti, CEO, Unit, and Peter Hazlehurst, CEO, Synctera.