Blog

Browse Topics:

more

Top Fintech Insights: Embedded Finance, Real-Time Payments & Open Banking

mobile banking short

Even with the current turmoil in the markets, the Fintech industry continues to evolve and grow at a rapid pace. Since 2020, the industry has seen more growth and evolution across its many key sectors than most industries typically experience over a five-year period. Now, a select few sectors have emerged as leaders in the space, including embedded finance, real-time payments, and open banking.

As they say, knowledge is power! Attracting and retaining high-caliber Fintech talent has never been trickier. Companies continue to grapple with emerging trends in the space and areas of growth, especially with greater and greater market demand for skilled resources. Stay in the know with the following trends across today’s top Fintech sectors.


3 RAPID-GROWTH FINTECH SECTORS & TOP TRENDS


1. EMBEDDED FINANCE

In recent years, embedded finance has risen in both popularity and demand. Today, it’s morphing every company into a Fintech company. Embedded finance enables non-financial companies to offer bank-like services by partnering with a Fintech company to implement payment solutions. Current trends in embedded finance include:

RAPID INCREASE IN DEMAND

The increasing need for embedded finance is heavily due to the outcomes of COVID-19. More online shopping led to a highly lucrative retail and eCommerce industry. As consumers increasingly turn to a virtual shopping experience, companies are evolving new strategies to keep up with demand. During the pandemic, mobile payments became the backbone of companies that had to rely more on online business. That trend continues to increase significantly even in the post-pandemic economy.

EMBEDDED FINANCIAL EXPERIENCES

With the explosion of Fintech “infrastructure” like banking-as-a-service (BaaS) providers, modern card issuers, and KYC/AML platforms, it has never been easier to add financial capabilities to products and services. Using mobile and commerce as distribution points for financial services is now top of mind.

BENEFITS BOTH CONSUMERS & COMPANIES

Embedded finance capabilities help companies and consumers alike. Consumers benefit from a seamless payment experience, quicker time-to-checkout, and financial security when online shopping. Businesses benefit from happier customers, significantly higher conversion rates and less time spent reconciling purchases and payments.

A FOCUS ON SECURITY & SPEED

Improvements in API solutions have fostered a faster, more secure embedded finance infrastructure. According to Plaid, “Improving API solutions allow developers to programmatically access a financial institution's data without having to interact directly with their back-end systems. In general, APIs provide a faster, more secure, and cost-effective way to share financial data.”

MORE WAYS TO PAY

Embedded finance is now an integral part of the financial mainstream. Consumers regularly perform embedded finance activities, whether they know it or not! These can include making a purchase with Apple or Google Pay, investing through Mint or Robinhood, engaging in buy-now-pay-later (BNPL), buying something within a game or VR product, and more.

Embedded finance clearly isn’t going anywhere. However, the growth forecast is still a bit hazy. Globally, the sector could be on track to grow to anywhere from $248.4 billion up to $7 trillion over the next ten years.


2. REAL-TIME PAYMENTS

While the name says it all, Real-time payments (RTPs) are payments that are initiated and settled nearly instantaneously. They are typically facilitated by a digital infrastructure called a ‘real-time payments rail.’ RTP networks provide constant access to funds and are always online to process transfers. Current trends in real-time finance include:

THE EMERGENCE OF RTP NETWORKS

The Clearing House’s RTP network is currently the most prominent real-time payments network in the US. However, the Federal Reserve’s anticipated real-time solution, FedNow, is projected to launch in 2023. The big question is - who will have access? Typically, only licensed banks can access the Fed’s master accounts, and they will automatically have access to FedNow once it’s available. However, nonbank Fintechs won’t, and some argue that's a serious problem.

While nonbank Fintechs can use The Clearing House’s network, FedNow’s system is appealing because it could provide faster and more cost-effective services. Fintech companies and the Financial Technology Association are urging the Fed to make direct access more widely available, including letting Fintechs tap into it without going through banks. Approval would provide Fintechs more status on a federal basis and move them beyond a piecemeal state regime.

VALUE-ADDS FROM ALL ANGLES

Real-time payments bring massive value to both customers and businesses. For one, they're incredibly fast. Funds settle and become available almost instantaneously, a vital benefit for customers or merchants strapped for cash. RTPs have already significantly impacted the freelance workforce, in particular, as immediate payments can be made at the close of their shifts.

RTPs also enhance communication between buyers and sellers. They connect all payment data within one system to reduce key challenges faced throughout the payments and selling process. Their bidirectional nature adds transparency and reduces lag time, creating a more seamless and user-friendly process. This is easily seen when sending or receiving funds through Zelle, CashApp, Venmo, or Paypal.

BLOCKCHAIN TECHNOLOGY’S INFLUENCE ON RTP

Blockchain technology is enabling secure, ultra-fast RTPs through traditional US banks. The Digital Interbank Network, dubbed ‘The Network’, is the first private permissioned blockchain-based network to operate entirely within the US banking system’s existing framework. Ultimately, it’s the first to enable banks to offer consumers blockchain-based RTPs and other secure services.

The Network celebrated a milestone this fall, completing over $500 million in real-time transactions in 8-hours. This shows a significant step forward as banks continue to modernize their services, platforms, and security through blockchain technology. The blockchain will only continue to influence RTP from here.

RTPs may be the future of payments. The value-add offered by this sector is already drastically improving the lives of buyers and sellers around the globe, and it’s becoming more widespread by the day. As federal regulations develop surrounding RTPs and nonbank Fintechs, companies remain hopeful of a bright future.

3. OPEN BANKING & OPEN FINANCE

Open banking allows a customer’s banking data to be accessed by third-party organizations through application-programming interfaces (APIs). This enables banking and financial institution customers to authorize access to data for aggregation purposes. You can now authorize apps to access and download your bank data, including payments, transfers, transaction summary details, and more. Then, the app showcases a consolidated view of your financial standing. Current trends in open banking include:

MORE CONTROL OVER DATA

One of open banking's many perks is enabling consumers to control their own data. This is a powerful concept in an age where data is stretched thin and widespread. The ability to consolidate and intentionally share data allows customers to gain better deals and insights on products and services and know where and how their information is being used. Today, 80+ countries are introducing open banking, and the US is one of the leading participants.

COMPANIES ARE MAKING BIG HIRING MOVES

Businesses are catching on to growth within open banking. Many have aggressive hiring plans to develop their own product platform to aggregate consumer financial data. To achieve this amid Fintech’s continuing talent war, some partner with expert Fintech talent providers to secure the best in the business for their product development initiatives.

MORE ATTENTION THAN EVER

At this year’s Money 20/20 Fintech Conference in Las Vegas, themes surrounding open banking were the talk of the show, with speakers and exhibitors all focusing on current trends in this sector. For instance, Rohit Chopra, Director of Consumer Financial Protection Bureau, made his belief clear that the data portability provided for by open banking is key to promoting competition in financial services.

The open banking sector is expected to grow to $48.13 billion in 2026 at a compound annual growth rate (CAGR) of 25.9%. Ultimately, its offerings surrounding data management and sheer convenience drive the sector’s movement to the top of Fintech’s portfolio.

 

WHAT'S NEXT?

Fintech has emerged from the economic bumps of 2022 - none the worse for wear and, in some ways, even stronger. You can expect nothing but growth in the future for Fintech's embedded finance, real-time payments, and open banking sectors!

The trends emerging in these market sectors will only continue to drive a digitally modern financial world and enhance the value on both the customer and business fronts. As Fintech evolves, the only way for companies to stay ahead of the curve is by remaining current and knowledgeable of new developments.

Related Posts

Fintech's Revolution & Newest Players Read Post 4 Keys to Scaling a Global Fintech Software Engineering Team Read Post Fintech's Talent War: 5 Strategies to Attract & Retain Top Fintech Talent Read Post