The great illusion: how financial services are ‘disappearing’

Posted on February 8, 2022
The great illusion: how financial services are ‘disappearing’
"Great illusions challenge what we think is possible. Embedded Finance is doing the same. It’s challenging decades of received wisdom about how and where we should use financial services."
OpenPayd Editorial Team
OpenPayd Editorial Team
February 8, 2022

Are you watching closely? Good, because something surprising is happening in finance. Blink and you’ll miss it.

Good illusions take you on a journey, so let me do the same. Imagine it’s 2026. You need to go to the supermarket so you rent a car from a car sharing service. You unlock the car with an app on your phone, drive to the supermarket and start shopping. The app instantly charges your bank account for the trip.

At the supermarket, you choose your eggs, your milk and your bread, then you walk out of the store. No more check-out line to stand in, no more scanning every item in your basket. The final bill for everything you bought is automatically deducted from your account with the supermarket, without you lifting a finger.

It’s a nice day, so you decide to walk home and get a coffee on the way. You pop into your local coffee place and learn that they will round up your loose change on every order and invest it in green businesses on your behalf. With a few clicks in the coffee shop’s app, your new investment portfolio is up and running in seconds.

So, what’s going on? Where are the banks, the credit card companies, the wealth managers? Where have all the financial services gone?

Well, as with real illusionists who make things ‘disappear’, they’re never really gone, they’re just not where you expect them to be. This is Embedded Finance – taking financial services like payments, loans or investments and integrating them into everyday products and services.

Now you see me… Now you don’t

The examples I’ve imagined above are still in their infancy. But make no mistake, Embedded Finance is already here. Today, businesses which have no background in providing financial services are incorporating them into their offering, enhancing the products and services they provide to their customers.

There are two reasons this has been possible. The first is regulation. In the UK, banks now have to grant access to customer data to third-party providers, and even allow them to make payments directly from a customer’s bank account, should the customer want them to. Non-financial companies have been quick to jump on this to build simpler, more intuitive customer journeys. Ride hailing apps like Uber have set the pace – automatically deducting their fee from your bank account as soon as you get out of the car. No entering card details for each trip or even confirming the payment.

The second reason is the continuing trend towards digital finance over cash. We are all accustomed to paying for things electronically. Many people now have no reason to go into a bank. In China, where SuperApps like WeChat and Alipay dominate the market, cash has more or less disappeared.

Those two factors have unlocked a host of benefits for businesses: increased sales, better customer relationships, lower operational costs and even the opportunity to build entirely new business lines.

Now, Embedded Finance is going mainstream. OpenPayd recently commissioned the largest ever independent study into Embedded Finance. We found that 92% of business leaders plan to launch some form of Embedded Finance within five years – 73% within the next two.

These businesses are looking around them, seeing the successes of Embedded Finance today and applying those lessons to their own operations.

So what does Embedded Finance actually look like?

If you want to understand what those first movers in Embedded Finance look like, you don’t have to look far. From shopping online to buying your next car, financial services are being embedded in everyday products in surprising ways.

Embedded Banking – Shopify: Shopify has allowed small businesses to accept payments for some time. Last year they took things up a notch. They noticed merchants were using their personal bank accounts to receive payments, which makes it harder for a small business to track income and expenses. Through Embedded Banking, they launched Shopify Balance, a full bank account within Shopify to help their merchants track their expenses and manage cash flow in one place.

Embedded Insurance – Tesla: Currently being offered in California, customers can purchase their car insurance through Tesla when they buy a car. Tesla hasn’t hired an entire insurance team and become a financially regulated insurance provider, it has simply plugged these services in from a third-party. This move means they will receive huge amounts of data on their cars and causes of common problems, and in turn their customers get instant insurance at an affordable rate. Win-win.

Embedded Lending – Klarna: An increasingly common option when shopping online is to ‘buy-now-pay-later’, with Swedish payments company Klarna popularising the method. This is hugely popular with consumers for obvious reasons and helps retailers tackle the problem of checkout cart abandonment (which is, on average, about 73% of items). Klarna have made Embedded Lending easy to integrate, so on many e-commerce sites it will appear as if this payment option is coming directly from the brand we’re shopping with.

Embedded. Accessible. Invisible.

Embedded Finance will be worth $7.2 trillion by 2030. As more and more businesses embed financial products and services, the way in which we access, invest, save, send and spend money will completely change.

As a result, we’ll be better insured, making smarter investments, purchasing what we want in a matter of seconds and paying for it on terms we choose ourselves. Financial services will have become so common, so accessible and so easy-to-use, it will almost feel like they aren’t there at all.

Great illusions challenge what we think is possible. Embedded Finance is doing the same. It’s challenging decades of received wisdom about how and where we should use financial services. And it lets us build a world where financial services have become invisible in our daily lives.

You could call it “magic”.

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