It’s getting personal

Lindsay Davis of earned wage access fintech Atomic and Steve Lemon of cross-border payments specialist Currencycloud on taking the relationship with consumers to the next level – and what’s holding it back

The future of finance is embedded and resistance is futile.

A fast-growing ecosystem built on the premise of consensual sharing of data is poised to help companies get to know us in the most intimate of ways – through our employment history, tax filings and other personal data – allowing retailers and other non-FS organisations to abstract financial services from banks and offer them to their customers.

It’s a game-changer to which more traditional business models, such as those relied on by many incumbent retail banks, will need to radically adapt. The focus so far has been on streamlining payments, lending and insurance, based on bank data. But that's just the start: the data streams that can be used to make supersmart finance a reality are pretty much limitless.

Take Atomic, the fintech power behind payroll connectivity. Intelligent earned wage access, Atomic would argue, helps level the financial playing field, not just for the low paid but also the growing number of freelance/gig economy workers. Not least, it could save them from being hit by some of the $4billion in overdraft fees earned by US banks last year.

Lindsay Davis, head of markets at Atomic, argues the insights that can be garnered from looking at the flow of money in and out of an account are fundamentally limited if all you are seeing is bank data – and particularly bank data supplied by aggregators, which is, necessarily, after the fact. Whereas, if you have direct access to data on your consumer about their income and employment history, you can build a product road map that is aligned with where they truly are in their financial lives.

And while that’s a threat to the traditional model of banking because the products they’ve relied on for so long to create revenue suddenly look a pretty poor option from the consumer’s perspective, if banks embrace the

And addressing how the look of the marketplace is altering. Lemon adds: “In terms of the brands, there are the constituent parts of embedded finance, the organisations providing the underlying service, but there are also those that are now able to offer financial services as part of their brand line-up. It gives completely non-financial services-led organisations the ability to offer banking services, payment services, credit card services, etc.”

Lemon sees embedded finance increasingly making the transaction happen in the background with ‘no limit’ to the kinds of financial service that can be provided. Elaborating, he says: “I think in the years ahead it’s about abstracting away the friction, the pain point in a journey.

“Nobody wants to go and buy, nobody wants to go and take out a loan, nobody wants to go and take out a mortgage, nobody wants to go out and make a payment. They don’t choose to go and interact with their bank, to make a payment, or execute an insurance policy; it’s normally a by-product of something they’re doing. So, if you’re buying a car, you’re buying a car, you’re not taking out a loan; if you’re buying a house, you’re not taking out a mortgage and the associated insurance products that go with that.

“So I think in the future you’re going to see more and more consumer brands in all areas, whether that be retail, automotive, big techs like Apple getting onboard – Amazon and Google are already doing it. You’re going to see a proliferation of transactions that just happen organically in the background, without a conscious need to go and execute them via your bank.”

And it’s not just individuals who will benefit. Davis sees embedded finance carrying huge advantages for businesses of all sizes.

“Offering BNPL enables retailers to improve the lifetime value of their customer, reduce friction and increase

concept, it can unlock new business lines. Take buy now, pay later (BNPL); a runaway success with consumers that was resisted by the establishment until the tide of adoption by retailers made it futile to resist – many banks came up with their own options or integrated with providers.

“Now you’re seeing all the cards are getting very aggressive in BNPL. Square making the acquisition, earlier this year, of Afterpay, is sort of validation that this is very much an area that is not going to go away, and a payment method, ultimately, that’s going to be long-term,” says Davis.

Steve Lemon, founder of cross-border paytech Currencycloud, traces the current explosion in embedded finance back to the aftermath of the 2008 financial crash, when venture capitalists invested heavily in specialist financial services organisations that saw opportunities to use technology to take on the banks.

There are several different styles of embedded finance companies, but I think there is going to be a petering out for the ones that don’t understand the regulatory frameworks and the complexity

Lindsay Davis, Atomic

“It’s the expansion of the API-led economy that’s really, really driven this forward,” he says.

“The rebundling of financial services, and banking-as-a-service (BaaS), are bringing together best-in-breed providers of payments, lending and insurance, and presenting the best components, to give customers a really consumable service.”

conversion rates,” she says. “From a lending perspective, embedded finance provides opportunities for businesses to get access to a loan – it’s not easy today for a small business to qualify, to be underwritten, and to have to physically walk into a bank branch is onerous. And then there’s the data connectivity side of things. Being able to get access to that small business’ hub of data, that lives in other financial products and services, via APIs, enables them to run more seamlessly and decreases their cost of operations. So, there’s a lot of angles that can be impacted here.”

Embedded finance really is multifaceted and it’s just going to become more prolific and easier to do

Steve Lemon, Currencycloud

And there are plenty of solutions on the ramp; although getting them out to the market is still a challenge. And it’s one that Atomic has formed a partnership with US embedded finance specialist Bond to address. Together, they are working on providing an embedded finance infrastructure that does the ‘heavy lifting’ of financial regulatory compliance for product developers, allowing them to be up and running within hours.

Such a network would offer developers an easy way to integrate with distributors of potential products, and learn what is and isn’t possible before they even waste the time writing the code for use cases.

Underscoring the difficulties for those trying to go it alone, Davis says: “We’re starting to see companies getting hit with the initial blowbacks of the General Data Protection Regulation, we’re seeing the state of California adopt a similar style model with the California Consumer Privacy Act (CCPA). All this means that it’s going to become much harder to get up and running.

“So, I know that there are several different styles of embedded finance companies, but I think that there is going to be a petering out for the ones that don’t understand the regulatory frameworks and the complexity of it.

“You can’t just, well, maybe you can build an API, but you’re playing with people’s money, and you’re playing with their non-public information.”

In the US, compliance requirements differ in all 50 states – a huge source of frustration for both Davis and Lemon.

“When you have an open banking framework like Europe’s there’s an opportunity for fintech companies to go to market and build products and services,” Davis says. “In the US, we’re pretty hamstrung, because we don’t have it and it’s been pretty disjointed. Abroad, the regulators are actively empowering fintech companies to build these services, and it’s a huge benefit for end-consumers.”

That said, some opportunities provided by embedded finance, such as investing in stocks – a path followed by Currencycloud, which has arrangements with DriveWealth and Alpaca – have divided opinion over whether embedded finance is making services too easy for customers to consume. Proponents say that, in this context, it encourages more first-time investors, while critics argue it can encourage high-risk, short-term trading, rather than long-term investment.

Lemon believes embedded finance is an unstoppable tide. “It’s multifaceted and it’s going to become more prolific and easier to do, with the platformification of financial services,” he says.

Indeed, Atomic’s and Bond’s infrastructure solution will hasten the arrival of that future. Davis hopes it will provide a catalyst for the next generation of fintech to focus on innovation as well. Atomic’s efforts to ‘unbundle the pay cheque’ is just one way embedded services can make finance more personal and therefore capable of reaching a much wider demographic.

Davis says: “Among the leaders in this, aside from Uber, would be Grab and Gojek in Southeast Asia, which are moving a fully cash economy online and offering, essentially, bank accounts. This is a huge opportunity for the unbanked populations of the world to access fair and transparent financial services, that don’t charge them a thing because they’re embedded within an experience they’re already coming to love and trust.”

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Access to more granular personal data will make life – particularly if you’re unbanked – easier