Besides our fourth Best of Show Award, which we couldn’t be more grateful for, of course! FinovateEurope 2022 was the perfect way to celebrate our first demo since we’d joined forces with BSC to create Finshape, plus our long-awaited reunion with hundreds of fellow fintech enthusiasts after two years. We also heard some truly inspiring and thought-provoking discussions on stage – here are three observations from the fintech arena that gave me the most food for thought.
1. Embedded finance is no passing fad
Embedded finance, aka financial services offered outside the realm of financial services (think Klarna or Acorns), is here to stay, no doubt. In fact, it’s forecasted to bloom into a $138-billion-market by 2026, from just $43 billion in 2021, with insurance premiums, transaction revenue, licensing costs and all. In a recent interview I read on TechCrunch, Nick Root, co-founder of embedded banking newcomer Intergiro, perfectly summed up what’s happening on this front: “If you look at how tech emerges, how Intel abstracted the chip, how Google abstracted internet links, how Facebook abstracted the social graph. A similar thing is happening right now in finance, and it’s going to pervade every consumer interaction. So you’re going to see money in products that you didn’t expect to see.”
Celent Head of Retail Banking and Analyst All Stars speaker Zilvinas Bareisis explained: “At the heart of embedded finance is the idea that customers are out there, doing their own things and, as they do those things, they realise that there might be a need for a financial services product, which is something they can acquire right there and then. [It’s] not new; you and I have probably bought car insurance at the same time we bought our car at the dealership.” What’s changing is ease of access, the number of options and the cushy experiences these services are now wrapped in. This is in no small part due to a rapidly evolving technology landscape, more specifically, the increasing availability of APIs from financial services vendors (Finshape very much included), lowering the barriers to entry.
2. Fintechs, on the other hand…
True to form, Chris Skinner was not afraid to ask fintechs the tough questions. Or anyone, for that matter. During a much talked-about roundtable, “innovation catalyst” Andrew Vorster, RBS International Head of Digital Jamie Broadbent, self-proclaimed fintech fanatic Ghela Boskovich and The Finanser blogger reflected on the scale and speed at which fintechs have disrupted the financial services industry. Which, according to them, is nothing to write home about.
The newest cohort of industry players, challenger banks especially, has vowed to shake up the status quo, liberating consumers from the clunkiness and overall uncoolness of traditional banking while pulling in profit left, right and centre. And yet, most of them are still struggling to grow beyond a low-single-digit market share and continue to throw money at loss-making business models, relying on VCs to foot the bill.
This is very similar to what Chip CEO Simon Rabin recently talked about on Financial News, lamenting fintechs’ obsession with satisfying customers with UX and their ignorance of whether or not what they’re offering could ever be profitable. “The result is they have relatively large customer bases that are using their product [and] features, but they are not generating revenues for the business, and I would question the long-term sustainability of that.”
It’s hard to disagree, but as far as my two cents go, it’s also important to be realistic about what fintechs are trying to accomplish. No industry has ever been overhauled in a couple of years, but that doesn’t mean a transformation is not underway.
3. What’s green and inclusive? Not banking, but there’s hope
Sustainability featured heavily on stage, during demos, presentations and panel discussions alike. Forrester Principal Analyst Aurélie L’Hostis was one of the speakers who weighed in on the topic, discussing the massive opportunity – and need, honestly – for fintechs to collect and make sense of environmental, social and governance data, promote financial inclusion and drive the green finance agenda forward. Several demos featured solutions that nudge consumers to make greener decisions (including our Money Stories), but, as Forrester Research Director Oliwia Berdak points out, there’s tons more to be done.
The same goes for inclusivity. There are still 1.7 billion adults worldwide without an account at a financial institution or a mobile money account. And we’re not just talking about developing and emerging countries here. The COVID-19 pandemic has fast-tracked digitisation and lowered the number of unbanked consumers. But the number of underserved ones has also soared in parallel. According to L’Hostis: “While digital technologies have created opportunities for many people to get easier access to financial services, unreliable internet access and the lack of affordable tools or digital skills have also created a digital divide.”
Interestingly, this sentiment was echoed in a recent post by Tech Nation CEO Gerard Grech about the biggest takeaways from this year’s Fintech Week. According to the FCA, he cites, nearly four in ten adults in the UK, some 20 million people, were hit financially by the pandemic. One in six saw their financial situation seriously worsen, including the poor, the young and the underprivileged.
Grech praises the UK’s fast-scaling fintechs for their efforts to drive inclusion within the industry but stresses that it’s not something they can – or should – do alone.
“In 2022, I hope we will see momentum build as more and more of these fintech ideas and developments become entrenched in the fabric of the UK financial sector,” he writes. “Let’s continue building a sector that provides financial products and services which are innovative, useful and – above all – accessible to everyone.”
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