Buying vs. building is not going away, it’s accelerating in the business world.

This is an extract from the recently published report, 'The Future of UK Fintech - 2015-2035'.

• Three in five (60%) UK adults has used embedded finance services as part of the checkout process when shopping online in the past 12 months.
• Embedded finance services include the use of an e-wallet such as PayPal or Google Pay (used by 42% of UK adults in the past 12 months); Buy Now Pay Later (BNPL) solutions (17%); automated savings or donations (15%); purchase insurance (13%); or a loan at point-of-purchase (6%).
• Embedded finance services are particularly popular amongst younger generations, with four in five (80%) within the 18-34 age bracket having used one in the past year.
• Of customers that use embedded finance services, 38% do so at least once a month, citing appealing features including speed, convenience, security and user-friendliness.
• Despite their benefits, use of embedded finance services such as BNPL is not expected to increase in next 12 months amid rising inflation and cost of living.

Partnering with another company to provide a service to customers that is outside of an enterprise’s own traditional expertise has become increasingly prevalent, and in many cases, more profitable for both partners involved.

When it comes to banking, what might have begun as a disintermediation play - with financial technology upstarts attempting to outdo established, entrenched competitors through employing better technology, enhanced support, or other advantages to improve standard banking products and services - has now extended well beyond the financial realm itself.

Indeed, over the past ten years, fintech development has expanded its reach into the non-financial world in a number of ways. Embedded finance offerings started the trend, which continues today, of non-bank providers using eager (and often smaller, niche banks) as partners to create many new, more flexible products and services to go beyond traditional payment rails and methods.

These include specialty investment management, insurance, accounting, lending, and any number of domestic and cross border payment processing services. Cryptocurrencies, accounting, and personal finance, as well as the early embedded finance practice of payroll outsourcing have all grown tremendously in usage as well under the aegis of their enterprising fintech founders.

In the opinion of Emma Kisby, Cogo CEO, EMEA, companies that once aimed mostly at improving products or practices within the banking sector have enhanced their value by focusing more closely on the appetites of the industry’s clients, going beyond improving daily financial activities and practices alone.

“Fintech has been pivotal in shifting the power and emphasis to addressing consumer, rather than just banking, needs. We’ve seen this at Cogo, where our technology helps banking customers lower their carbon footprint based on their personal spend.”

Cogo, Kisby said, knew from its own research that banking clients sought ways to more easily measure their carbon emissions, part of a larger category of emissions (including extremely harmful methane) called ‘greenhouse gases” or GHGs.

They created products to help them do this, yet the company chose to work closely with banks to develop the market because of the collective size of the global financial institution sector’s huge customer base.

Partnering with banks to serve their customers allows Cogo to more quickly achieve the company’s sustainability mission and objectives, and is good business for all, Kisby said. “It also helps banks as they look to lower their overall climate impact.”

This dual-track approach to tackling climate change challenges has been quite successful, in Kisby’s estimation. “In the past three years alone, we have seen carbon footprint innovation scaling, for example at Cogo we have gone from working with one bank in the UK to working with 16 banks globally,”, she said.

Carbon tracking is certainly a prime example of the many newer, and notexplicitly-financial disciplines that fall under the scope of fintech services now.

Blockchain and decentralised finance (DeFi) products based on the use of secure distributed ledgers, cloud-based transaction processing and data management, and expanding the universe of connected devices via the Internet of Things (IoT), are others.

But don’t forget the already-established providers offering more mature products and services from the ‘early days of fintech technology development and disintermediation.

According to Todd Pollak, chief revenue officer, Marqeta, just as AI has suddenly become a hot topic for everyone in probably ever corner of society, embedded finance is likely to continue moving into the mainstream of daily life, as customer demands grow for integrated non-financial offerings. It won’t be ‘business as usual’ anymore.

“As a result”, he said, “rather than the fintech market working with brands, financial technology will become integrated into companies' existing offerings, and brands will increasingly embed their own branded payment and credit cards into the shopping experience.”

It’s not just about new products, though, noted Pollak. He pointed out that even existing fintech products will be transformed.

“For decades, legacy card providers have treated each cardholder the same, with identical rewards and offers. However, as payment technology improves, brands will be able to spin up cards for new users instantly without having to stitch together multiple vendors. Simultaneously, card programmes would have the ability to harness the multitudes of data brands have collected about each cardholder/ customer to create products with personalised rewards engines, individualised spending controls, etc.”

Cogo’s Kisby agreed that creativity from outside the industry is helping to fuel substantial change, as she outlines a very common structural challenge confronting legacy financial services companies who want to keep up with escalating client appetites and expectations.

“Customers want hyper-personalised and seamless banking experiences. Banks recognise the need to align their offerings with growing consumer demand, however, some are hindered by outdated systems and a lack of customer data.”

These changes in the banking marketplace will not come without their own obstacles, says one expert Gurdeep Singh Kohli of SC Ventures. “As adoption of embedded finance becomes more ubiquitous, people will use it to do more interesting things, but these newer fintechs will consume and be consumed within the ecosystem via APIs.”

Nearly every observer agrees that the way ahead will be rollicking for the industry, and quite rocky for even some of its main players.

But the disruption of standard practices in financial services that has enabled fintech’s growth since its early days will continue to be a part of its further expansion over the next ten years.

Lauren Jones, SVP global advisory for Konsentus – dedicated to creating and managing open finance ecosystems like those referenced by Kohli – sees open banking-related innovations, even in more typically ‘sedate’, established financial sectors, continuing.

“Supply chain management and international trade can benefit significantly not only by the sharing of financial data, but also by unlocking data siloes across the whole trade finance sector. Additionally, combining this (data) with the end payment can reduce what is again a heavily paper based industry. It is exciting to see what open banking can deliver in this space.”

SC Ventures’s Kohli believes digital assets and tokenisation will be a part of this ongoing transformation of the field of finance.

“Digital assets and tokenisation will disrupt ownership and promote fractional ownership, and perhaps supply chain tracking/financing”, he says, providing a specific example from his own company. “We recently launched Libeara, a tokenisation platform, which aided the creation of the first tokenised Singapore Dollar Government Bond Fund for investors. Moody’s recently gave the fund an AA-rating.”

Further, in mentioning a discipline that dovetails closely with Cogo’s area of emphasis, Kohli predicted that ESG will rise in prominence. “We are currently incubating two ventures, one will provide (a) ESG reporting platform for multinational corporations, SMEs and financiers, while the other is a sustainable finance platform that allows retail customers to reach their financial goals while supporting sustainable development and the fight against climate change.”

While Kohli says his company believes collaboration will also increase between fintechs in the emerging fields of proptech, regtech and healthtech, Cogo’s Kisby cautions against overemphasising “nice to have” industry technology advances while potentially neglecting the pressing central, societal need for additional sectors of businesses, as well as governments and individuals, to step up to systemically stem the tide of rising carbon emissions.

“We cannot ignore the effects of the climate crisis, so we expect that innovations made within climate fintech, and in particular carbon management, will move into grocery, manufacturing and transport. Conversations are starting with these industries, but they are considerably behind the finance industry in helping to support their customers in managing their carbon footprint.”