Late users of “integrated finance” must catch up quickly
It is too late to enter the ground floor of integrated finance. Companies from Uber to Stripe and Starbucks make financial products available directly to customers, workers and customers. And major fintechs have partnered with banking companies to form the technology backbone of the industry. All in all, this brought in $ 22.5 billion in revenue last year and that’s just for newbies.
But this head start does not mean that the race is over and that the share is blocked. There is still a tremendous amount of innovation – and growth – to come. Market analysts predict the integrated finance industry could generate $ 230 billion in the United States alone by 2025, and $ 7.2 trillion globally by 2030, more than annual revenues combined from the 30 largest banks and current insurers.
Banks and credit unions will play a crucial role in the future of integrated finance. Those looking to expand in this area still have opportunities to do so – if they can expand into untapped corners of the market or exploit opportunities to differentiate their offerings from others.
Why this is important:
While direct sales from traditional financial institutions could suffer, retail brands and fintechs will rely on them to open accounts and remove regulatory hurdles. For traditional financial institutions, a new account is a new account and a transaction is a transaction – partnerships mean growth.
For banks that have established themselves on the ground floor, integrated financing represents a tremendous opportunity for expansion. For those who haven’t, it’s about how quickly you can get your tech house in order, and if you have anything new to bring to the industry. Consider the two fronts.
Integrated finance includes several banking activities
Much of the growth in integrated finance over the next decade will come from areas that are already widely adopted: digital wallets, branded credit cards, contactless payments. But integrated payments are just one sub-sector of integrated finance. Others include integrated financial tools and integrated loans.
And all of them present strong opportunities to meet consumers where they are – online and on mobile devices. McKinsey interviewed executives from across the business landscape and found that due to Covid-19, “companies have accelerated the digitization of their interactions with their customers and their supply chain and of their internal operations by three. at four years “.
The pandemic had an immediate impact on the financial sector. In April 2020, JD Power reported that 30% of consumers had increased their use of mobile banking apps and 35% were using online banking services more. While these numbers may fluctuate as the in-person economy continues to reopen, the general trend of digital adoption will only increase as Millennials and Gen Z become an increasingly important part of the world. consumer audience.
What to watch:
Integrated finance will be at the center of this digitally-driven financial industry as businesses realize the benefits of cutting out middlemen and managing their own financial products and services – from payments and payroll to instant loans to the bank. issuance of their own credit. or debit cards.
Big tech has driven early innovation in integrated finance, the next stage of growth will occur in small businesses partnering with fintechs or savvy financial institutions to deliver customizable solutions without requiring internal teams to perform the complicated work of development, coding and compliance.
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Partnerships may be the best approach for small players
Like most businesses outside of Silicon Valley and Wall Street, many banks and credit unions lack the resources to develop their own integrated financial infrastructure, or the marketing budget to launch a nationwide distribution campaign behind. these services. This is why many financial institutions, realizing the potential of Bank as a Service (BaaS) – offering white label or co-branded products and services – are turning to intermediaries to enter the space.
Most of today’s financial institutions aren’t ready to partner with pioneering fintechs in integrated financial technology – they’re lagging behind. These partnerships are forcing banks and credit unions to speed up their internal processes for opening accounts, approving loans or issuing debit cards. Beyond that, they must be ready to adapt these services to a national or global market.
Institutions must first integrate with fintechs, which requires a digital transformation of their own. It means building a data infrastructure that can be exposed to a third party. By analogy, imagine handing over your office to a stranger and expecting them to find particular files, folders, and data.
You might have a system, but it’s probably only intuitive to you.
Data operations in most banks run on existing systems and spreadsheets that require in-house expertise to be used, with the data siled within the departments most likely to use it. And turning those systems into an intuitive, API-friendly data infrastructure requires a lot of time and investment, and possibly a consultant to manage the change.
But it’s still much cheaper than the alternative, which is to develop your own integrated finance technology and then fund distribution and marketing to reach businesses that might want to use it.
Growth opportunities for those who dig deeper
Integrated finance is potentially as broad as the financial services industry itself, and opportunities for deployment exist in every consumer segment. Think of the phone companies offering instant microloans or prepaid debit cards or your local cafe running its own payment system, rather than paying a share to an outside provider.
There is a corollary to the growth of electronic commerce. What started out as a patchwork of vertical sellers selling particular items – books, diapers, or fine wines – is now an online marketplace for everything. Entrepreneurs have tapped into millions of opportunities along the way, making new products available, then streamlining and consolidating the sales and delivery process.
For financial institutions looking to break into the integrated finance market, differentiation will be key.
- What products and services can you offer to expand the fintech market or consumer-oriented partners?
- What services would make people’s lives easier, if only they were easier and more widely available?
As with e-commerce, early entrants into integrated finance have a head start – and may remain dominant players in the space for some time. But between the industry’s current $ 22.5 billion in annual revenue and the $ 7.2 trillion forecast for 2030, there is plenty of room for new players and new ideas.
For banks and credit unions investing in technology, an opportunity awaits.