Infrastructure that enables next gen fintechs

The concept of Integrated Finance has emerged as a game-changer in the financial industry, enabling the democratisation of access to financial technology. Just as software industries have made services more accessible and affordable, Integrated Finance is revolutionising the way financial services are delivered and consumed.

In this article, we will explore the evolution of financial services technology, the need for financial infrastructure, its key components, use cases, and the impact it has on the market with Integrated Finance’s Co-Founder, Alistair Cotton.

Additionally, we delve into overcoming cross-border challenges, regulatory compliance, simplifying complex processes, and speculate on the future of financial services.

Keep reading for the key takeaways from the episode or 🎧 listen to the full Commerce Code podcast here.

How has financial services technology evolved?

Financial services technology has undergone a significant transformation over the years. It has transitioned from monolithic, expensive, and complex systems to a more modular and accessible approach. Successful entrepreneurs recognised the potential in unbundling financial services, resulting in a diverse range of individual software solutions. This led to the rise of API-driven firms that power various financial services, presenting new technological challenges for businesses.

What is Integrated Finance?

Integrated Finance has emerged as a platform that aggregates the key services required to build a financial platform. It eliminates the need for businesses to integrate multiple software solutions individually, reducing costs and technical burdens. By leveraging Integrated Finance, companies can focus on building customer touchpoints and product differentiation, rather than getting caught up in the intricacies of technical implementation.

To grasp the significance of Integrated Finance, imagine a stereo receiver or a CPU with multiple USB ports for plugging in different peripherals. Integrated Finance acts as a universal plug for financial services, simplifying the process for companies to work with critical software pieces. It provides a standardised and seamless experience for businesses, enabling them to access and utilise various financial services through a single interface.

What are the key components of Integrated Finance?

Integrated Finance encompasses several key components that play a crucial role in enabling businesses to offer financial services. These components include bank accounts, cards, onboarding software, compliance solutions, and seamless scaling capabilities enabled by multi-provider orchestration.

Fintech use cases

Integrated Finance has proven to be instrumental in various fintech use cases. Digital banks can utilise Integrated Finance to build their infrastructure and offer bank accounts, cards, and compliance services to niche audiences. B2B lending companies can control fund flows for lending purposes, while crypto companies can issue bank accounts for sending and receiving funds in cryptocurrency wallets. Investment companies can benefit from Integrated Finance by offering bank accounts in multiple currencies for managing customer funds.

How to overcome cross-border challenges?

For fintech companies, dealing with multiple currencies and jurisdictions poses significant challenges. Integrated Finance helps businesses navigate these complexities by providing expertise in cross-border payments and multi-currency support.

Regulatory challenges and compliance

Regulatory hurdles have increased, especially for companies dealing with multiple countries. Integrated Finance addresses these challenges by building best-in-class workflows and partnering with providers in various jurisdictions. The flexibility of the platform allows customers to create customised compliance solutions based on their preferences and banking partners, ensuring adherence to regulations while streamlining processes.

Simplifying complex processes

Integrated Finance simplifies complex processes by standardising workflows and using checklists as templates to handle regulatory requirements. This approach makes financial technology more accessible to individuals outside traditional finance backgrounds. It empowers non-finance experts to build businesses based on their understanding of customer needs, without the need for extensive financial expertise.

How does Integrated Finance impact the market?

The increased accessibility and affordability of financial technology through Integrated Finance are set to reshape various sectors. Neo-banks can offer comprehensive services, competing with traditional banks. Lending and credit services can streamline operations and enhance the borrower experience. Cryptocurrency companies can expand their reach by integrating financial services into their platforms. Investment firms can manage customer funds efficiently with Integrated Finance, enabling diversification and global market access. Embedded finance solutions will experience growth, providing added value to customers across industries.

Looking ahead, the future of the financial sector will witness continued innovation driven by embedded banking technology. Financial services will become more inclusive and user-friendly, embedded within platforms where users spend their time. A middle layer or orchestration layer will ensure seamless interactions between platforms and regulated service providers, facilitating secure data exchange and compliance.

What is the future of financial services?

The future of financial services is marked by a significant shift towards embedding financial capabilities into platforms where users already spend their time. Rather than relying solely on direct delivery by financial services companies, the industry is moving towards integrating financial services seamlessly into the platforms that people use daily. This integration allows for a more convenient and streamlined user experience, eliminating the need for users to navigate multiple standalone applications or websites for their financial needs.

To facilitate this transition, the importance of a middle layer or orchestration layer cannot be overstated. This layer acts as a bridge, facilitating interactions between the platforms and the regulated service providers. It ensures that data exchanges, transactions, and compliance requirements are handled smoothly, while also maintaining the necessary security and regulatory standards.

Impact on the competitive landscape

The increased accessibility and affordability of financial technology are expected to have a profound impact on the competitive landscape. As financial services become embedded into various platforms, there is speculation that new players, such as neo banks, embedded banking providers, lending and credit companies, crypto firms, and investment companies, will experience a rise in activity.

The concept of banking becoming a utility is also being explored, with the role of big banks transforming into warehouses of money. As financial services become more accessible and modular, big banks may shift their focus towards providing the infrastructure and underlying services that power the embedded finance ecosystem. This shift would allow them to continue playing a crucial role in the financial industry, albeit in a different capacity.

Regulation and practices

The relationship between regulations and practices in the financial sector is continuously evolving. In an imagined scenario, regulations and practices could compete and align with each other. This alignment would ensure that regulations enable innovation while maintaining the necessary safeguards for consumers and the financial system as a whole.

Automation and sweeping between different utility warehouse providers may play a significant role in meeting regulatory requirements. By automating processes and utilising sweeping capabilities, businesses can streamline compliance and mitigate the burden associated with regulatory obligations. This approach would allow companies to focus more on innovation and idea execution rather than getting bogged down by complex compliance procedures.

How to increase activities in the financial sector?

By streamlining processes and providing the necessary infrastructure we can empower entrepreneurs and businesses to enter the financial sector and offer their unique solutions. This increase in activity contributes to the evolving marketplace and has the potential to shape future generations' understanding of finance and economics.

The transition to software-software transactions

As financial technology evolves, there is a noticeable shift away from traditional human-human transactions towards software-software transactions. This transition is driven by advancements in technology and the growing capabilities of artificial intelligence. Voice assistants, for example, can now make purchases on behalf of users, showcasing the potential for software to handle transactions independently.

Authentication, authorisation, and confidence

In the context of software transactions, authentication, authorisation, and building confidence are paramount. Establishing trust in software transactions is essential for their widespread adoption. Drawing parallels to limit orders in the stock market, where individuals authorise machines to perform certain actions, highlights the need for a reliable and secure system of authentication and authorisation in software transactions.

Trust in finance

Trust is a crucial element in the financial industry, and the conversation explores interesting questions regarding trust in the context of embedded finance. While big banks have traditionally been associated with trust, new players like Apple are entering the financial arena, raising questions about whether they can match the trust established by traditional institutions. Building trust is essential, especially when it comes to storing people's money on a large scale. The ability to instil confidence in users and ensure the security of their funds is paramount in the success of embedded finance initiatives.

Conclusion

In conclusion, by democratising access to financial technology we can revolutionise the financial industry. Businesses can integrate financial services into their core offerings, reducing costs and focusing on customer touchpoints.

The future of finance lies in embedding financial capabilities into platforms, providing a streamlined user experience. Regulatory compliance, simplified processes, and trust are crucial considerations.

The increased accessibility of financial technology reshapes the competitive landscape, with neo-banks, embedded banking, lending, credit, crypto, investment, and embedded finance solutions experiencing growth.

Looking ahead, Integrated Finance will drive further innovation, making financial services inclusive and accessible while ensuring compliance and security.