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Interview: Embedded finance - the future forward

Josh Cogan, Finastra, embedded financeWhat drives non-financial enterprises to offer financial products and services to their end-users and communities? Josh Cogan, lead client partner, banking-as-a-service, Finastra, explains.

What is the impact of embedded finance on customer experience and inclusion? 
The top three drivers of embedded finance are customer experience, accessibility and optimisation. The objective is to build a frictionless end-to-end proposition for end customers by solving as many problems as feasible. For example, booking.com initially acted as a software services platform offering booking services to end users. Still, with banking as a service (BaaS) embedded in their system, the company can accept payment for its services. 

Secondly, the unbanked population needs access to financial systems that they fail to receive from the traditional banking community. This primarily involves two groups: gig workers and small and medium enterprises (SMEs)—the growth engines of the global economy. Access to embedded channels could bridge a gap worth approximately $1.7 trillion across SMEs. Furthermore, once customer experience and accessibility have been addressed, open banking data can help optimise and customise the entire process.

Are communities better served by accessing financial services from those who know them best?
They receive better services from a combination of participants. Such participants may not know them best but can provide the services they seek. For instance, despite having complete knowledge about people's travel needs, booking.com needs a regulated financial provider in the backend to ensure the safe delivery of financial services to customers. 

Regulated entities are responsible for looking out for customers. For example, the embedder could be the distribution point that combines all information on end-users. However, only partnering with the right people and services can help them achieve the desired objectives.

What are some trends in the embedded finance ecosystem?
The industry is witnessing an exponential growth of propositions and capabilities. One trend I observe is the continuation of new players entering BaaS. The second trend would be building more working capital optimisation solutions for SMEs. Delivering embedded working capital optimisation solutions entails helping SMEs manage their day-to-day business operations efficiently and economically.

Developed vs emerging economies
Emerging economies should focus on increasing access to embedded financial solutions for the unbanked population. However, access does not necessarily lead customers to the right, optimised financial products. With accessibility issues taken care of, developed economies should focus on generating optimised and hyper-personalised solutions. 

What role does technology play in embedded finance?
The orchestrator who brings everything together plays a vital role. For instance, Finastra uses FusionFabric.cloud, an open API (application programming interface) platform that serves as the technical layer in the fabric that weaves together all technical and in-house solutions needed to provide easily consumed end services. A brighter future for embedded finance entails a multi-layered approach. 

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