The music of embedded finance
Today we are playing a game. It is called the “stupid questions” game.
See, I used to say “there is no such thing as a stupid question” implying only the answer can be stupid since learning is always smart.
And then, one day, I said it. “There is no such thing as a stupid question.” And Ez Britton said, “unless you ask it twice”. And a light came on. Because, yes.
So today we are playing that game. The game where I tell you the stupid questions I get asked a lot and we agree that they are stupid because they are asked again and again. And they are asked again and again because those doing the asking don’t care to have the question answered. By me or anyone.
They ask for sport.
The way we used to be asked about “disruption in payments” and “the impact of COVID”.
Same question. Same answer. Repeat.
But not exactly like those questions because, the thing is, they tend to be conference questions. Performance questions. Where you are expected to play the hits and repeat the basics for the people in the back.
The ones bothering me here today are business questions. Asked on repeat as if for the first time. Because the answer isn’t what we hoped for.
Embedded finance beyond Uber
Embedded finance is the flavour of the month it seems. Not sure why, as we have been speaking about it for a while now and no single event has transpired to make people more aware of it.
And yet here we are.
Decision-makers have digested it is here and it matters, someone explained it to them in terms of Uber payments or Amazon’s one-click purchasing and off they go looking at the world for opportunities to embed payments, true to the spirit of “when you have a hammer, the whole world looks like a nail”.
Embedded finance is what it says on the tin. Financial activity embedded in other activities. Transacting for purchases is, of course, an obvious and extremely helpful place to start but it is also only the beginning.
Credit scoring tied to an individual’s holistic footprint (yes Alibaba); travel insurance as part of a travel experience, activated by your geolocation; the ability to trade a security while reading latest pricing info on Bloomberg; FX volatility and bridging finance absorbed as insurance inputs into whatever it costs to ship a container of goods across the globe.
I am going to stop now. Because you get the idea.
And the idea is this: life goes on. Money specifically does not change hands. It moves pockets as needed but without that being part of the process.
Don’t you “yeah, yeah” me.
Read it again.
I mean that when embedding finance we don’t just embed the payment.
We also embed the service. Or actually layers of services. And then the payment in the end.
Embedded finance is all about making the admin of life seamless, low-friction and invisible.
Not only does it not start with you, dear banker, it is hell bent on making you an invisible utility.
So don’t ask about the next thing in embedded finance, if not liking the answer means you will ask again.
Enabling and creating. Not the same thing.
“As an embedded finance leader”…. I get told this a lot. It always comes with a “fix this for me” face. But let’s pause for a second.
What makes me an embedded finance leader exactly?
Well. You are a leader (get in line) and you enable embedded finance, so…
First of all.
This thing about describing people as leaders instead of a job title is sadly cheapening the term. We can’t ALL be leaders. Easy on the superlatives, seriously.
Building capabilities that allow for real time connectivity and processing, data parsing and contextual decision-making by either a hyper-connected consumer or an AI assistant is absolutely necessary for embedded finance.
If payments are batched and processed once a day in each country and next day cross border, Uber’s business model would have left investors cold. Not to mention the stomach ulcers their accountants would have.
If geolocation, real-time data exchange at immense scale and in-the-moment processing was not possible, your bank would not be able to tell you, “ah you are looking at apartment listings… you can actually afford this, if you get a mortgage with us… just saying”.
I am sure that’s not how they say it. But they do say it. This is a feature N26 piloted and I am sure more is coming.
A pianist needs a piano to produce music but I can sit in front of the same piano and nothing will happen. And not every artist is Mozart.
I am proud to sit in the part of the world that builds infrastructure to enable real-time servicing. And, yes, without the systems we are building, embedded finance would not be possible. Scale, reliability and real-time everything are table stakes. And, yes, there is a lot of underlying technology that is required to enable the creativity and business ingenuity that brings embedded finance to consumers.
They are not the same thing, one does not lead to the other, and Bob is not your uncle.
What does Jack Ma have that you don’t?
Where do I begin.
First of all, Bob is his uncle.
Secondly, and without going down the path of accounting for luck, serendipity, market peculiarities, regulatory provisions, timing, errors by potential competitors (word up, eBay?) and the million other things that synthesise a story of success or failure for a business, the successive decisions made leading to today’s giant did not start with the question of “how do I become a payment processor”. Even less “how do I become a financial ecosystem”. The game was e-commerce. The layers of financial provision were added sequentially to support the consumer, support the business’ growth and retain the upside financially while (and this bit is important) ring-fencing independence around value drivers.
So no, Jack Ma didn’t set out to build a bank.
But when it got to retaining value stores and ensuring consumer behaviour was enabled in a way that supported the growth of his conglomerate, he did what it took to make sure it happened. And that looked like an e-wallet, and a e-money licence, and a money markets fund (although apparently they call it a behavioural savings tool). Oh, and a core banking system. Because they needed a toolkit to meet their needs and support their scale. And now they are licensing that out to banks because they are merchants above all. Not bankers.
What is my point, I hear you ask, not for the first time?
What do seesaws and embedded finance have in common?
I spent a few years of my life I won’t be getting back working in and for banks who were looking at PSD2 coming down the pipe. They created task forces, working groups and committees, often involving consultants but invariably not involving everyone they needed across (take your pick) IT, retail banking, e-channels, omni-channel and client groups to answer the question of how can we make this anything more than a regulatory cost item.
Programmes of work more often than not “owned” by Strategy, Marketing or Compliance, looking at the Thing and saying: surely we can make something of it, right?
Surely there is an opportunity in there, right? RIGHT? Right. But not necessarily for you and not necessarily like that.
No work of art was ever created by looking at a palette of colours and going: “purple, what should I do with purple?”
Playgrounds don’t have slides and seesaws because someone sat in a room, staring at a wall thinking, “there must be something fun we can do with gravity” any more than we will get embedded finance because bankers are staring hard at it going, “I should be able to make money from this somehow”.
You should and you will.
That is the right question, by the way, so keep asking it.
The instinct that goes with it is where a lot of our problems reside. Because despite the journey we have all been on these last few years, a banker’s instinct is to own a thing. And when they look at TenCent and Ant Financial (the sort of fintech a banking conglomerate would get out of bed for) they see scale. They see ownership of the entire value chain. They see shapes they understand.
What they don’t seem to see is that this, just as their own organisations did a few centuries back, didn’t start with money. Didn’t start for money.
Banking as we know it started as an enabler too. Mostly for war, let’s face it. But also commerce. Infrastructure. Art. As well as royal frivolity.
Loans were never the point or endgame.
Embedded finance is not new in that banks look at it and go: “will it break me, can I make money from it, can I own it?”
The pattern of questioning isn’t changing. The instinct and preferred answer are not changing. But isn’t it time they did?
Because there is some good news here.
For the questions: “will it break me”, “can I make money from it”, “can I own it”, the answers are: “not necessarily”, “definitely”, and “not a chance”, respectively.
Embedded finance is happening as people leverage the art of the possible to create new businesses, platforms, experiences and products. It’s an act of assertive creativity, enabled and powered by technology. Some of it is the musical equivalent of “the wheels on the bus go round and round”. Some of it is the business equivalent of Mozart.
I totally get the desire to be Mozart. But there will only be few Mozarts in this world. With many, many, many inspired by his music to potter, play, or compose in ways big and small.
And they will all need pianos. Mozart included.
So build the damned things. It’s what you are good at.
By Leda Glyptis
Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.
She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem.
All opinions are her own. You can’t have them – but you are welcome to debate and comment!