What is driving the rise of the £16 billion integrated finance sector?
The pandemic is accelerating the change in people’s financial needs and expectations, writes Keith Grose, international lead at Plaid.
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The rise of digital finance has created a new generation of financial services, transforming the industry to put people first. Consumers find financial services exactly where they need them, whether on their platoon through its partnership with Klarna or by enabling a gig economy worker to access a loan through their driver app when ‘he needs it.
Basically, people are looking for easier ways to manage and access financial services, and thanks to innovation in financial infrastructure, they can. New models meet people where they are and let them manage their money the way they want, easily and quickly.
Integrated finance is driving this revolution. Simply put, it enables companies to seamlessly integrate financial services into their business models via APIs. This is reshaping the distribution of financial services, such as payment processing, and it will become ubiquitous in people’s lives.
For example, a recent report by Lightyear Capital estimates that integrated finance will reach £164 billion in revenue by 2025, a dramatic increase of over 10x from £16 billion in 2020.
The pandemic has spurred a shift in people’s financial needs and expectations. Meanwhile, neo-banks and digital wallets are transforming the payment process. Both have created renewed demand for improving user experience in financial services.
The adoption of integrated finance has only widened the competition, allowing companies that are not just in finance to compete with incumbents – and which may never have been considered a major player on the market before.
This is an exciting development that creates a new opportunity to create new and better user journeys, to provide greater flexibility and fundamentally more choice.
A harmonized approach is essential here. Banks and fintechs need to make people’s accounts interoperable to allow them to integrate their accounts into their favorite apps and brands.
By opening up their data and collaborating with non-financial businesses, they will be able to retain their existing users and attract new users they may never have interacted with before.
And by being able to expand their own products based on new demands or by partnering with innovators, they can continue to strengthen their relevance in a changing world.
However, integrated finance does not mean the end of traditional banking and finance as we know it. Instead, it should be seen as an opportunity for financial institutions – both traditional and fintech – to increase their agility and keep up with rapidly changing demands, instead of working alone. The joy of integrated finance is that it is an integration rather than a replacement.
There has been a proliferation of companies, like Plaid, that allow any business – including banks – to take advantage of the integrated finance opportunity.
Banking-as-a-service platforms like Railsbank are designed to help businesses integrate a financial service into their offering. Its API can be integrated directly into an application or into any part of the customer journey to activate this offer.
We have yet to discover the true potential of integrated finance. But the benefits are already evident, with fintechs and non-financial companies increasingly using it to deliver great user experiences in more places.
With greater adoption and a harmonized approach across the financial services industry, we will take another step closer to achieving an open and easy-to-navigate financial system.
Keith Grose is Global Manager at Plaid. The views and opinions expressed are not necessarily those of AltFi.