Global integrated banking revenues expected to reach US$160 billion by 2025

Although a relatively new concept, integrated finance has developed rapidly in recent years.

The trend is expected to increase further in the future, with digital consultancy Publicis Sapient forecasting a 41% annual growth rate in the integrated bank’s global revenue from 2021 to 2025.

Global Integrated Banking Projections, Total Product Revenues, USD Billions, Source: Publicis Sapient, 2022

The predictions have been shared in a new report published earlier this month, which sought to provide insight into the sector, examine emerging trends and share recommendations for incumbents looking to tap into the booming sector.

Embedded finance, which refers to the integration of financial services and tools into the products or services of non-financial organizations, has become one of the hottest trends in the fintech industry. This increase is driven by customer demand for integrated experiences, openness expectations, and the adoption of technology capabilities including automation and APIs.

The growing interest in integrated finance has translated into an increase in venture capital (VC) financing in startups in the sector, notes Publicis Sapient.

In 2021, embedded funding reached US$4.2 billion, up 180% from the previous year (US$1.5 billion). The sum represents 3.2% of all venture capital funding that went to fintech companies that year.

Venture capital investment volumes in integrated finance and fintech in general, 2016 to 2021, in billions of dollars, Source: Publicis Sapient, 2022

Venture capital investment volumes in integrated finance and fintech in general, 2016 to 2021, in billions of dollars, Source: Publicis Sapient, 2022

Banks embark on integrated finance

While fintech startups and digital native challengers were early adopters of embedded and are now leaders in areas such as integrated payments and buy now, pay later (BNPL), banks are beginning to engage in the space, particularly in BNPL retail, but also with wholesale propositions, the report says.

In the United States, Goldman Sachs is actively pursuing the trend of integrated finance, having signed partnerships with companies such as Apple, General Engines and Navigation technologya funding platform for small businesses.

Similarly, HBSC has sought to exploit the integrated financing opportunity, announcing last year plans to launch a new banking-as-a-service (BaaS) offering that would allow customers to create and deliver business banking services through their own platforms.

In Sweden, SEB sign in April 2022 its first client for SEBx, the lender’s new BaaS platform. SEBx enables companies to offer financial services under their own brand, and its first client is Humla, a fintech start-up from the Axel Johnson group. Humla said it will use SEBx to enhance its payment and loyalty offerings in the retail space.

In Australia, Commonwealth Bank spear its own BNPL offering called StepPay last year. StepPay can be added to a digital wallet or used with Mastercard partners.

Emerging Applications of Integrated Finance

For banks, integrated finance has become a strategic priority given the size that the market is expected to reach in the coming years. In Europe, integrated finance is expected to account for more than 15% of the retail banking revenue pool share, according at PwC.

While most integrated finance applications have so far revolved around Payments and e-commerce, many other opportunities exist in other sectors. In the travel industry, BNPL offers are growing in popularity and attracting customers, notes PwC. Airlines, in particular, can leverage BNPL’s offerings to increase aircraft sales and usage, he says.

In mobility, embedded finance enables new subscription solutions. Maintenance by Volvo, for example, is a flexible, subscription-based rental program with an all-inclusive monthly payment. This payment includes vehicle use, maintenance and other common services related to vehicle ownership. Volvo also takes care of the insurance cover.

Embedded finance also finds applications in the health sector, allowing hospitals, for example, to offer patients solutions to finance major interventions. In these partnerships, integrated financing providers pay hospitals upfront, while offering low-interest options to customers.

In agriculture, embedded financing can be used to offer pay-as-you-go solutions, allowing customers to move away from traditional machine ownership and only pay for actual machine use.

Featured Image Credit: Freepik

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Sallie R. Loera