Embedded Payments will Double, and IMF Crypto Regulation: The Takeaway
Every first Tuesday of the month we compile some of the most important and interesting embedded finance and fintech news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
Don’t forget to sign up for our newsletter to get the Takeaway and more embedded finance news delivered straight to your inbox. We promise we’ll only send you the important stuff.
Global fintech investment declines more than 30%, with a silver lining
KPMG’s annual Pulse of Fintech report found that global fintech investment in 2022 fell to $164.1 billion — over a 30% drop compared to the previous year’s record $238.9 billion. The number of deals also fell from 7,321 in 2021 to 6,006 the following year. However, the report notes that 2022 still marks the third-best year in fintech investment history and the second-best year in deal volume.
The report highlights that certain areas of fintech are receiving increasing investment in 2023: regtech, fintech solutions aligned with ESG and climate change policies, seed and early-stage fintech companies, non-crypto blockchain solutions, and embedded finance.
The Takeaway: It’s important to keep things in context. While it sounds like a steep decline, global fintech investment is still up compared to 2020, which KPMG reports saw $125 billion in investment and 3,674 deals.
The interest in embedded finance comes as no surprise, given the growth in that area. Fintechs and banks are increasingly interested in partnering with each other: fintechs can offer innovation and streamlined processes, while banks provide the actual financial products — not to mention stronger regulatory compliance. That, in turn, drives interest in and adoption of embedded finance solutions.
If embedded finance is your aim, banking-as-a-service is the game. BaaS provides a wider banking network so you can get the best prices, find the right partner, and have the flexibility to scale up. With Treasury Prime, you get all of these, plus the largest bank network in the BaaS industry.
Global revenue from embedded payments expected to nearly double by 2027
In their “Embedded Finance: Key Trends, Segment Analysis & Market Forecasts 2022-2027” report, Juniper Research expects global revenue from embedded finance to increase 84% to $59 billion. The firms expect the upward trend to be driven by consumer interest in alternative payment methods, which could also see the decline of cards used in the e-commerce space.
The Takeaway: The report also projects that 35% of embedded payments revenue will come from the B2B sector, which is a key area of growth. B2C embedded payments have become so ubiquitous that we hardly even notice them. However, embedded payments in B2B remain less developed.
Part of that is due to the complexity of the accounts payables and receivables process, but Juniper says that embedded finance vendors can bolster growth by targeting B2B channels such as e-commerce marketplaces and accounting software providers.
In particular, SaaS companies stand to benefit. An Accenture report found that those SaaS companies that embed financial services at the point-of-need can increase their revenue 2 to 5-fold.
Want more insight into embedded banking products for B2B SaaS companies? Download our ultimate guidebook.
IMF supports crypto regulation over an outright ban
IMF Managing Director Kristalina Georgieva said at a G20 finance ministers meeting that regulation, rather than a ban, of cryptocurrencies is a top priority for the agency. Georgieva clarified that there was a need to distinguish between state-backed digital currencies and publicly issued cryptocurrencies and stablecoins, saying that the latter are highly volatile and risky. However, Georgieva also stated that the option to ban cryptocurrencies should remain if they begin to threaten financial stability.
The Takeaway: Cryptocurrency continues to be a hot-button topic, especially for financial regulators. Businesses dealing in this space need to prioritize compliance and finding the right partners who are knowledgeable and up-to-date in this space — whether that’s from a fintech, a BaaS provider, or a bank.
Fed governor says parts of crypto ecosystem should be explored
Federal Reserve governor Christopher Wallace said at a conference that the digital assets and technologies in the broader crypto ecosystem have the potential to address issues in financial services and should be explored. Although Wallace maintains that cryptocurrencies are risky, he also said that they need to “keep the various parts of the crypto ecosystem distinct” when thinking of how to regulate it.
Some areas that Wallace mentioned would be worth exploring include smart contracts, distributed ledgers, and tokenization.
The Takeaway: Considering the heightened scrutiny many crypto firms have faced, it’s always important for firms in these spaces to remain vigilant about compliance. However, it is promising to hear that the Fed is starting to see more value in the space and how it can help improve financial services, particularly in the areas of compliance and security.
Smart contracts are transparent and self-verifying, which saves time and costs, while also being more secure. Distributed ledger technology is enable faster, cheaper, and safer transactions, according to the European Commission. Tokenization can be a useful tool to retrieve, verify, and maintain financial data, according to VentureBeat.
Phil Goldfeder of Cross River named American Fintech Council CEO
The American Fintech Council, which advocates for responsible fintechs providing inclusive financial services, named Phil Goldfeder as its new CEO. Goldfeder previously was the Senior Vice President of Global Public Affairs at Cross River Bank, which counts extensive fintech partners and positions itself at the intersection of fintech and traditional banking.
The Takeaway: During Goldfeder’s tenure at Cross River, the bank provided $6.6 billion in Paycheck Protection loans, making it the sixth-largest PPP lender. Goldfeder attributes the high volume to Cross River’s extensive fintech partnerships. This experience could be key to helping fintechs navigate regulatory compliance.
In December 2022, the SBA announced it was investigating Cross River’s PPP loans, due to the lax anti-fraud standards of some of its partner fintechs. That just highlights the necessity for fintechs to be educated on and maintain strict regulatory compliance.
The right partner can help with that. Treasury Prime was founded by people with deep knowledge and experience in the financial industry, and is here to help clients establish their compliance program commensurate to their own risk profile.
Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.
Harnessing the Power of Embedded Banking to Build New Revenue Streams
How Embedded Finance Can Help Your Vertical SaaS Company During a Recession