An invisible force

And the possibilities from such an ecosystem are endless

The power of financial services will only be truly realised when they are distributed through the ecosystem, impacting people’s lives without them even realising it. Belvo, Chubb and HUBUC are three companies on that journey

Variously called embedded finance, invisible finance, omniaccess, even headless banking – the term referring to the frontend or user interface (head) being effectively disembodied from the back end (body) of the bank that’s powering the underlying transaction – it is forecast to generate nearly $230billion in revenue by 2025, up from $22.5billion in 2020. And a whole category of fintechs is devoted to delivering it. Companies like HUBUC, whose single API enables any business to embed fintech features in their product. “We focus on non-fintech B2B companies, mostly software-as-a-service (SaaS), and help them enable the fintech features they want,” explains co-founder and CEO, Hasan Nawaz, who puts the global market opportunity for integrating financial services into non-banks somewhat higher… at $7trillion. So far, HUBUC has just scratched the surface of the UK and Europe.

Meanwhile, in Latin America, Belvo, a newcomer that’s likened to open banking platform Plaid (including by co-founder and co-CEO Pablo Viguera himself) is handing out ‘the picks and shovels’ to developers to build the region’s future financial services, with or without the banks, connecting them over an open-finance API.

And among the major institutions that might just feel threatened by all this disruption is Chubb, which, instead, has embraced it. Last September, it got ahead of the game by launching Chubb Studio, a platform that enables retail, e-commerce, banking, fintech, airline, telecommunications and other industries to integrate insurance products into their offer over multiple APIs. Two of Chubb’s recently announced white-label partnerships were both, interestingly, in South America – with superapp Rappi, to provide home and mobile phone insurance, and with Nubank, the largest independent digital bank in the world, taking it into life cover.

Chubb’s initiative is part of a wider narrative that has seen the COVID-19 pandemic have a significant impact on traditional banking models, with embedded finance gaining more traction. This isn’t surprising, given that non-financial companies have been redoubling efforts to offer more targeted products and services to customers in the financial services space by using the backend-as-a-service (BaaS), Cloud-based model, allowing developers to outsource all behind-the-scenes aspects of a web or mobile application, while only having to write and maintain the frontend.

Sean Ringsted, chief digital officer at Chubb, sees that as an obvious opportunity for major providers like itself to diversify their business models.

“Think about being able to make credit and other products and services, like insurance, available to people, in the right place, at the right time, in a way that is seamless, very contextual and enabled, because the underlying plumbing is making it all work,” he says.

Ease of use and accessibility of financial services is key to financial inclusion. In countries where significant numbers of people are ‘unbanked’ – as is roughly half the population of Latin America – embedded finance, such as affordable credit and insurance, is a way to extend financial services to more people outside of the traditional banking channels, potentially improving their life outcomes in the process.

Nowadays, pretty much any business can create a wallet, credit, investment or insurance offer off the back of banking- or backend-as-a-service.

As Belvo’s Viguera points out: “BaaS has historically been used by challenger

banks or digital companies seeking to build up banking services from scratch, in a modular way. With embedded finance, you’re not going after finance companies, you’re going after a much larger pie.”

Which is precisely what Belvo aims to do, connecting a huge variety of non-banks to banks and making its money by charging for API calls. It aims to be the ‘go-to platform for developers to plug into financial data across the continent’. And not just raw commodity data; its product development includes adding value by contextualising transaction data, wrapping useful information around it to build up a better picture of the user behind it.

In that way, individuals can benefit from financial services delivered by brands they interact with every day, without ever having to deal with the ‘head’ of the value bank GoBank), integrated into the existing Uber Driver app. Then there was an Uber wallet, also available in the app, with a planned rollout in consumer-facing Uber and Uber Eats apps. There were also plans to re-launch the Uber Credit Card with Barclays. The company had to scale back its ambitions to become a broad-spectrum financial services company, a la Grab in Southeast Asia, as COVID-19 tightened its grip. By summer, 2020, Uber CEO Dara Khosrowshahi had decided to ‘deprioritise’ several finance-related projects. That said, it’s enjoyed the highest gross bookings in its nearly 12-year history this year: its long-term financial services strategy may not be on hold for long.

Khosrowshahi obviously sees the potential in embedded finance. Last year, he personally participated (as a private investor) in a $156million funding round for Deel (co-founded by two young Israeli

chain: “They can get a credit card from an Uber, Lyft or Shopify, as they would from their bank,” says Viguera. “We’re also likely to see additional packaged services further down the line, which are just as critical to consumers, even if invisible to them. If you go all the way from what touches the customer down to the core of a bank, you have things like fraud management, credit reporting and even bank licensing where, for example, you can offer your licence to someone else as a service so that they can provide X, Y, or Z products.

“So, as embedded finance evolves, we’ll see more and more of these APIs that sit in the core elements of the banking stack.

“If you’re looking for just one piece of that stack, you can do that in embedded finance almost on a plug-and-play basis, whatever your business is.”

Ride-hailing and delivery firm Uber might be a good example of that. It rolled out Uber Money in 2019, aimed at both employees and customers, including real-time earnings linked to an Uber debit account and card (both powered by US and Chinese entrepreneurs, Alex Bouaziz and Shuo Wang), which has developed a global payroll and compliance system, allowing employers to pay both full-time staff and contractors, wherever they are in the world, in their own currency.

What’s becoming abundantly clear is that new ways of thinking are progressively replacing the old.

As HUBUC’s Nawaz notes, many B2B companies offering SaaS, be they accounting, expense management, etc, have been watching the challenger banks’ marketplace model mature and wondering how they can incorporate something similar. This ‘sleeping majority’, as he describes them, of potential non-fintech, financial service providers are motivated by one of two things, and often both: customer loyalty/retention and new monetisation opportunities.

According to Nawaz, lending is of exposed persons), sanctions, know your customer, anti-money laundering and settlements. All they know is ‘I just want the feature. Can you give it to me?’.”

The $7trillion question is, then, how quickly will that exponentially big pie be opened up?

Pablo Viguera takes a five-to-10 year view, arguing that what we’re seeing now is simply the tip of an iceberg-sized market opportunity. Nawaz and Ringsted agree.

“We’re just figuring out how to lay the rails,” says Ringsted. “Companies are working out how to use them; regulators are looking at out how to manage it all. And, as we navigate this, the opportunities in terms of how we provide products and services, and allow businesses to increase their share of the pie, is endless.”

So put your thinking caps on and tuck in.

particular interest: “That’s where big companies are wanting to monetise by opening a revenue line.”

Companies whose core business is running credit checks, for example, could legitimately ask ‘what if I offered credit-as-a-service (CaaS) or even credit cards myself?’. CaaS enables frictionless payments with easy onboarding and support for more payment options that translate into improved cash flow. So, the attraction is obvious. Nawaz cites Canadian e-commerce platform, Shopify, which has B2B and B2C interfaces. It introduced a Balance account, essentially a debit card for business, offering immediate payouts. “Then, suddenly, we saw them adding buy now, pay later,” says Nawaz. “So that increases customer consumption, as well as providing immediate liquidity for the merchant. That’s what I think companies are looking for: better retention, so that they can tap into payments and better monetise them through CaaS and lending.

“The problem is, a B2B non-fintech company does not have experience with compliance and regulation. They don’t understand ledgers, PEPs (politically