NMI’s Payment Playbook: Embedded Finance Growth Drivers

More embedded finance products and services are launching, and momentum in this space is growing. Several benefits are fueling this trend, including:

• Cost savings to businesses using embedded finance rather than building and maintaining their own financial infrastructure
• The potential to create new revenue streams
• Enhanced consumer experiences

Robin Gandhi, Chief Product Officer for Nium, joins NMI’s Payment Playbook host Greg Myers to discuss how modern APIs are making new embedded finance capabilities possible, how traditional roles in banking and payments will change and what the future of embedded payments will bring.

We’ve highlighted a portion of their conversation below. Listen to their full discussion here.

Greg Myers: I want to talk about how to look at the world beyond embedded payments. To me, the next logical step is embedded finance (products beyond payments). How do you view or how do you define embedded finance?

Robin Gandhi: When we talk about anything embedded, we’re basically saying, how can I provide a financial service for something that isn’t really a financial service or for something that is tangentially related to a financial service? For instance, spend management and payroll fall into that bucket.

So, when we talk about embedded finance, we’re asking if you can generate a virtual account in a certain place for me to move money to somebody else. That’s the infrastructure that we provide.

So, whether it’s embedded finance or embedded payments, it’s basically, can I find infrastructure that allows my overall experience to be cleaner, better and more sticky? Can I get access to it using some of the APIs that infrastructure companies like us are building? To me, that’s what embedded finance is.

Myers: You mentioned APIs. How has the trend of modern-day APIs helped to facilitate this movement toward embedded finance?

Gandhi: I think it’s integral to everything that is embedded finance.

In the old days, you couldn’t build any of this because you didn’t have modern APIs. A simple example is what Modern Treasury has done. They’re essentially putting a modern API layer on top of traditional bank APIs. It’s not that banks don’t have APIs, but they’re generally more legacy APIs. And Modern Treasury has managed to build a business so that all of these next-gen tech companies can build great products on top of that banking infrastructure.

Ultimately, modern APIs are integral to everything we discussed around embedded finance.

Myers: In this world of embedded finance, who do you think gets disintermediated? Is it the banks? Is it ISOs? Is it both banks and ISOs? And overall, what does it mean to a traditional payments company or to the industry as a whole?

Gandhi: You’ll get disintermediated if you don’t watch where things are going. Inherently in our system, we work with a ton of bank partners. We also work with a lot of regulated entities, regulatory bodies and governments. For example, we work with the Singaporean government, have an EMI in Europe and are deeply embedded in the E.U., and we are going to continue to work with all those players.

If you’re unwilling to partner and pay attention to the trends, I think there’s a good chance you will become irrelevant.

That’s because, inherently, the services that we’re providing are still connected to the networks, banks and regulatory bodies that exist today. And I think they exist for the right reason: to keep the ecosystem safe. But, if you stand around waiting to figure out what’s next or whether you know more than the fintechs involved in embedded finance, everyone will move past you. If you’re not paying attention, you’re going to get disintermediated.

Myers: What do you think the future of embedded finance looks like? Where do we go from where we are today? In my view, payments are integrated or embedded, and some companies are starting to offer other products from an embedded perspective. But there’s a long way to go.

Gandhi: I think there’ll be more product sets you’re not seeing today that will continue to get embedded. And I think the line between a tech company like us and a bank will probably start blurring.

We have a lot of licenses, and we continue to get more. And at some point, you might ask, what do you do with those licenses? What additional services can you provide? Look at BNPL (buy now, pay later); I think it got overhyped, but it’s not going anywhere. You can also see examples of embedded finance in things like credit. Stripe is already offering credit, and Marketo bought a company to do credit.

So, I think you’re going to start seeing companies like us that have tech-forward licenses and can provide the basics of embedded finance. I have the regulatory and compliance constructs, and I have the licensing to allow me to offer financial products.

That’s what we’re going to see a lot more of over the next few years. And I think that’s where we want to play as well. Unfortunately, some companies may not make it all the way through.

Myers: Is there anything that might keep this trend from becoming global?

Gandhi: I don’t think you can stop it, not when you have modern APIs that allow other companies to build into it. I think the only thing that can prevent this from moving forward, or something that could put it on pause, is if you have too many bad players in the system. Because on some level (and this is the same reason that I’m saying you have to work with banks,) you have to work with regulators. You have to ensure that you’re maintaining the integrity of the system.

Now, if some regulatory bodies or tech companies become too loose with the way they do things, and it causes issues within the ecosystem, then there will be a blowback similar to what we’ve seen with crypto. The same thing will happen with embedded finance if the companies providing the infrastructure or the underlying banks or license holders are creating havoc within the system. That’s what can stop it, but probably not forever.

Myers: We’ve covered a lot of ground, but is there anything else you’d like to add before we wrap up?

Gandhi: I think it’s an exciting time to be in this space. This market is huge, especially around B2B payments. There’s so much innovation that’s going to happen that the B2B payment space hasn’t experienced before. We’re not going to change the whole thing overnight, but when you have that big of a market, and there hasn’t been much change over the last 20 years, that creates a lot of opportunities.

So, I’m excited to be part of this space. And it’ll be interesting to see what companies like us and others will do. There’s a lot of opportunity for us to grow.