Service businesses remain in high competition with growing customer expectations. As the influence of Brexit exacerbated UK business struggles, those looking to run the race are turning to contemporary payment models in order to keep the pace.
Here to analyse the use of embedded finance is Yusuf Ozdalga, a London Partner at the global investment firm QED Investors. In this guest-authored post for The Fintech Times, Yusuf details the necessities of embedded finance, and the associated benefits of its use.
Having set up a business in the agri-food space in a former life, I have shipped more than a few containers of easily perishable fruit across international borders and unfriendly customs check points in freezing road conditions. Each container holds twenty-plus tons of fruit, so there is always a pretty penny riding on each shipment – if the trucker decides to save on his battery and turns off the cooling, condensation easily forms on the boxes the fruit is packed in, and if the box manufacturer turns out to have skimped on the glue, the boxes can come apart at the seams, with the end result being tons of fruit collapsing on top of each other as the truck takes a sharp turn in a snowy mountain pass. You can probably tell I am speaking from experience here.
So you can imagine I was surprised when somebody recently asked me if embedded finance is the telematics of the fintech world.
For those that have not heard the term, telematics refers to tiny little devices that can be embedded into trucks or cars, and then broadcast information to interested parties. In the example above, I would have received a message saying that the temperature in the container was rising, or that the driver was going above the speed limit, warning me that a fruit-avalanche may be around the corner.
There are indeed a lot of similarities here – telematics is embedded into vehicles, and embedded finance seamlessly and invisibly incorporates payments solutions into the processes of all sorts of services businesses. Hence, yes, we can say that the analogy has some merit.
To take this one step further, we may ask what the big benefit of embedded finance is for businesses. What is the equivalent of preventing crushed pomegranates displayed at the corner of a wholesaler’s warehouse floor? Two recent examples from the European press really stand out in this context: Embedded finance, and companies like QED’s investment Weavr, can really help with the confusion created by Brexit and the new European Payments Initiative (EPI).
To be clear, my goal here is not to compare either Brexit or the EPI with a truck full of rapidly rotting fruit. But both Brexit and EPI have created an element of complication in the European payments landscape, and this type of complexity is actually a big boon to companies like Weavr who can help its customers eliminate, or at least better manage this complexity.
A lot has been written about Brexit, so I will not repeat all the resulting complexities here: Bankers moving to Luxembourg, waving at their families left behind in Covid-infested London, companies losing the rights to passport their expensive banking licenses, master-of-the-universe deal makers in the City of London being overlooked in lieu of fishermen (who ironically probably make good use of telematics) – well the list goes on.
In all seriousness, Brexit has created many complexities in the already complex payments world. As the collapsing fruit illustrates, running any business is complicated, and the managers and owners of services businesses across the UK and EU already had their work cut out for them. Trying to incorporate seamless payments solutions in a world where customer expectations have been ever rising due to the experiences provided by the likes of Apple, Google, and Uber was complex enough for ordinary businesses to begin with, and Brexit just added one more straw on top of the proverbial camel.
Hence, it totally makes sense for the likes of Weavr to emerge with one simple value proposition: We worry about incorporating all the various payments rails into simple digestible modules, and you worry about running your business in the interest of your customers. And if Brexit adds one more layer of complexity to your payments flows, it is much easier for us to deal with that than it is for you.
As for the EPI, beyond complexity, it is actually an illustration of a very relevant recent trend: Payments rails are rapidly proliferating. Ant Group and WeChat Pay are only two examples of newly emerging payment rails to provide alternatives to the global populace alongside the more established payment networks of Visa, MasterCard, and AmEx. As it is fairly obvious that the biggest networks were American, and the many of the biggest challengers are coming out of China, the politicians and policymakers in Brussels understandably felt left out, and have now announced they will work on creating a payment network that is “made in the EU”.
I will not speculate on the future success of the EPI here – it has been launched by 31 European banks and two third-party acquirers – so all that is left for us to say is “welcome to the global payments space and best of luck!”
However, once again taking the perspective of the merchants and business owners that need to deal with all these consumers showing up at their doorstep asking for acceptance of all sorts of payments methods, complexity is increasing.
Again, just like with Brexit, Banking as a Service providers such as Weavr are now in a position to absorb this complexity into their offering, abstracting all that complexity into one easy module. In the end, we should be thankful for all this complexity, not only because it creates healthy competition, but also because it allows payments specialists to build big businesses using Albert Einstein’s first work principle: Out of clutter, create simplicity.