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Railsr: ‘Old Finance’ Is Dead, but What Will Take Its Place?

We live in a universe of amazing customer experiences, yet the finance industry is still stuck in a world of products and transactions. However, we’re seeing the industry shift with embedded finance deconstructing financial services into digital components through which different customer experiences can be built.

In a move away from ‘old finance’, brands are increasingly seeking embedded finance to create seamless customer experiences. For example, you could ride a subscription car to the airport which pays for the road tolls, pre-order your coffee on the way, and jump in a taxi at your destination all at the touch of an app, without getting your wallet out.

Nigel Verdon, CEO and co-founder of Railsr
Nigel Verdon, CEO and co-founder, Railsr

Our latest guest-written article is led by Nigel Verdon, CEO and co-founder of the British fintech Railsr.

Before co-founding Railsr, fintech entrepreneur Verdon also previously founded Evolution and Currency Cloud, with both sold to publicly listed companies.

This is in addition to capital markets experience gained at Nomura, Swiss Bank Corp and Dresdner Kleinwort Investment Bank.

Verdon’s ambition for Railsr is to enable brands to deliver exceptional embedded finance experiences for their customers.

Here he discusses the restructuring of traditional finance and its effect on consumer brands, as well as his vision for how old finance and fintech will come back together again in the future:

Old finance is dead

The global pandemic drove a decade of change into a single year. The world has reached an inflexion point – a time of radical digital transformation. As a consequence, consumer expectations have progressed significantly across all ages, and consumer appetite for experiences is more prominent than ever.

Although we are currently living in an age of outstanding customer experiences, the finance industry, stuck in a world of products and transactions, is still lagging behind. Undeniably, the initial wave of fintechs and neobanks that emerged since the 2008 financial crash has digitised and massively improved the banking customer experience.

But many remain as a digital layer on top of old finance infrastructure. Fintech 1.0 is better than old finance but it’s not yet all that different. However, we’re on the cusp of a much bigger industry restructure. This is going to fundamentally change who distributes financial services and how they are consumed.

The power shift

Historically, the banks have owned the pipes and credit, but we are seeing a significant shift in power. You have ‘old finance’ which is powered by lead pipes, while fintech is powered by modern non-toxic materials.

Put simply, the infrastructure of fintechs is more advanced, more capable and cheaper to operate. Not to mention delivering greater customer experience capabilities. Thanks to this infrastructure, it’s now possible to deconstruct financial services into digital components. Components through which different customer experiences can be built – what we call embedded finance.

The music industry experienced a similar restructure when Apple launched iTunes – music moved beyond hardware which enabled whole new paradigms like music streaming. Much like the creation of the digital music track, moving banking and financial products into the digital realm allows companies to move quicker, innovate at a lower cost and create whole new use cases.

Catching the wave, consumer brands have looked to embedded finance to integrate finance experiences into their offerings. Experience is the important word here. Consumer brands don’t simply want to launch a credit card, just because. They recognise that it can be a tool to drive engagement and improve the overall customer experience.

To illustrate, think about the approach you take when buying a car. You wake up excited to get a car, not the car loan. The car is the experience and the loan represents just one step in the process. Thanks to embedded finance, more brands can now offer that type of customer journey. The product comes first, with finance simply and seamlessly supporting the purchase.

The next generation of financial services is going to be deeply baked into customer journeys and centred around the customer rather than around a legacy financial institution. This is what I call embedded finance experiences.

What does the future look like?

Consumer brands are waking up to the fact that embedded finance can be a strategic tool to deepen relationships, drive relevance and generate revenue. But the goal is for finance to sit behind the customer experience, it’s invisible and not thought of as a finance experience per se. We’re already seeing glimmers of this today.

For example, you could ride a Volvo subscription car to the airport which pays for the road tolls, pre-order your Starbucks on the way and jump in an Uber at your destination all at the touch of an app, without getting your wallet out once. No fumbling around for cash or cards, no queues and no friction. This is how consumers have come to expect to interact in the digital world.

A lot of the demand we’re seeing is particularly from brands in the retail, travel and sports sectors looking to increase engagement with customers and fans. These new use cases simply wouldn’t have been possible in the old finance ecosystem.

Old finance and fintech will come back together again

The bottom line is the industry is gradually restructuring. We see the pipes of old finance being replaced amidst a move from product towards the customer experience. It’s your favourite brands that will be driving consumer finance, powered by embedded finance infrastructure. So where does this leave old finance?

I come back to the iTunes example once again. This shift in the roles of banks is comparable to what record labels experienced once Apple introduced iTunes. Once the digitisation of singles and streaming became the norm, record labels found a new place in digital music. We can similarly expect to see the old finance world and the fintech world come back together again in five to ten years at a happy medium.

Old finance needs time to re-plum its pipes, which is risky and hard to do in real-time while the water is running. But we can be sure that the banks will re-emerge within a newly established role with consumer experiences remaining a top priority.

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