Embedded finance can improve the fortunes of fintechs in an economic downturn

The game has changed for fintech aimed at consumers, because of the lower financial barriers to entry for new startups launching products via embedded finance, writes Iana Dimitrova, CEO of OpenPayd.

I’ve always been an advocate of calling a spade a spade. We are experiencing the worst economic crisis since 2008. Every business is getting to grips with rocketing inflation, an energy crisis and supply chain disruptions. 

So let’s be frank and honest about what we are facing, and what has brought us to this point because that will make it easier to find the right solutions. While the current economic situation is affecting businesses all over the world, what exactly is happening with B2C fintech companies? 

The challenges B2C fintech is facing 

Consumer-facing fintechs are contending with issues in terms of both demand and supply. In Europe, we are witnessing a cost of living crisis coupled with the highest rates of inflation since the 1970s. 

As a result, consumers are rethinking their finances, withdrawing savings and limiting their exposure to volatile assets. That’s a fundamentally different customer mindset, one most B2C fintech companies have never experienced. 

Then there’s the fundraising landscape. Investor appetite for high-growth companies without a clear path to profitability has disappeared. B2C fintech has for so long been the darling of investors, with a market value that has grown substantially in the past decade. 

However, with uncertainty everywhere, many investors are now refocusing their attention on revenue and a start-up’s plan to reach profitability. 

Where we go from here

However, today’s instability doesn’t mean that B2C fintech companies won’t succeed. Quite the opposite. While the current market instability will be temporary, the sector still has significant tailwinds.

The primary reason is that, right now in 2022, it’s never been easier to build and develop financial products and services from scratch. That’s thanks to embedded finance.

For anyone who has missed its growth over the last few years, embedded finance allows businesses to integrate new financial services directly into their product ecosystem without building out their own infrastructure and without becoming fully licensed banks. 

So, what might this look like? An app which helps people save may want to embed payments via open banking, so clients can add to their balance with just a few taps of their screen. A lending service may want to add foreign exchange functionality to their operations, allowing them to reach customers in other countries and support customers if they need to make payments in multiple currencies. These are just two of an infinite number of possibilities. 

But it’s not just about enhancing the offering for the consumer; embedded finance provides businesses with the chance to streamline the financial operations they have already. 

By issuing virtual IBANs to customers, businesses can do away with manual reconciliation and all the pain points that can come with it, such as chasing payments with incorrect references. 

They can speed up their payments by accessing real-time payment rails across the globe. Everyone wants to pay (and be paid) faster. The smoother those payment journeys can become, the easier life becomes for the business while simultaneously giving their user experience a boost. 

So how has this sea change in financial capabilities been possible? APIs. Now businesses are plugging in the financial services they need via an API and they’re good to go. 

It’s for these reasons that this is an incredibly exciting time for consumer-facing fintech start-ups as much as it is a worrying one. We shouldn’t sugar-coat the difficulties we are facing, but nor should we diminish the possibilities for large-scale innovation that lie in front of us.  

It won’t happen overnight, but B2C fintech companies will weather this storm. And it will do so with a whole host of clever, comprehensive products and services that we will all benefit from. Embedded finance is just the vehicle. Where businesses choose to drive it is the really interesting part.  

The views and opinions expressed are not necessarily those of AltFi.