Finance
Embedded Finance: Another Buzz Phrase or a Real Opportunity for the FinTech Sector?
The FinTech industry is picking up speed, and is changing our understanding about financial services and their uses in many fields. One of the reasons for this change is embedded finance. This technology is subtly and significantly transforming entire sectors,
as well as creating new opportunities. A study by Juniper Research revealed that the worldwide revenue generated from embedded financial services will surpass $183 billion by 2027. This impressive figure demonstrates significant growth from its 2022 value
of approximately $65 billion – a remarkable increase of 182%. The report highlighted the fact that the primary catalyst behind this expansion is the integration of embedded finance solutions by non-financial enterprises, who are keen to enhance their product
offerings. According to the CEO of Bond, Mr Roy Ng, consumers are now seeking to incorporate financial services seamlessly into their everyday lives, and they are no longer satisfied with limiting their options to traditional banks. Will FinTech be able to
take advantage of this trend?
Exciting possibilities for non-financial enterprises
The research conducted on a sample of 2,555 adult Americans, titled “The Flywheel Effect: How Embedded Finance Can Help Brands Generate Millions in Revenue and Increase Customer Loyalty?”, revealed a significant demand for financial products offered by non-financial
companies, particularly among individuals who are brand loyalists and frequent users of those specific products. For example, among gamers who consider the PlayStation to be their favourite brand, a staggering 79% expressed interest in a credit card that offers
rewards for in-game purchases. Furthermore, a significant 75% of all the gamers displayed interest in an in-game account that would allow them to deposit money and utilise it for purchasing and selling virtual in-game items, as well as earning rewards for
their game achievements and progression. Similarly, a substantial majority of fashion enthusiasts expressed their openness to obtaining an investment account offered by a luxury brand. Such an account would provide them with the convenience of easily investing
in the brand’s stock and other assets.
Another intriguing finding from the research, known as “The Flywheel Effect”, is that consumers who directly access financial services from specific brands report an increase in their spending with those brands, compared to their pre-financial service usage.
Embedded finance has already resulted in numerous success stories among non-financial enterprises. For example, Toast, a company that specialises in providing restaurants with point-of-sale hardware, has formed a strategic partnership with WebBank. The aim
of this collaboration is to offer loans ranging from $5,000 to $250,000 to Toast’s clients. These loans can then be utilised by the restaurant owners for various business purposes.
When purchasing a car online from Tesla, customers have the opportunity to secure a cost-effective loan directly from the car seller. Tesla Motors Ltd, which operated as a broker in the UK, provides this financing option.
In addition, Amazon offers the EMI (Easy Monthly Instalments) service to its buyers, providing a convenient financing option. Customers can easily request, acquire and repay loans directly on the platform, while browsing and purchasing products. This embedded
finance feature allows consumers to enjoy greater flexibility in their payment options, making it more accessible for them to manage their expenses and to make purchases on Amazon.
Emerging trends in embedded finance
From my perspective, embedded finance is poised to become the standard in the financial services sector, while reshaping our interactions with financial offerings for the foreseeable future. Let’s delve into three noteworthy trends that deserve our further
attention.
– Buy Now, Pay Later (BNPL)
BNPL serves as a method for individuals to purchase goods on credit and defer the payment to a later date. This payment method significantly enhances the accessibility to online shopping and e-commerce platforms.
By using BNPL as an embedded finance product, businesses can obtain a competitive edge by capturing missed sales opportunities and extending their invoice payments, thereby improving their cash flow management.
According to globaldata.com, BNPL is estimated to reach $309.2 billion in 2023, displaying a compound annual growth rate (CAGR) of 25.5% during the forecast period. The accelerated growth of online payments, driven by the increasing consumer preference for
online shopping, is a key factor contributing to the expanding BNPL market.
– APIs
APIs have not only facilitated exchanges of data among the various stakeholders engaged in financial transactions, including banks, third-party providers, websites and consumers, but have also revolutionised the process of developing financial apps and services.
This has resulted in faster, simpler and more cost-effective solutions than ever before.
As stated by Nordic APIs, open banking stood out as a prominent and highly-discussed topic within the API industry in 2021. The forecast suggests that a substantial number of users – specifically, over 132.2 million – will have embraced open banking by the
year 2024.
– Digital Wallets
A digital wallet empowers the user to conveniently store, manage and conduct electronic transactions with ease. Its versatility can be extended to various applications, such as facilitating in-house banking for businesses, powering crowdfunding platforms,
or facilitating transactions in online and e-commerce marketplaces without leaving the platform.
Ekmel Cilingir, Chairman of the Supervisory Board of European Merchant Bank
Finance
Investors eye PCE, Costco shares under pressure: Yahoo Finance
Wall Street is digesting this morning’s release of the latest Personal Consumption Expenditures (PCE) data, the Federal Reserve’s preferred measure of inflation. Meanwhile, Costco (COST) shares are under pressure following the wholesale retail giant’s latest quarterly results. Despite recent increases in membership fees, the company fell short of sales expectations. Yahoo Finance’s trending tickers include BlackBerry Limited (BB), SuperMicro Computer (SMCI), and Coinbase (COIN).
Key guests include:
9:05 a.m. ET : Tiffany Wilding, PIMCO Managing Director and Economist
9:30 a.m. ET Angelo Kourkafas, Edward Jones Senior Investment Strategist
10:15 a.m. ET Rich Lesser, BCG Global Chair
10:45 a.m. ET Stuart Kaiser, Citi Head of U.S. Equity Trading Strategy
11:30 a.m. ET Ed Hallen, Klaviyo Chief Product Officer & Co-Founder
Finance
Biodiversity still a low consideration in international finance: Report
Biodiversity-related projects have seen an increase in international funding in recent years, but remain a low priority compared to other development initiatives, according to a new report from the Organisation for Economic Co-operation and Development (OECD).
The report found total official development finance (ODF) for such projects grew from $7.3 billion in 2015 to $15.4 billion in 2022. That’s still less than what the nearly 200 governments that signed the Kunming-Montreal Global Biodiversity Framework (GBF) in December 2022 agreed would be needed to halt biodiversity loss: at least $20 billion annually by 2025, and $30 billion annually by 2030.
Government funding made up the bulk of the ODF for biodiversity-related projects in the OECD report, which is welcome news, Campaign for Nature (CfN), a U.S.-based advocacy group, said in a statement.
“We welcome the increase in international biodiversity finance reported in 2022 but that good news is tempered by a range of concerns,” Mark Opel, finance lead at CfN, told Mongabay.
One concern, CfN notes, is that funding specifically for biodiversity as a principal objective declined from $4.6 billion in 2015 to $3.8 billion in 2022. CfN reviewed hundreds of projects from 2022, which formed the source for the OECD’s report, and found that many either had vague descriptions or focused on other policies like agriculture but were counted toward protecting or restoring nature.
“We need to see more emphasis on funding with a primary focus on biodiversity,” Opel said. “So-called ‘principal’ funding that has biodiversity as its primary goal continues to be down since its 2015 peak. Increases in this type of funding are essential to meet the goals of the GBF … These goals cannot be met through funding with biodiversity as only a ‘significant’ goal that mainstreams biodiversity into projects with other primary goals like humanitarian aid or agriculture.”
The report also found that funding for biodiversity-related activities represent just 2-7% of the total ODF portfolio.
“It is concerning that biodiversity considerations still represent a relatively low share of the total official development assistance,” Markus Knigge, executive director of Germany-based nonprofit foundation Blue Action Fund, told Mongabay. He added it was also problematic that most funding came via loans, which have to be repaid, rather than grants, which are often more appropriate for conservation finance.
CfN says grants are preferable to loans because they don’t add to the debt burden of low-income recipient countries.
At the same time, development funding from major donors such as Germany, France, EU institutions, the U.S. and Japan have been cut in recent years.
“We have seen minimal announcements of new international biodiversity finance since [the GBF signing],” Opel said. “We estimate that only the equivalent of $162 million annually has been pledged since [then], which doesn’t come close to filling the $4.6 billion gap between the $15.4 billion in 2022 and the $20 billion commitment in 2025.”
Banner image: Javan lutung by Rhett A. Butler/Mongabay.
Finance
30-year mortgage rate hits 2-year low
The average rate on a 30-year fixed-rate mortgage was nearly unchanged this week but reached its lowest level in two years.
Thirty-year mortgage rates averaged 6.08% as of Thursday, down from 6.09% a week earlier, according to Freddie Mac data.
Average 15-year mortgage rates rose one basis point to 5.16%.
As mortgage rates hover around 6%, potential buyers are tiptoeing back into the market, and some homeowners who bought when interest rates topped 7% are weighing refinancing. Mortgage applications jumped to the highest level in more than two years last week, driven largely by refinancing volumes.
“Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.”
Thirty-year mortgage rates have dropped more than a percentage point since May.
Read more: Mortgage and refinance rates today, September 26, 2024: Rates finally decrease
The Pending Home Sales Index, a measure of housing contract activity, rose 0.6% to 70.6 in August, improving slightly from July’s record-low reading, according to the National Association of Realtors. A level of 100 is equal to the amount of contract activity seen in 2001.
“Buyers are finally getting more comfortable with the rate,” said Selma Hepp, chief economist at real estate data provider CoreLogic. “I don’t think that’s going to mean a big boost for home sales this year given how low they’ve been so far, but still, it’s a little bit of improvement.”
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.
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