Embedded finance is experiencing a continued growth in Europe, with many businesses starting to recognise the market for its functionality and rising value.
With a projected market cap of $121bn by 2029, what should companies know to prepare accordingly and avoid the risk of falling behind? For the latest in our Payment Innovation Series, we spoke to Paolo Zaccardi, CEO and Co-Founder of Fabrick, who revealed how this can be accomplished.
Payment Expert: Can you tell us more about the response you have had from corporates when it comes to embracing embedded finance?
Paolo Zaccardi: Both with respect to customers and partnerships, the work Fabrick is doing is seeing a huge positive response from corporates. A testament to this is the €40m of new funds Fabrick secured to finance the next phase of our growth.
Fabrick being able to secure such a significant sum to finance growth in today’s market is an impressive feat that speaks to the fundamentals of our business and how embedded finance is increasingly being seen by corporates as the future.
The resources will be used to support Fabrick’s consolidation process in Italy, investments in products and services, infrastructure scaling up and expansion into other European markets – meeting the demand we are seeing for the ‘future ready’ embedded finance model, which allows Fabrick to address and govern the rapid changes taking place in the market and respond to the needs of corporates.
When implementing our services, the response from corporates has been positive and increasingly enthusiastic. Many companies, such as Mastercard, Q8, Nestlè Italia, and Reale Group, recognise the benefits of integrating financial services into their existing platforms, having tested and embraced Fabrick’s platform model themselves.
By doing so, they have managed to enhance the customer experience as well as strengthen their customer loyalty. And, as previously mentioned, Reale Group’s firm belief in Fabrick’s approach has been demonstrated through their investment in us.
PE: Does embedded finance take on increased importance during a challenging economic climate?
PZ: By its very nature, embedded finance solutions are B2B. However, embedded finance can improve accessibility to financial services, especially for individuals or small businesses that may face difficulties obtaining traditional financial services during an economic downturn.
By integrating financial services directly into existing platforms that people already use and trust, companies offering embedded finance solutions can reach underserved populations and provide them with convenient access to banking, payments, and other financial tools.
Additionally, embedded finance can foster financial resilience during economic uncertainties. If companies offer financial management tools, real-time financial insights, and personalised recommendations, then their clients (businesses) can empower the end-user to make better financial decisions and navigate challenging economic situations more effectively. This can help individuals and businesses optimise their financial health, manage risks, and adapt to changing economic conditions.
Fabrick’s embedded finance solutions serve to improve and simplify companies’ internal processes and offer the possibility of managing customer data in such a way that would allow businesses to make faster decisions (e.g., offer credit), whilst managing masses of data both easily and digitally. Thus, thanks to embedded finance, companies can use Fabrick’s solutions to improve end-user usability.
PE: Is Open Finance growing in popularity within European businesses?
PZ: While 2018 was the year of PDS2, open banking was primarily seen as a new way of accessing data and creating new value for consumers. Five years on, open banking is still expanding in Europe: current data suggests that today there are 559 TPPs in the EEA region (plus the UK); that by the end of 2024 there will be around 64 million users across the continent; and that by 2027 Europe’s share of API calls is to be 70% of the global total, which will exceed 580 billion (from 102 billion in 2023).
Not only has open banking grown rapidly in recent years, but now the focus has shifted toward services and products that can be built on top of Open Banking services and platforms. Specifically, we are witnessing a strong convergence between the worlds of open banking and open payments, linked to the ability of payments carried on “open platforms” to solve companies’ complex problems, especially in the B2B payment space which is currently evolving to include new solutions such as account-on-account payments that are more secure and cost effective, as well as virtual IBANs.
Furthermore, we have observed that European businesses are increasingly leveraging open APIs to offer value-added services such as account aggregation, personalised financial management, lending platforms, and investment solutions. By accessing data from multiple financial institutions, businesses can provide comprehensive financial solutions to customers, enhancing transparency, convenience, and overall user experiences.
Moreover, European businesses are increasingly recognising the collaborative potential of open finance. Traditional financial institutions are more willing to collaborate with fintech companies and technology providers, combining their strengths and expertise to deliver innovative solutions. This collaborative approach fosters an ecosystem where businesses can work together, driving innovation, and competition, and expanding the range of financial services available to consumers and businesses alike.
European businesses understand the potential of open finance to drive innovation, competition, and customer-centric financial services. With the regulatory framework in place and an increasing willingness to collaborate, open finance is expected to continue gaining momentum in Europe’s financial landscape.
PE: Do you see Italy becoming a leader of embedded finance in Europe?
PZ: The Italian fintech sector has experienced remarkable resilience in 2022, with data from the Politecnico di Milano showing that more than €900m was raised and the number of new enterprises operating in the sector rose to over 630.
Embedded Finance and Banking-as-a-Service models are fast becoming the go-to for new business opportunities, and fintech is now an integral part of daily life in Italy. There are great initiatives underway, Fintech District is the international community for the fintech ecosystem in Italy and has arguably helped the creation of two Italian unicorns with relevance to embedded finance: Scalapay and Satispay.
With an anticipated annual growth rate of 36.4% and a projected increase in revenues from $3,922.0m in 2023, to$11,876.7m by 2029, Italy is poised to become a significant player in the embedded finance space in Europe.
Ultimately, Italy has the potential to become a leader in embedded finance by leveraging new technologies. Financial institutions need to focus on building strong brand connections with customers and leveraging BaaS capabilities to expand their product offerings and increase customer loyalty. With the right strategies and investments, Italy can indeed establish itself as a leader in the embedded finance landscape in Europe.
The company also now operates in Italy, France, Spain, Portugal, and the UK, and with our recent new financing – we’re poised for growth.
Just one example is that Fabrick completed the acquisition of Judopay, a leading UK-based mobile payments company, in a deal allowing Fabrick to benefit from Judopay’s innovation expertise in digital commerce. This acquisition also marks an important step in Fabrick’s expansion into the UK market, where via its efficient and reliable mobile centric payment platform solution, Judopay currently handles over 60 million transactions a year worth over €2bn. This is a great boost to our UK footprint and moves to deepen embedded finance in this market too.
PE: What do you believe can be done to grow embedded finance to the next level and increase how it is embraced?
PZ: According to recent data, Europe is expected to boost its embedded finance market of over $121bn by 2029, up from the $42bn recorded in 2022 and – as explained by Ernst&Young and the Fintech District in their new 2023 Fintech Waves – with the vast majority of European businesses planning to launch Embedded Payments (96% of respondents); Embedded Banking (94%), Embedded Insurance (69%) and Embedded Lending (69%) solutions.
The future of payment solutions is also interwoven with no-code/low-code technology as well as generative AI and natural language processing. If, on the one hand, no-code/low-code technology will enable businesses to rollout applications and integrated payment services in a hyper-accelerated way
O On the other hand, the current development of AI technologies has the power not only to increase the personalisation of businesses’ financial offerings, but also to help firms streamline manual processes in areas like accounts payable (AP) and accounts receivable (AR), cash flow forecasting, credit scoring, compliance and fraud prevention.
To grow embedded finance and to increase its embrace, efforts should focus on seamless integration, collaboration and partnerships. Collaboration between traditional financial institutions, fintech companies, and technology providers is crucial for the growth of embedded finance. By forming strategic partnerships, businesses can leverage each other’s strengths and resources to deliver comprehensive embedded finance solutions.
Ultimately the customer only cares about the seamless end product, and embedded finance is how you build that product – corporations and businesses of all stripes are becoming cognisant of this.
PE: What successes have you seen so far from your collaboration with Mastercard and what else do you expect from it in the future?
PZ: By leveraging our respective strengths, resources, and know-how, Fabrick aims to establish itself as a benchmark in open and embedded finance across European countries. This partnership represents a significant opportunity to tap into the vast potential of embedded finance and deliver seamless digital payment solutions to both businesses and their customers. The partnership with Mastercard will allow Fabrick to further improve the digitalisation of payment solutions for businesses across Europe and research and develop new embedded finance services.
Fabrick’s open finance platform, coupled with Mastercard’s expertise and investment, will further expand the integration of financial services into various sectors through API implementation. This approach allows businesses to offer payment, banking, and insurance services without the need for proprietary financial infrastructure.
Furthermore, the collaboration will assist Fabrick in its aim of empowering companies and banks through comprehensive and value-added digital payment and embedded finance offerings.
Looking ahead to the SBC Summit Barcelona, the Payment Innovation series places a closer analysis on some of the industry’s key technologies and developments. To find out more about the SBC Summit Barcelona and why it is vital event for the payment industry, click on the banner below.