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The advance of Embedded Finance and Banking as a Service in retail

Article-The advance of Embedded Finance and Banking as a Service in retail

Avanço do Embedded Finance e o Banking as a Service no varejo.jpg
Financial solutions offered by companies outside the segment are on the rise and should continue to grow. Find out more about the advantages and the scenario of BaaS in Brazil!

A recent survey carried out by Mambu and Amazon Web Services pointed out that the market for financial solutions offered by companies that are not part of the banking sector should reach USD 3.5 trillion in global retail transactions over the next ten years.

Similarly, the concept of Banking as a Service (BaaS) has been increasingly gaining space as it provides opportunities for companies from different segments to operate with financial products.

With the subject “Retail: fertile ground for Embedded Finance and Banking as a Service to advance”, the panel held during the Future Payment section of Futurecom 2022 sought to go deeper on these points.

Alexandre Conceição, CEO and Head of Banking as a Service at Banco Original, and Fernando Tassin, Leader of the Committee for Payment Means and Trends in Retail at Fecomercio-SP, were responsible for the panel.

Keep reading to find out what the experts said during this meeting!

How Banking as a Service works and trends for this method in the future

At the start of his speech, Conceição recalled that the concept of Open Banking has meant something else altogether in the past, which ended up being conceptualized as one of the topics presented in the lecture.

“Open Banking meant an open bank, one that was connected, interoperable and integrated to any platform. This concept evolved from API structures into the concept we now know as Banking as a Service,” he noted.

On the subject of APIs, or Application Programming Interfaces, the CEO of Banco Original illustrated the concept discussing its use in the financial segment, pointing out that, in the market, it is possible to “both provide the digital product and consume someone else’s product based on an API.”

He added: “In this case, we have products that we ourselves consume through our clients, but we also have products on the market that are sold to other platforms. Likewise, we can consume services using the products offered by other consumers.”

Conceição pointed out that the BaaS market is on the rise, currently worth USD 2.4 billion, estimated to reach USD 11.34 billion in 2030, according to a survey by Allied Market Research.

According to Conceição, this type of service, which is at the heart of Embedded Finance and BaaS, allows retail merchants to have greater control of their cash and receive amounts instantly; on the customers’ side, in turn, these services provide a simpler and safer payment experience.

“The client’s company has a single work interface, a lower cost of payment means, and an anticipated cash flow since they receive everything on the same day”, he emphasized.

The benefits of Embedded Finance and BaaS solutions for retailers and customers

Next on the panel, Fernando Tassin, from Fecomercio-SP, pointed to the example of major retailers that create their own payment systems, but pointed out that such a reality is still distant for small and medium-sized trading entities.

“When we look at individual micro-entrepreneurs, PIX payments already represent 50% of the sales they make, so they are already replacing bank slips (boletos) with PIX. And when you compare 4% of an operation, in practice they are not your suppliers, they are your partners”, he observed.

Continuing with his reasoning, Tassin observed that these smaller retailers have an opportunity in BaaS to reduce their operating costs and, consequently, attract more customers. He explains:

“When you offer this service and add value, you relieve the retailer. Our point of view at Fecomercio is that there is no priority payment method for the consumer. What we need to ensure is that there is a payment complement for them.”

Also according to Tassin, despite the great advance of the PIX since its implementation in 2020, there are still disadvantages compared to the credit card, which offers the possibility of paying in installments and benefits such as cashback or miles.

“Another positive aspect is the Real Digital, which can be scheduled. You can choose where the person will use the money, so if I am a retailer and I want to give cashback in Real Digital, I can make sure that the amount may only be spent inside the store, creating a ballast and providing security for consumers”, he highlighted.

New PIX features as advantages for the democratization of new financial services

In the final part of the panel, Alexandre Conceição commented that new features such as PIX Withdrawal and PIX Change already bring advantages to users, and that will also be felt by retailers and merchants.

“This provides financial efficiency to the establishment, which will reflect in the service and in better costs for the customer. There are other features, such as withdrawing change, which is already regulated, and you can leave the establishment with the invoice at zero cost”, he analyzed.

Tassin provided a counterpoint to his colleague's view, noting that 20% of cell phones in Brazil still use the 2G network, as well as the fact that an equal portion of the Brazilian population receives their payment in cash.

“Imagine if the person is in a more remote region, with 2G technology, without a bank branch in the city. How do we move retail in this city? In many cities, the mayor gives a holiday so that the person can go to the neighboring city and withdraw cash to pay the bills”, he commented.

He continues: “The local economy of the city does not move. So when we talk about embedded finance, this means allowing PIX withdrawals, having ATMs, bills for those who prefer it, so the retailer’s vision of respecting the customer is fundamental.”

Concluding the panel, Tassin highlighted the importance for professionals and institutions that work with SaaS solutions to be mindful of the true needs of most Brazilians, especially in regions that are distant from major capital cities.

“If people who are providers of finance and technology solutions don't understand that this is a true pain-point, we may think that Brazil is digital, but it still won’t be. There is a growing volume, it is true, but there is still much to be done”, he concluded.

Learn more about the Futurecom event, the biggest phygital content and relationship platform on the connectivity universe in Latin America. 

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