Younger generations are more receptive to the trend of integrated finance, while there is greater reluctance among older generations, writes Rivo Uibo, co-founder and business director of Tuum.
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Integrated finance has experienced a steady increase in interest in both the financial and non-financial sector as companies compete to offer their digitally sophisticated customers the most perfect experience possible.
This trend is now reaching the masses, as evidenced by Tuum’s recent report ‘The changing face of banking’. The report shows an increase in consumer interest in integrated financial services, led, perhaps not surprisingly, by Generation Z and millennials.
While there is great interest on both the supply and demand side, the adoption of integrated funding is still somewhat hampered as cultural and technical barriers to adoption remain. Therefore, work must now be done to remove the folds. Those who can successfully address these barriers to adoption will take on most of this growing market.
Consumer interest in integrated finance is growing
There are a significant number of consumers who are willing to take out financial products at the time of purchase, and trouble-free financial services are always in high demand. Naturally, the younger generations are more receptive to the trend of integrated finance and many are already participating in this trend through, for example, the now-pay-later (BNPL) purchase schemes.
For older generations, there is a greater reluctance to participate with integrated financial services.
However, these consumers are more likely to engage in financial services (i.e., take out loans, insurance) in general. If you can gain the trust of these consumers, this represents a potentially lucrative market. Banks will be able to reduce the acquisition cost of this segment of high-value customers, while third parties (merchants, telecommunications companies, etc.) will improve the experience of their customers and, therefore, membership.
Banks recognize value
There was once a school of thought that theorized that banks would be reluctant to open their capabilities to third parties to allow cases of use of integrated financing; this has proven to be incorrect. Of the banks surveyed in the report, an overwhelming majority (82%) acknowledged the importance of this trend.
Sure, the will is there, but banks have traditionally been slow adopters and many still work with old-fashioned systems. They must conform to modern standards before a comprehensive integrated financing strategy can be carried out. A significant number of banks (64%) have or are upgrading their systems, and a further 35% have plans in place. However, we know from experience that these processes of digital evolution can end in a lack of commitment.
Barriers to adoption remain
Evidence shows that there is a total enthusiasm for integrated financial services, but there are still certain factors that hold back its full adoption.
In terms of demand, consumers of all age groups have indicated that they would be willing to take out, for example, an insurance product at the checkout. However, when these financial products and services are offered by a non-financial institution, almost half of consumers say they would not consider the source to be reliable enough. In addition, of those who had chosen not to remove this product, 22 percent identified complicated payment processes as the reason for their decision.
In terms of supply, banks are certainly aware of the revenue potential that integrated finance represents. However, as is often the case with financial institutions, adoption can still be slow and stated intentions can take years to materialize. In addition, a fully integrated integrated financial strategy requires open architectures, and this is simply not possible for banks that still operate with legacy systems (of which there are many).
Overcoming the last obstacles
It is clear that the market for integrated financial services is mature and initial use cases have been significantly successful; The Uber driver payment system, BNPL, etc. Naturally, the next steps involve wider adoption in various sectors of the industry, but cultural and technical barriers must first be overcome.
In terms of demand, there are still issues related to reliability, as many consumers only feel comfortable doing financial transactions with a recognized financial institution.
The problem here is the lack of education that causes a lack of confidence on the part of consumers. Therefore, a greater push must be made to show consumers that contracting financial services with a non-financial company is perfectly safe and is still supported by a regulated institution. This will be especially important to take advantage of the richer but generally more conservative generations.
On the supply side, a tale as old as time; the intention is there, but banks are slow adopters. Those who have already upgraded their legacy technology to modern basic banking systems may begin to explore cases of using integrated financing, but for many who do not yet have their technological capabilities, work must first be done to modernize the stack. technological.
With a projected market value of $ 7.2 trillion, integrated financing will undoubtedly be a valuable revenue stream for financial institutions; but only those who can get it right.
For more information on the services consumers are asking for from their banks, download Tuum’s 2022 report “The Changing Face of Banking” here.