I hope this goes well. I mean, what are we going to add live? I mean, you're the director, right? Hi, I'm Ronnie. I'm a technology strategist at Publicis Sapient, and today we'll be answering questions from around the web on embedded finance.
A Reddit user asks, what is embedded finance? It's a great question. It can mean a lot of different things to different people and different organizations. But generally, when we're talking about embedded finance, it means taking functions and services that are normally found in a banking world and embedding them into places that are not related to banking. So for example, if you're about to buy something on a retail website and you see a little box that says you can buy this now and pay later, that's a microloan. That's an example of embedding a lending product inside of a non-financial context, and that's embedded finance.
Here's an interesting question from Quora. Why is embedded finance grabbing investor attention? I can only speculate. I don't know exactly why, but one thing we can see for sure, there's a massive opportunity. If you look at what's being written about the banking as a service sector, which is related to embedded finance, you're seeing some really big numbers being projected in the billions. And I think the opportunity that everyone sees here is to take a service that traditionally was siloed, was captured inside of banking experiences, and starting to offer them everywhere. And all of that could lead to some significant revenue for the organizations that can offer these services in the right way. The other reason it's getting a lot of attention is the buy now, pay later proposition with companies like Klarna. Yeah, it's created a massive amount of attention.
Why is the buy now, pay later booming? I think it's booming because it's useful, first of all, right, to consumers. So if I'm about to purchase something and I have an option to have it and pay later, that's always compelling. But equally, it's the nature of the relationship between the buy now, pay later provider and the venue it's in or the retailer. Because oftentimes with these models, what's happening is the user is not the revenue source, it's the partner. So the retailer pays the buy now, pay later provider to get that button on their site, and the user gets the functionality. And when you have a model like that, that's pretty exciting, right? So it means as a user, it almost feels like I'm getting it for free. I can buy now and pay later and not pay more to do that.
A question from Reddit, how will embedded finance evolve? It's always difficult to predict the way things will go, but we could see the rise of some aggregators. We could also start to see that today a bank is offering loans inside of a retailer's product, and maybe tomorrow they start providing the retail product, shifting from banking to retail.
Here's a question from Reddit. What is open banking? Open banking definitely relates to embedded finance. It can actually mean different things depending on where you ask the question. The real key with open banking, though, is that you're able to take banking services and use them programmatically, so via APIs, but without using the bank's channel. So I don't have to use the bank's website to access banking functions. So if the bank traditionally only offered their account services through their website and mobile and branch, open banking says, no, you also offer that to anyone who can write the right code on top of what you have. Embedded finance takes that a step further. So now the banks not only make their services available, but they also embed them into applications where users can use them. A bit like open banking is electricity that comes to your house, and embedded finance is the product you can plug in so you can actually use the electricity in a meaningful way.
Here's a question from Quora. What does it mean for a bank to have an open API? Back in the 1980s, if you asked someone, what is an API, they'd talk about the thing they use in code so that they can write software on a mainframe or on a computer. And it's kind of evolved now. So now when we talk about APIs, a business person might answer and say, oh yeah, that's the thing that lets us take our services and offer them in this fantastic new way through embedded services on API channels and API as a product. If we're saying open API, that means open to people outside the organization. And if we're talking embedded finance, we tend to see the banks shifting slightly from public, which is the open banking world, into that partner side where they go after a few specific partners and offer their APIs to them, rather than to everyone who wants to build on top of them.
So what makes me excited looking into the future? The technology has advanced enough that we can start to connect things together and reassemble them in ways we haven't. We really have opportunity from a tech side here to make it easier for the software to integrate with software in the long term. I think today when we build these propositions, the embedded finance, the banking as a service, the open banking, we build them on these APIs that when you change them, you break things. So what I'm really interested and excited about and a lot of where my thought goes into is how do we do this in a way where when someone changes one of these things, the whole system doesn't break down. There's so much opportunity and I think we'll start to see it become realized the more that this pattern gets accepted.