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Motive Insights - Unlocking the Benefits of Moving Embedded Finance In-House

April 3 · Issue #299 · View online
Motive Insights
Unlocking the Benefits of Moving Embedded Finance In-House
Financial services technology spend represents 25% of the global technology industry today and is expected to reach $1.2 trillion per year by 2030¹ as financial institutions push to innovate in an increasingly competitive and regulated world with rising costs of capital. But, as you know from our previous Motive Insights episodes, financial technology spend has begun to accelerate far beyond financial services, as new industries race to embed financial technology to streamline the digital and purchasing experience for the end-customer.
As part of these fundamental shifts across financial services and beyond, we are witnessing an accelerating preference of companies to bring historically outsourced financial technology solutions in-house. Some companies aim to bolster existing business lines, such as Apple’s acquisition of Credit Kudos; while others are pursuing a more strategic move, such as Morgan Stanley’s 2019 acquisition of Solium; or, more recently, the signed agreement for J.P. Morgan to acquire Motive portfolio company, Global Shares. Further internal integration of financial technology capabilities is intended to keep consumers tapped into products. This could be done by enabling the end-consumer to meet many of their technology needs through one product, whether that’s entertainment, social media, or financial services. This could, in turn, drive consumers to a one-stop-shop product and result in additional revenue from financing and transaction fees that previously would have padded revenues for companies’ financial technology partners.
We’re seeing this trend play out live; this week, Apple was the latest mover to double down on their in-house financial technology capabilities. According to Bloomberg, Apple has started working to bring a host of financial services work, including payments and processing, in-house. Apple’s multi-year financial technology plan, called “Breakout,” would see the company do payments processing, loan risk assessments, fraud analysis, credit checks, and customer service work on its own, in-house. This full suite of in-house financial services tools is a big move for a technology company, and while the Breakout project focuses on future product innovations, this could suggest the company has plans to move even further into the financial services space as an independent player. Bloomberg sources report that even the name highlights the trend of “breaking away” from the existing financial system, as more companies seek to embed financial services into their offerings without the support, and potential revenue drag, of a partner financial institution.
We will continue to watch how companies, and most interestingly those largely operating outside of financial services, respond to this increasing market pressure to innovate through embedded finance. Companies pushed by the demand from the empowered, digital consumer into a competitive and highly regulated space will have to respond with innovative solutions, such as in house financial services solutions, to unlock their share of the growing global technology industry.
About the Author: Catherine Mills is an Associate at Motive Partners on the Investor Relations Team.
  1. Source: Gartner Global IT Spending Report, 2019

Quote of the Week
Hot on the heels of the recent spin-out from Google and launch of Sandbox, HSBC has joined the quantum computing party alongside IBM on a three-year project to explore quantum technology.
Colin Bell, chief executive officer, HSBC Bank plc and HSBC Europe, says:
“By investing in quantum computing we are innovating for the future, to make banking easier for our customers. This technology has the potential to transform how we run areas of the bank by addressing challenges which classical computers may never be able to solve, alone. Our work with IBM, a leading provider of quantum computing, is essential to harnessing this potentially game-changing technology for financial services.”
HSBC says the company will explore the use of quantum computing for pricing and portfolio optimization, to advance its net zero goals, and to mitigate risks, including identifying and addressing fraudulent activity.
Motive Portfolio Highlights
  • Wilshire - The company announced two new members joining the executive committee, Erin Simpson and Joshua Emanuel, CFA.
  • LPA - Hosting a webinar on PRIIPs, SFDR/Taxonomy and MiFID II/IDD: “What is coming when, and what are the market practices?” Register here.
  • InvestCloud - Announced they have won the award for the best CRM system in the Wealth Management technology category at this years WealthBriefing European awards. Read more here.
Upcoming Industry Events
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What We're Reading This Week
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Digitization, Automation Can Prevent B2B Fraud
Citizens Bank Launches Checking Account With No Overdraft Fees
TPG takes advantage of high valuations; KKR’s State of Play a must-read for dealmakers
Lenders talk tech: Managing data in a new era of auto finance
Anonymous dumps 28GB of data stolen from Russian central bank
Australian fintech Zepto raises $25M AUD Series A to enhance payment infrastructure
DoorDash Moves Further Into Grocery With First Wholesale Club Partnership
Wells Fargo to be official issuer of Bilt Mastercard rewards card
Retailers Face Spate of Hyper Activism Amid Post-COVID, Pre-Inflation Transition
Brookfield funds Entropy
Regulation, Protection & Privacy
North Korea Uses Hacking to Steal Crypto Assets
Citizens Bank Launches Checking Account With No Overdraft Fees
BayaniPay Partners With Banks In California And Philippines For Fee-Free Remittances
Key Hires & Talent
Revolut expands US leadership team
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Actis makes two senior leadership appointments
Food for Thought
“To handle yourself use your head; to handle others, use your heart.”
~Eleanor Roosevelt
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