The truth is, telecom companies have been playing a hidden role in our financial lives for years. Think about it: topping up your phone was a micro-transaction. Sending money to a friend with low credit? A mobile money transfer, courtesy of your telco.

But here's the twist: this convergence isn't a one-way street. Now, digital banks are dipping their toes into the telco space, and it all hinges on a tiny chip called an eSIM. Let's dive deeper and explore why the future of finance and telecommunications might be even more intertwined than we ever imagined.

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A Historical Timeline: Telcos' Foray into Finance

Let’s rewind back in time to set the context better. It’s the 90s, and banks were scrambling to embrace the internet, with Wells Fargo being one of the first to offer online banking in 1995. This was a turning point, a signal flare to the entire industry that the future was mobile. Today, every bank boasts a digital arsenal, from mobile apps to online investing platforms. But across the aisle, something similar was happening. Telecoms, once focused solely on connecting us to our loved ones, saw the potential of their vast networks and deep customer relationships, a unique combination that made them natural players in the financial arena. That’s when, in the early 2000s, mobile money services started popping up. 

Smart Money, launched by Smart Communications in the Philippines in Dec 2000, was one of the first mobile banking services launched by a telco in the world. But it was Kenya's Safaricom with its M-Pesa service, launched in 2007, that revolutionised money handling in Kenya. It understood that not everyone has access to living near banks or having bank accounts, and provided a convenient, secure, and accessible way to transfer funds, pay bills, and save, all through a mobile phone. The game truly changed, however, in 2013 when Safaricom’s M-Pesa underwent explosive growth: a staggering 43% of Kenya’s GDP flowed via M-Pesa, with over 237 million person-to-person transactions. This success story sparked a global wave of other telcos exploring similar ventures. 

In the Philippines, Globe Telecom's GCash became a household name, providing mobile-based financial services that quickly gained traction among the unbanked population. India's Airtel Money followed suit, capitalising on the vast unbanked demographic by offering accessible and convenient financial services through mobile phones. The Middle East also had STC Pay, which launched various mobile money initiatives, catering to both urban and rural populations with equal efficacy.

But telcos, much like banks, had a treasure trove of data – information about your spending habits, location, and even phone usage. The challenge? Traditionally, they couldn’t fully leverage this data to offer a complete financial experience. That's where embedded finance came in – bringing in a wind of change where partnerships between telcos, banks, and fintechs all worked together to create a more enriching experience for all the stakeholders involved in the value chain.

Now, telecom companies are offering more than just mobile money; they are launching full-fledged digital banks embedded within their existing ecosystems. Suddenly, our phone isn't just a communication device; it’s a financial hub for more sophisticated offerings. Modern-day telcos have since diversified their business models, moving beyond basic mobile wallets to niche propositions, like Brazil's Vivo Money offering personal loans and credit lines, or establishing their own digital banks, exemplified by Orange Bank in Europe that offers everything from savings accounts to personal loans and even insurance. Concurrently, the superapp strategy has gained traction, with companies like NTT Docomo in Japan and True Money in Thailand integrating multiple services into a single platform, blurring the lines between communication and financial management.

Banking Just Got a Whole Lot ‘Sim’-pler

As telcos have established themselves in the financial space, digital banks are now leveraging telecommunications infrastructure to enhance their service offerings. Forget bulky wallets and fumbling for the right SIM card when you are travelling abroad – the future of finance is sleek, digital, and embedded right in your phone. Originally developed to eliminate the trouble of inserting and programming physical SIM cards into Internet of Things (IoT) devices in 2010, eSIMs have since then rapidly gained traction. As of 2023, the eSIM market soared to a value of $4.7B and is projected to skyrocket to $16.3B by 2027.

Think of eSIMs as the ultimate upgrade for your mobile experience. Put simply, an eSIM functions as a digital, non-removable SIM card seamlessly integrated into a device. Unlike traditional SIM cards, they cannot be physically swapped out, but require the download of an operator's eSIM profile to activate, a process conducted entirely online for user convenience. This promises unparalleled convenience, heightened security, and uninterrupted global connectivity for consumers. For digital banks, eSIM adoption opens new horizons globally. With their expansive customer base and data insights, digital banks can precisely target and cross-sell additional services. 

The allure of eSIMs for both customers and fintechs is multi-faceted:

On the fintech side, the drivers include:

• Cost Efficiency: eSIMs eliminate the need for physical SIM cards, reducing production and distribution costs for fintechs.

• Revenue Streams: Offering eSIM services allows fintechs to tap into new revenue streams by partnering with telecom providers or selling data packages.

• Product Differentiation: eSIMs provide a unique selling point for fintechs, distinguishing them from competitors and enhancing customer loyalty.

• Data Collection: Fintechs can gather valuable consumer data from eSIM usage, helping to tailor their products and services better.

For consumers, the key drivers encouraging adoption are:

• Convenience: eSIMs allow for instant activation through a fintech app, offering a smooth, hassle-free experience.

• Sustainability: Eliminating plastic SIM cards makes eSIMs a more environmentally friendly option, appealing to eco-conscious consumers.

• Savings on Roaming Costs: eSIMs often come with flexible plans that offer significant savings on international roaming fees, making them an attractive choice for frequent travellers.

• Better Security: eSIMs reduce the risk of physical SIM card theft or tampering, improving the overall security of mobile communications.

The eSIM Stack: Mirroring the BaaS Model for Telecom Innovation

The eSIM stack is creating waves in the telecom world in much the same way that Banking-as-a-Service (BaaS) has reshaped financial services. Let’s break it down:

In the BaaS stack, licensed banks like J.P. Morgan and Goldman Sachs provide the regulatory foundation. Sitting on top of these banks are BaaS API providers such as Unit and Stripe, which enable fintechs like Chime, Affirm, and consumer brands like Amazon to embed financial services, such as loans and payments, directly into their platforms.

In the eSIM world, this structure is echoed. Mobile Network Operators (MNOs) like T-Mobile and Claro serve as the foundational layer, offering the necessary infrastructure for connectivity. Sitting above the MNOs are Telecom-as-a-Service (TaaS) API providers like Gigs, eSIMGo, and BetterRoaming, which simplify the complex process of managing eSIM profiles and enabling international mobile connectivity. These TaaS providers empower fintechs like Nubank, Revolut, and bunq, along with consumer brands like Swiss and FlightHub, to offer seamless mobile data services within their apps, just as BaaS providers enable embedded financial services.

Both stacks—whether embedded finance or embedded telecom—allow brands to provide integrated services, simplifying the user experience, creating new revenue streams, and enhancing customer loyalty.

The Future: A Fintech-Powered Mobile Ecosystem?

Fintechs are becoming not only financial hubs by integrating savings, lending, investments and insurance but also digital hubs, delivering one-stop-shop solutions for today’s digital-savvy consumers in the form of eSIM and eCommerce marketplaces. As the lines between finance and telecom continue to blur around customer needs, fintechs seem to be setting the tone for beyond-finance services by launching innovative products and services for their captive customers. 

So, the next time you open your banking app, keep an eye out for eSIM options. Who knows, you might just be a step away from becoming an active part of this exciting convergence!

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.

Hungry for more fintech insights? Check out some of our other work at WhiteSight.

Our latest publications include:

• Pioneering Embedded Finance in Brazil: The Untold Story of Magazine Luiza

• How Affirm is Scaling Distribution with Embedded BNPL

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletter—Future of Fintech—where we religiously track next-gen themes of the industry.

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If you're even slightly plugged into the Fintech world, you've likely come across the buzz around BNPL and embedded finance. But have you encountered the term embedded BNPL? It's easy to see why there might be some confusion. Sure, BNPL is often about embedding financing options directly into merchant checkout platforms - either online or offline, so in a way, it does seem naturally "embedded," right? And yeah, you're not wrong.

But in this blog, we're taking a deeper dive to break down what a multi-layered approach to embedded BNPL really means. We’re not just talking about the basic financing options you see during checkout, i.e. traditional BNPL. There are more levels to how this approach to embedding BNPL with partners who have direct access to merchants and consumers. Let’s go down the rabbit hole and explore the intricacies!

Want to dive deeper into the world of Embedded Finance? Our latest report with Brankas explores the global trends shaping the BaaS landscape. Discover how BaaS is revolutionizing financial services and enabling innovative business models. Read more and download the full report:

Take me to the Global BaaS Playbook! 🚀

BNPL providers like Affirm are taking things a step further in embedding BNPL on multiple platforms. The new frontier includes embedded BNPL on consumer platforms and SaaS platforms used by businesses. This multi-pronged approach has the potential to exponentially scale BNPL distribution, making it a powerful force driving transactions across industries. Don't just take our word for it; check it out for yourself below!

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Let’s uncover how Affirm is taking BNPL to the next level, seamlessly weaving it into the very fabric of how consumers shop and merchants operate business online.

So, what's the big picture?

Affirm is not abandoning its traditional partnerships with merchants, both big and small. But this embedded BNPL strategy is a power move. It positions Affirm at the heart of the buying journey, reaching consumers exactly when they're making purchasing decisions. It's a strategic distribution play that could redefine how we access and utilize BNPL in the future.

Embedded BNPL: Shopping Seamlessly, Everywhere You Do Business

Imagine BNPL woven directly into the fabric of your online shopping experience. That's the magic of embedded BNPL. Instead of being a separate financing option you seek out, it's seamlessly integrated within the platforms you already use.

Here's how it works for different players:

• Consumer Platforms: Think of your favorite digital wallets (Apple Pay, Google Pay, etc.) or even your browser (Chrome, Safari, etc.). Embedded BNPL means BNPL providers like Affirm partner with these platforms to offer their financing options directly at checkout. So, when you're buying that new phone, you can choose to split the payment through Affirm with just a few clicks, all within your familiar digital wallet or browser environment. No need to juggle between different apps or websites.

• SMBs SaaS Platforms: This is where B2B meets BNPL. Embedded BNPL here means BNPL providers partner with the software tools many small and medium businesses (SMBs) use to run their operations. This could be a payment processor like Stripe, a B2B e-commerce platform like Shopify, or even industry-specific software like a property management platform. With embedded BNPL, these platforms can offer BNPL options directly to their customers (your business, in this case) during the checkout process. So, if you're renting an apartment, you might be able to split your rent into installments directly through the property management platform, powered by an embedded BNPL solution.

Embedded BNPL is essentially a strategic handshake between BNPL providers and the platforms consumers and businesses already use. It makes accessing BNPL financing smoother and more convenient than ever before, potentially influencing how consumers shop and manage payments across various aspects of their financial lives.

How Embedded BNPL Differs from Traditional BNPL at Checkout

• Traditional BNPL at Checkout: This approach involves enabling BNPL options directly at the checkout stage through direct partnerships with both traditional and digital merchants. For instance, Affirm partners with well-known retailers like American Airlines, Cathay Pacific, and Walmart (traditional merchants) as well as online platforms like Booking.com and Expedia (digital merchants). At the point of sale, whether online or in-store, customers can choose to split their payments into installments using Affirm’s BNPL service.

• Difference: The key difference lies in the point of integration. Traditional BNPL at checkout is focused on offering financing options at the final stage of the purchasing process through direct merchant partnerships. In contrast, embedded BNPL is integrated throughout the consumer’s shopping journey or within the business’s operational platforms. This seamless integration within wallets, browsers, and various SaaS platforms ensures that BNPL options are available at multiple touchpoints, not just at the final checkout stage, thus enhancing accessibility and convenience for users.

  ---

Affirm's Strategic Outlook: Scaling Distribution Through Innovative Embedding

Affirm, a leading BNPL provider, has set its sights on expanding its reach by embedding its services across a diverse array of platforms. This strategy not only enhances accessibility for consumers and businesses but also positions Affirm at the forefront of the fintech revolution. Let's delve into the specifics of Affirm's strategic moves:

Embedding BNPL on Consumer Platforms

Affirm's first key strategy involves integrating BNPL options into widely used consumer platforms. This approach ensures that consumers can seamlessly access BNPL services through platforms they already trust and frequently use. The primary targets for this embedding include:

1. Wallets: By partnering with digital wallet providers like Apple Pay, Google Pay, Amazon Pay, and Shop Pay, Affirm can offer consumers the convenience of BNPL options directly within their preferred payment methods. This integration simplifies the purchasing process, making it easier for consumers to manage their finances and shop responsibly.

2. Browsers: Another innovative move is embedding BNPL services into popular web browsers such as Microsoft Edge, Chrome, Firefox, and Safari. This strategy ensures that consumers can access BNPL options while browsing the internet, enhancing their online shopping experience. It also positions Affirm as a ubiquitous presence in the digital ecosystem, increasing brand visibility and user engagement.

Embedding BNPL on SMB SaaS Platforms

Affirm's second strategic focus is on embedding BNPL solutions into Small and Medium Business (SMB) SaaS platforms. This move targets various segments within the SMB market, providing tailored solutions that meet specific business needs. Key areas of focus include:

1. Payment Processors: By integrating with payment processors like Stripe, Adyen, and Worldpay, Affirm can offer BNPL options at the point of sale for numerous small businesses. This partnership enhances the payment processing ecosystem, enabling SMBs to provide flexible payment options to their customers, thereby boosting sales and customer satisfaction.

2. B2B e-Commerce Platforms: Embedding BNPL services into B2B e-commerce platforms such as Shopify, WooCommerce, and Adobe Commerce allows Affirm to tap into the burgeoning B2B market. This integration supports businesses in offering flexible payment terms to their clients, fostering stronger commercial relationships and driving growth.

3. Vertical SaaS Platforms: Affirm's strategy also includes partnerships with specialized vertical SaaS platforms like RedAwning, Inntopia, and Arternal. These platforms cater to niche markets, and by embedding BNPL options, Affirm can address specific industry needs, providing tailored financial solutions that enhance business operations and customer experiences.

   ---

The future of BNPL is embedded

Affirm's innovative distribution strategy, characterized by embedding BNPL services across a wide range of consumer and SMB platforms, exemplifies the concept of Fintersection. By leveraging the synergies between fintech advancements and strategic business partnerships, Affirm is poised to redefine the BNPL landscape, offering unparalleled convenience and flexibility to consumers and businesses alike.

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.

Hungry for more fintech insights? Check out some of our other work at WhiteSight.

Our latest publications include:

• A Deep Dive Into Saudi Arabia’s Evolving Open Banking Revolution

• BaaS and Embedded Finance Opportunities for Banks

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletter—Future of Fintech—where we religiously track next-gen themes of the industry.

Fintech research is in the WhiteSight DNA, so if you'd like to get in touch for features, research content, or sponsorship-related services, reach out to us at hello@whitesight.net.

And lastly, to stay updated on everything fintech, follow us on LinkedIn and Twitter and don't be shy to show some 💛

Apple Pay Later burst onto the scene in 2023, offering a convenient way to split purchases into manageable instalments. However, in a recent move, Apple announced it would be shutting down its own BNPL service in the US. Instead, they're shifting gears and pursuing a partnership-based approach.

This new strategy sees them collaborating with established fintechs like Affirm and Monzo, established banks like Citi, Synchrony, HSBC, ANZ, Caixabank, and even card issuer processor platforms like Fiserv. This isn't just about spreading the risk – it seems to be a strategic shift that leverages the strengths of both sides. Apple brings its robust distribution ecosystem components – think Apple Pay, Apple Wallet, and the ubiquitous Apple ID – to the table. The BNPL partners, on the other hand, offer expertise in underwriting, credit risk management, customer service and regulatory know-how. So, what's the story behind this strategic pivot? Let's dive into the exciting intersection of Apple's powerful ecosystem and the established BNPL landscape to see how this collaboration is poised to redefine the future of BNPL.

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Let's examine the value chain elements of Apple Pay Later and who controls what in this structure, depicted as a vertically integrated model in the image below. In this model, Apple maintains substantial control, streamlining operations and enhancing the customer journey within its ecosystem, yet it collaborates with external partners like Goldman Sachs and Mastercard for specialised services.

Apple's Strategic Shift in BNPL

Apple is embracing a collaborative ecosystem model, moving away from a traditional vertically integrated approach. This strategic realignment is designed to harness the strengths of partnerships with banks, technology firms, and other BNPL providers, which are crucial for expanding market reach and enhancing operational efficiency. On the flip side, there are key inhibitors like Regulatory Complexity and Operational Overhead, which posed significant challenges in the vertically integrated model. 

Let's dive deep into the intricacies to unpack the inhibitors of the vertically integrated model and the drivers for the collaborative ecosystem model shaping Apple's BNPL strategy.

Shifting Gears: Why Did Apple Shut Down Its Own Pay Later Service?

While Apple hasn't explicitly stated the reasons behind this move, there could be several factors at play. Apple owns almost all the critical elements of the Pay Later value chain in its vertically integrated business model. 

Let’s look at the challenges with this vertically integrated business model for Apple Pay Later:

1. Regulatory Complexity: Managing regulatory compliance across various jurisdictions is intricate and time-consuming, requiring substantial resources. For example, in May 2024, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule concluding that “Buy Now, Pay Later” (BNPL) loans accessed through a digital user account are “credit cards” subject to Regulation Z dispute and refund requirements. This can have significant implications for Apple’s regulatory obligations to run Pay Later in-house. 

2. Operational Overhead: Internal management of all aspects of BNPL services, such as credit underwriting, identity and fraud checks, capital provisioning, credit bureau reporting, dispute handling, etc., involves high operational costs and complexities, including in-house and third-party technology infrastructure maintenance.

3. Scale Limitations: Scaling a vertically integrated BNPL service globally requires significant investments in local market understanding, procuring necessary regulatory licenses and setting up technology infrastructure. Apple has struggled to rapidly expand its Pay Later services internationally, unlike its quicker global rollouts of Apple Pay and Apple Tap to Pay, which benefited from partnerships with card issuers and payment processors, respectively.

4. Risk Management Concerns: Taking full responsibility for credit risk, fraud prevention, and financial liabilities can strain financial resources and capabilities. As we described in Apple’s Embedded Finance Playbook, Apple tends to target customers with low credit scores and limited credit histories. In 87% of the states where Apple holds a lending license, the credit scores are below average. Apple also targeted states with a predominantly younger population, with 67% of the states where it has a lending license featuring a median age of below 39 years. Managing loan loss provisioning for these customer segments could be a risky expedition.

5. Concerns with the Goldman Sachs partnership: News reports indicate that Apple's partnership with Goldman Sachs for its credit card and bank account products may be ending earlier than expected. As Goldman Sachs prepares to exit the consumer lending business, Apple might have anticipated this move by expanding its Pay Later collaborations with other banks and BNPL providers.

Unlock Apple's Embedded Finance Playbook: Past, Present, Future. Our exclusive report decodes Apple's strategic moves, analyzes its financial product roadmap, and reveals how to leverage this for maximized consumer engagement.

Take a Bite into Apple's Ecosystem!📱

Strength in Numbers: Partnership Advantages for a Global BNPL Rollout

Apple's strategic decision to collaborate with established BNPL providers represents a crucial pivot aimed at enhancing its global market presence. 

Here’s a look at the potential advantages of the collaborative ecosystem model:  

1. Market Expansion: Apple is collaborating with banks, technology firms, and Buy Now, Pay Later (BNPL) providers to extend its Pay Later services globally. This strategy leverages these partners' established market presence and regulatory approvals, enabling Apple to quickly enter new markets and cater to a broader customer base without the need to build infrastructure from scratch.

2. Risk Sharing: Apple's strategy of partnering with well-established financial institutions and BNPL providers allows it to share the financial risks associated with lending, such as defaults and delayed payments, and reputational risks, such as regulatory penalties and consumer complaints. This approach not only mitigates Apple's financial exposure but also distributes regulatory responsibilities, which can vary significantly across different regions, thus easing the burden of compliance and reducing potential liabilities. The ecosystem collaboration strategy enables Apple to transition the revenue generation of its BNPL services from potentially risky interest income to more stable fee-based income derived from its partners.

3. Expertise Utilisation: Apple capitalises on the specialised knowledge and experience of its financial services partners to enhance its BNPL offerings. This includes leveraging advanced risk assessment techniques, proven customer support frameworks, and efficient operational practices. By integrating its technology with the expertise of these partners, Apple ensures that its services are compliant with financial regulations, efficiently managed, and able to provide superior customer service.

4. Customer Acquisition: Through its collaborative model, Apple taps into the existing customer bases of its partners, which include banks and other BNPL providers. This relationship enables Apple to access a ready-made market, significantly speeding up customer acquisition. Furthermore, collaborative marketing strategies, such as co-branded promotions and exclusive offers, help attract customers who are already familiar with and trust the partner brands, thereby enhancing the uptake of Apple's Pay Later services.

5. Building a moat with Card Issuers: Apple's strategic partnership with card issuers enhances its BNPL offerings by positioning Apple Wallet as a central hub for diverse payment options—including debit cards, credit cards, and BNPL. This integration not only streamlines the consumer payment process for both in-store and online transactions but also reinforces consumer loyalty by offering a seamless and comprehensive payment experience. By allowing users, such as those in the UK, to link their debit and credit cards directly to their Apple Wallet, Apple enables real-time visibility into account balances and transaction histories at the point of sale. This approach potentially locks in users to Apple's ecosystem, making it a primary platform for managing personal finances and making payments across multiple instruments. 

The Road Ahead: What to Expect from Apple's News BNPL Strategy

Apple's new BNPL strategy, built on collaboration, promises a future filled with possibilities. 

This strategic pivot to partner with banks, technology firms, and BNPL providers is expected to catalyse rapid global expansion, enhance customer experiences, and optimise risk management. This strategic shift positions Apple to be a major player in the BNPL landscape across multiple markets, potentially fostering healthy competition and offering a wider range of flexible payment options to consumers.

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.

Hungry for more fintech insights? Check out some of our other work at WhiteSight.

Our latest publications include:

• The State of Embedded Finance (Q1 2024)

• Toast Teardown: Vertical SaaS meets Embedded Finance

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletter—Future of Fintech—where we religiously track next-gen themes of the industry.

Fintech research is in the WhiteSight DNA, so if you'd like to get in touch for features, research content, or sponsorship-related services, reach out to us at hello@whitesight.net.

And lastly, to stay updated on everything fintech, follow us on LinkedIn and Twitter and don't be shy to show some 💛

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The Kickoff: Why Football Clubs and Crypto Firms are Teaming Up

Gone are the days of simply cheering from the stands. Today, fans are craving deeper connections with their beloved clubs, seeking personalised experiences and exclusive access before, during, and after the match. This is where crypto offers a unique set of tools to transform fan engagement in the form of NFTs, Fan Tokens, Tradable cards, and ownership of virtual pitch blocks. 

The other aspect of collaboration is more traditional - sponsorship deals. Think about it: billions glued to their screens, chanting for their heroes, united by a love for the sport. That's the kind of audience crypto companies crave, a gateway to millions eager to explore the exciting world of crypto assets. So, they're striking deals with the biggest clubs, from Manchester United to AC Milan, leveraging their jerseys, stadiums, and digital platforms to become part of the action. The clubs get a financial boost and exposure to a tech-savvy audience, while crypto companies gain instant global recognition and a chance to educate this massive fanbase.

This isn't just a fad; it's a multi-billion dollar trend expected to reach $5B by 2026. So, lace up your boots, and let's explore this alliance of football and crypto. 

Patrons to partners: sponsorship through the ages

Sponsorship has transformed into a vital tool for marketing communication, assuming a pivotal role in diverse promotional strategies in recent decades. Yet, its roots stretch back over 2,500 years, originating in ancient Greece circa the 5th century BC. Initially, sponsorship emerged as financial backing from affluent individuals to support significant competitions and public festivities, showcasing their community involvement and extending influence. 

In the contemporary landscape, propelled by the digital revolution and globalisation, sponsorship has evolved. Stadium signage, jersey placements, and halftime commercials are commonplace as companies vie for visibility through partnerships with esteemed teams and athletes. Brands across sectors invest staggering sums, fostering outreach and engagement. Football teams globally, long targeted by brands like Red Bull and Coca-Cola, now witness increased interest from the crypto sector, leveraging sports matches for enhanced awareness and engagement.

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Crypto transforms the football sponsorship landscape

During 2018-2022, there has been a staggering 7,100% increase in cryptocurrency sports sponsorships in sports like baseball, ice hockey, and mixed martial arts, to name a few. The value of such sponsorships by crypto companies surpassed $1.5B worldwide between January 2021 and June 2022 alone. As the Fifa World Cup kicked off in Qatar in late 2022, it was no surprise to see Crypto.com and Algorand prominently featured on the hoardings adorning the football pitch. Giants of the footballing world, including the likes of Barcelona, Bayern Munich, and Liverpool, have enthusiastically embraced partnerships with prominent crypto brands. This trend underscores the increasing recognition among top-tier clubs of the burgeoning influence and potential of the cryptocurrency space. By integrating crypto sponsors, clubs gain financial support, showcase their commitment to technological advancement in sports, and help advance the mainstream acceptance of digital assets in the sports industry. 

Crypto firms leverage football's global reach

Partnerships between football clubs and crypto firms benefit both sides: clubs gain revenue while crypto firms gain exposure. Communities play a pivotal role in the crypto ecosystem's strength, evident in the growth of major coins like Bitcoin, Dogecoin, and Shiba Inu. Crypto companies recognise the significance of a robust community for marketing, attracting developers, raising capital, and increasing coin or token value. Partnerships between crypto companies and sports teams focus on three main goals: 

• Increasing brand visibility - Football sponsorships enable crypto companies to enhance brand visibility by associating with popular teams, tapping into their vast fan base, and gaining exposure through broadcasts, merchandise, events, and social media.

• Targeting new demographics - Sponsoring football teams allows crypto companies to reach audiences beyond their typical user base, introducing digital assets to younger sports fans unfamiliar with cryptocurrencies and paving the way for mainstream acceptance.

• Promoting innovation and technological advancement - Crypto companies align with football teams engaged in technological advancements to reinforce an image of progress and innovation, showcasing their technological prowess.

Beyond surface-level visibility, these collaborations encompass diverse business objectives such as influencing decision-makers, enhancing stock market value, rewarding resellers, and generating new sales. The strategy is to diversify beyond bidding for online search clicks, aiming for potential clients to naturally gravitate toward the brand in investments and crypto trading.

As noted by UEFA, the governing body of European football, the cryptocurrency sector has played a role in aiding clubs to recover lost revenue streams, especially in the post-pandemic era. This underscores the multifaceted nature of these partnerships, which extend beyond immediate financial gains to encompass strategic objectives, brand positioning, and long-term sustainability. 

Beyond mere branding exercises, the utilisation of crypto in football has transcended into a tangible component of real-life transactions within the sport. In 2021, Spanish striker David Barral etched his name in football history when his transfer from Real Madrid to DUX International de Madrid was orchestrated with the payment made entirely in Bitcoin. In the same year, Rimini FC, an Italian third-division club, made headlines by becoming the first football team to be purchased using crypto. Quantocoin, a blockchain technology platform, secured a 25% stake in the Italian club, solidifying the transformative role of crypto in reshaping the dynamics of club ownership and player transactions within the beautiful game.

In a noteworthy shift within the Premier League, football clubs are bracing themselves for potential restrictions on betting companies serving as front-of-the-shirt sponsors. Amid growing concerns over the impact of gambling on society, several English clubs have proactively sought alternative partnerships with crypto companies to replace their traditional betting sponsors in a last-ditch effort to avoid a government-imposed ban. The proposed voluntary ban is anticipated to commence at the beginning of the 2025-26 season but would permit existing deals to run their course, as long as they conclude no later than the 2024-25 campaign. Numerous top Premier League clubs have either already finalised agreements or are presently in discussions with companies within the crypto sector, indicating an emerging trend. 

The Next Level of Fan Engagement Through Tokens

Blockchain technology enables football clubs to leverage tokenisation to develop fan engagement programs, incentivising supporters to share content and earn rewards. These can be used for merchandise, tickets, and digital collectibles, fostering a sense of community and strengthening ties with sponsors. Its transparency facilitates seamless data sharing with advertisers, enhancing the fan experience and sponsors' ROI, ultimately modernising interactions and fostering mutually beneficial relationships among clubs, fans, and sponsors.

Fan tokens have emerged as a significant phenomenon, gaining popularity as specialised digital assets that enable interaction between sports clubs and their supporters. These tokens, tied to specific teams or leagues, empower fans by providing them with unique benefits such as voting on club matters, purchasing tickets, enjoying discounts on merchandise, and actively participating in the fan community. 

Functioning as a type of utility token on the blockchain, fan tokens are distinct from traditional cryptocurrencies like Bitcoin or Ethereum. Instead, their value is derived from the fans' desire to engage with and contribute to their favourite teams. Fans can acquire these tokens using fiat currencies, such as dollars, pounds, or euros, and leverage them within a club's ecosystem to access exclusive content, voting platforms, and other fan-centric activities. Unlike non-fungible tokens (NFTs), fan tokens are interchangeable, allowing for seamless exchanges within the specific fan token ecosystem. 

The pricing mechanism of these fan tokens is typically determined by the demand-supply dynamics and is susceptible to shifts based on market dynamics and the token's current popularity. Functioning akin to stocks of football clubs, fan tokens mirror the ebbs and flows of stock values. The volatility of fan tokens can, at times, surpass that of traditional stocks, contributing to significant gains for crypto holders. The oscillation in token prices aligns with broader trends in the cryptocurrency market – a positive market sentiment generally uplifts football club tokens, while a downturn has the opposite effect. Notably, the success of the club and its players significantly impacts token values. For instance, FC Barcelona's crypto asset saw a surge in early 2021, reaching $50 from an initial value of $7, propelled by successes. Despite a boost after winning the Copa del Rey, elimination from the Champions League (Dec 8th, 2021) and poor performance in La Liga led to a decline (below $10). Unlike stocks, fan tokens don’t promise to directly yield financial returns but offer privileges such as exclusive perks and the ability to participate in decision-making through voting. However, the tradable nature of these fan tokens does come with financial benefits and risks linked with the token value on the exchange. 

Fan tokens might not give fans full decision-making power like governance tokens do, but letting them vote on club matters is a big step towards empowering the community. Fan tokens also empower holders to participate in various club-related activities, including voting on content shared on social media, choosing merchandise designs, and even influencing match locations. For example, in December 2020, PSG token holders could vote on the message on the captain’s armband (the choice was: “ICI C’EST PARIS”). At Juventus, it was up to the token owners to decide which songs should play as the victory anthem. They chose two pieces of music by the British band Blur. With such and other votes, the supporters of their club have the opportunity to actively influence the external image of the team and put their own stamp on it. 

The success of fan tokens is evident in their adoption levels, with major football clubs like FC Barcelona and Paris Saint-Germain generating substantial revenue through token sales. When Paris Saint-Germain signed Lionel Messi, the salary package included something previously unheard of for a player -- a one-off payment, understood to be worth around €1M ($1.15M), made in PSG 'fan tokens'. It was the result of a partnership signed by the French giants in 2018 with Socios.com. 

Socios: The force behind fan tokens

Socios is a key player in the fan token realm, partnering with football clubs to offer fan tokens through its website and app. When football clubs launch a new fan token, it hosts Initial Fan Token Sales (FTOs) using Chiliz (CHZ) as the digital currency, allowing fans to participate in club activities and earn rewards. CHZ is an ERC-20 token that runs on an Ethereum-based Chiliz blockchain.

To participate in the FTO, individuals sign up on Socios or download the app, register, and purchase Chiliz. The cryptocurrency can be obtained from platforms such as Binance, Coinbase, or directly through the Socios app. Users deposit fiat currencies on the app, convert them into CHZ, and then use them to acquire the desired fan token within the app. CHZ tokens are not only crucial for the initial fan token sale but also grant access to the Socios Locker Room, an exclusive space enticing new club entries. The Socios.com platform hosts the Fan Token Offering (FTO), fixing prices for fan tokens during a designated period before they enter the broader marketplace. CHZ, as the native ERC20 utility token on the Chiliz network secured by the Ethereum blockchain, serves as the digital currency for both Chiliz and Socios.com platforms. Possessing these fan tokens allows fans to participate in mobile voting and grants entry into an exclusive community of enthusiasts, providing various benefits based on the fan's token holdings and ranking.

Socios.com has gained significant recognition by securing a sponsorship deal with UEFA, the governing body of European football. With partnerships extending to 56 football clubs and around 100 sports teams globally, including PSG and Juventus, the platform has seen approximately $300M worth of coin sales via its app. Socios.com's business model involves paying clubs a minimum sum and sharing a percentage of revenue from token sales, retaining a commission of around 50%. The rest is given to the respective club. Tokens are released gradually over time, with clubs able to control voting rights based on token holder preferences. By incorporating Socios.com, clubs aim to expand their global fan bases and generate additional digital revenue in a secure and transparent manner, enhancing the authentic fan experience.

NFTs: The New Memorabilia 

Football's deepening ties with crypto extend into the realm of NFTs (non-fungible tokens), marking a significant development in the sports industry. Football clubs across the globe have embraced the trend by creating their own digital assets, such as images or videos, available for purchase and trade. NFTs act as Crypto collectibles and empower teams to create unique or limited-edition items, verifiable through a secure and transparent digital ledger. Fans can acquire limited-edition player trading cards or receive rewards for assembling a complete set of team players, adding a dynamic and engaging dimension to the fan experience. Renowned football figures, including Brazil's Neymar, have actively endorsed NFTs. Juventus, in the summer of 2021, joined the NFT wave, using it as a platform for collecting memorabilia. Their inaugural NFT featured a three-dimensional, high-definition replica of the team's home shirt for the 2021/22 season, adorned with tributes to iconic players and current squad members' signatures.

While traditional trading cards and memorabilia have long been lucrative for sports teams, the emergence of a digital-native fan base, influenced by gaming and esports, necessitates a shift toward digital collectibles. Instead of static images tucked away in binders, fans have the opportunity to own a virtual block of the White Hart Lane turf or a digital corner flag from the San Siro where legends have made history. This adaptation allows clubs to align with evolving consumer preferences, fostering a broader fan base by offering digital trading cards and souvenirs that fans can effortlessly purchase and exchange.

Fan Engagement or Financial Gamble?  

Partnerships between football clubs and crypto companies introduce unique challenges and risks, such as financial risk and reputational risks. It is imperative for teams to carefully evaluate these factors before engaging in such collaborations. The crypto sector, being relatively new and largely unregulated, poses unique challenges for clubs and their fans. The lack of consumer protection and the complexity of crypto investments make it challenging for sports enthusiasts to comprehend the nature of their financial involvement.

Prominent "fan engagement" services, exemplified by companies like Socios, primarily aim to incentivise the purchase of the sponsoring company's cryptocurrency. However, rather than expressing loyalty or engagement, many individuals acquire these tokens as a speculative investment opportunity, blurring the lines between sports fandom and financial speculation.

Diversified partnerships between football clubs and crypto entities extend beyond mere sponsorships. For instance, some sponsors encourage gambling with Bitcoin, while others associate with specific cryptocurrencies. The speculative nature of certain crypto assets raises concerns, likening the investment to a form of disguised gambling. This becomes especially problematic for individuals susceptible to problem gambling, whom the government aims to protect through potential restrictions on gambling sponsorships.

Reputational risks arise from the association between cryptocurrencies and financial crime. Cryptocurrencies, commonly linked to the dark web and the online black market, have been involved in hacking, ransomware attacks, and tax evasion schemes. Instances like Manchester City's halted partnership with 3Key due to doubts about the company's existence and Barcelona's cancellation of a deal with Ownix due to legal issues surrounding its executives highlight the potential pitfalls of such collaborations.

Financial stability is another critical consideration, with football clubs entering partnerships with crypto firms that may lack sufficient track records or traceable ownership. Examples of collapsed crypto firms, such as Terra and IQONIQ, underscore the risks associated with sudden financial instability. Clubs face reputational damage, financial impacts, and legal battles when sponsors fail to fulfil their commitments. DigitalBits, which previously held a sponsorship position on Inter Milan's sleeves, became their primary shirt sponsor for the 2022/2023 season. In September 2021, Inter Milan unveiled a substantial three-year, €85M partnership with Zytara Labs, the entity overseeing DigitalBits. However, due to a failed payment, Inter Milan had to take measures to minimise DigitalBits' brand visibility. This includes the removal of associated marketing assets from the club's official website, billboards on the stadium sidelines, and the women's first team kit. 

Moreover, the football community's commitment to environmental sustainability, as exemplified by the Premier League signing the UN Sports for Climate Action Framework, raises questions about the energy-intensive nature of certain cryptocurrencies. The substantial energy requirements for transactions and coin mining conflict with the league's goals to reduce emissions and achieve net zero by 2040.

The growing prevalence of crypto sponsorships in football has prompted the Premier League to investigate these partnerships, considering concerns raised by fan groups and regulatory bodies. Recent advertising regulator interventions, such as the ban on Arsenal's fan token promotions, emphasise the need for transparency and responsible marketing in the crypto market. The Culture, Media and Sport Committee has expressed concerns about the financial harm to supporters and reputational damage to clubs arising from volatile cryptoasset schemes promoted as fan engagement.

More Than Moneyball: Lob Pass to the Future 

This tag-team partnership between crypto and football isn't just about megabucks and marketing; it's about bringing the beautiful game closer to its global audience. Imagine a teenage Messi devotee in Mumbai bidding on his signed boots with her meme-coin savings, or a football-mad kid in a remote village in Senegal owning a limited-edition NFT of Mohamed Salah – the possibilities are as endless as a Ronaldinho trickshot compilation. The beautiful game is becoming borderless, thanks to the magic of crypto, and that's a win for football fans worldwide. So, while the jury's still out on who'll score the winning goal in this ever-evolving game, one thing's for sure: the future of football is looking as bright and unpredictable as a well-timed lob pass – and crypto is right there on the pitch, boots laced and ready to play. Let's just hope the memes flowing through the cryptosphere are as entertaining as the silky skills on the field!

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.

Hungry for more fintech insights? Check out some of our other work at WhiteSight.

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• Toast Teardown: Vertical SaaS meets Embedded Finance

• 2023 Roundup: From Vision to Victory in the Race of Profitability 

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Metaverse’s booming popularity has got people hungry for a taste of virtual reality. For many, the concept is still futuristic, opening up a universe of infinite possibilities.

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Banks have worked on the pen and paper model for centuries. The branch-centric retail-banking distribution model has largely remained the same since the days of the Medicis. Then came the internet era, and banks built bank websites by launching a web version of their branch to engage with the consumers through the web channel. Soon after, the mobile era upended the internet, and banks made attempts to transform their branch-centric websites into mobile apps. While they were busy doing that, the digital era allowed new entrants – the FinTech startups – who plugged into the core attributes of mobile and internet to reimagine the business model of banking. They reimagined the art of the possible in the banking industry by re-architecting their operating models, customer engagement processes, and financial product creation & distribution mechanisms. In the wake of the pandemic, traditional banks across the globe have realised the power and potential of digital, increasingly making digital bets to reimagine their business models from the ground up.  

From Digital Transformation to Meta-Morphosis

The debate over disruptions in the banking industry has picked up steam with the success of FinTechs and the entry of non-banks and BigTechs. Traditional banks have accelerated digital transformation initiatives in response to these disruptive undercurrents. Over the years, the term has expanded to include mobile banking, data-driven decisioning, automated operations, and omnichannel engagements on digital channels through automated chatbots and voice bots. Some banks have also launched high-tech versions of their branches, such as ATB Financial’s use of Softbank Robotics’ robot Pepper as a greeter and the introduction of touch tables at State Bank of India’s InTouch branches to facilitate self-service digital interactions for customers. Meta(verse)-morphosis happens to be the latest addition to the evolutionary dimension of digital transformation in the banking industry.  

The metaverse, while still in its infancy in many ways, has suddenly become a lucrative industry, with tech titans, gaming giants, and brand behemoths like Meta (formerly Facebook), Microsoft, Epic Games, Roblox, Nike, Coca-cola, and several others developing their own virtual worlds a.k.a. metaverses.

Having lagged in the digital finance race brought upon by the FinTechs and BigTechs, banks have realised the opportunity cost of missing out on emerging trends. In the case of Metaverse, forward-looking universal banks have decided to take the proverbial Red Pill to venture deep into the metaverse rabbit hole.   

Banks’ New Avatar in the Metaverse Economy

The web2-era’s digital trends didn't just introduce new ways of banking – they also introduced a completely new digital economy, which included new jobs, modes of social interactions, commerce, and assets. As the immersive 3-D economy and web3 phenomenon grow over the coming decade, the metaverse is expected to do the same. It will create a metaverse economy shaped by the changes in how we work, play, interact, shop, and create and manage wealth.

According to Precedence Research, the global metaverse market was valued at around US$40B in 2021. It is projected to grow at a CAGR of 50.74% from 2022 to 2030, worth around US$1.6T by 2030. The size and exponential CAGR of the metaverse economy have banks making a beeline with compounded interest to find ways to keep themselves relevant to the crypto-enthusiast consumers, NFT-savvy brands, digital-asset hungry institutions, and AR/VR-early adopter employees. Just like in the real economy, banks are expected to play a critical role in the metaverse economy. They may launch new products, unlock new revenue streams, engage new customer segments and in the process, create a new brand identity by orchestrating new experiences for the customers and employees.    

Knock, Knock Knocking On Metaverse’s Door 

Big banks have held sway for decades, sticking to the same old-school methods of banking. But, the battlefield isn't the same today. There's a whole new generation who wants so much more when it comes to managing money. And to address the digital and contextual needs of this emerging but demanding generation, banks are now beginning to venture into the metaverse. Since this world is tied to NFTs, cryptos, and thus, to the Millennials & Gen Z, banks are racking up deals to hook the younger generation.  As shown in the exhibit below, several banks from the US, South Korea, Europe, Middle East, and Asia pacific have embarked upon their Metaverse odysseys.

Multi-trillions in the Metaverse 

The doors of Metaverse have been rung by dozens of celebrities and brands lately. It seems like everyone wants to date this sensation. The desire to sit front-row is widespread, but FOMO is also a driving force behind some. The banks aren't far behind in this trend either. We have seen an influx of so many banks into this new world since 2021.

Banks' excitement about the metaverse doesn’t just lie in the trillion-dollar size of the metaverse economy but also stems from their beliefs that the metaverse will emerge as a futuristic destination for commerce, employment, entertainment, and social activities.  

“The metaverse is a seamless convergence of our physical and digital lives, creating a unified, virtual community where we can work, play, relax, transact and socialize.” – J.P.Morgan

“We believe the Metaverse is the next generation of the internet — combining the physical and digital world in a persistent and immersive manner — and not purely a Virtual Reality world.” – Citi. 

“Metaverse is expected to become the next iteration of the internet.” – HSBC

Marking Territories in the Metaverse 

Thanks to the efforts of the FinTechs and BigTechs, banking is already at our fingertips via mobile phones. So, how will banks use the metaverse now to do something new and different? 

Well, their numerous activities in the space can be broadly divided into three categories:

Plot Purchase

As with any physical bank branch, which begins with the purchase of a plot and the subsequent establishment of a branch, the metaverse works in a similar fashion. The only difference? The “land” is virtual and usually bought in Decentraland or The Sandbox.

One of the first names to take this step was JPMorgan. The company, in February 2022, entered the metaverse with the opening of its Onyx lounge (with the key highlight of a roaming tiger) in blockchain-based Decentraland. Several banks were hot on their heels to join in the metamorphosis bandwagon soon after. In March, HSBC ventured into the metaverse, acquiring virtual real estate in The Sandbox, where it plans to engage and connect with sports, esports, and gaming aficionados. A month later, in April, Standard Chartered upped its game and acquired a virtual plot of land at The Sandbox metaverse’s Mega City district, a culture hub inspired by Hong Kong creative artists. Next, Imagin, an offshoot of CaixaBank, became the first European FinTech to go meta. Imagin’s metaverse journey kicks off with a virtual replica of imaginCafé, the company's physical space in downtown Barcelona, where users can access content on culture, creativity, technology, and sustainability. 

Metaverse isn't just for the first worlds anymore. Growing nations like India have boarded the meta spaceship as well, with headlines of banks getting into metaverse having made considerable waves in the country. Union Bank of India launched Open Banking Sandbox Uni-verse to work with Fintechs and start-up partners to develop and launch innovative Banking products.

The Middle East appears to be another hub accepting the novel era of metaverse banking – notable names in the region, including Commercial Bank International, a UAE-based corporate and retail bank, became one of the first banks in the region to open a virtual Metaverse location in Decentraland, keeping up with a digitally driven economy and reinventing customer experiences are essential to business success. 

Another renowned name – Warba Bank – a Kuwait-based Islamic bank, recently became the latest corporation to enter the metaverse. The bank now occupies two sites in the metaverse, one Decentraland and another on Sandbox.

The Exhibit below provides a detailed timeline of the companies and their activities in the metaverse:

Technology Trademarks

As mentioned earlier, the metaverse is an emerging phenomenon with the potential to evolve as a futuristic destination for various commercial, social, and economic activities. Financial institutions have an opportunity to provide the infrastructure and technology tools where these activities are performed seamlessly and securely. 

Realising this potential, a number of the biggest payment networks like Mastercard and Visa are doubling down on blockchain and NFT bets. In fact, Mastercard is well-known to be a prominent force behind crypto, with investments in dozens of companies, from Coinbase, CoinDesk, and Kraken to Lightning Labs, Circle, Ripple, and Grayscale. These organisations have taken many actions to remain competitive within the virtual economy. While Mastercard created a three-month program called Start Path Crypto to help blockchain and crypto startups scale their businesses, Visa also launched its own Creator Program to mentor entrepreneurs about NFTs and support small businesses.

Putting their money where their mouth, in April 2022, Mastercard filed 15 NFT and metaverse trademark applications aimed to broaden its payment processing system into the new virtual economy. Another industry giant, American Express, aims to provide its real-world services in the world of the metaverse. The company is considering giving customers card payments, ATM services, banking services, and fraud detection in the metaverse. Amex also filed several patent applications and wants to trademark its logo for an online marketplace for buyers and sellers of NFTs. 

One of the world's most extensive payment networks, Visa, joined the fray ahead of the other two in August 2021. Taking the first step into the metaverse, Visa spent $150,000 to buy a unique work of art. Instead of canvas or marble, the pixelated artwork is CryptoPunk 7610. Visa’s first NFT is an avatar of a female character, distinguishable by a mohawk, large green eyes, and bright red lipstick. 

Empowering Employees

Ultimately, it is we humans who imagine, develop, and enjoy technological evolutions. Metaverse is one way to explore this statement. Since this upcoming technology is yet to emerge, bank training and skill development programs are already taking shape in the virtual world. The first one in the race is South Korea’s Hana Bank, which launched a special task force to foster businesses and attract younger customers in the virtual metaverse. The task force will review cooperation with local tech businesses, offering related services and seminars for its private banking customers, building online and offline metaverse platforms, and developing virtual reality-based financial services.

Further, Bank of America launched virtual reality (VR) training in nearly 4,300 financial centres. The training technology will allow approximately 50,000 employees to practice a range of routine to complex tasks and simulate client interactions through a virtual environment. 

The metaverse opens new possibilities for leveraging digital learning solutions in broader ecosystems. As the physical and virtual realms coalesce, more immersive and collaborative ways of training and skill development mechanisms will emerge.

While the number of banks dipping their toes in the metaverse is limited, the trend is expected to gain steam with multiple consumer segments, industries, and governments joining the chorus. The initial banking experiments, which seem to be focused on setting up virtual branch offices for younger consumers and remote training and collaboration mechanisms for employees, may soon evolve to setting up financial products and infrastructure capabilities that will underpin the development of the metaverse economy and facilitate its interconnectedness with the physical and digital economies.    

Metaverse Banking: Boisterous Branding or Blossoming Business 

Digital transformation in banking is at its inflection point. On the one hand, much work is happening to embrace the realities and potential of digital channels and business models. On the other hand, the exciting opportunity of metaverse beckons the banking world to sit up and take notice. 

While the early metaverse initiatives from banks may sound like boisterous branding attempts to maintain their tech-savvy positioning, the commercial opportunity of the metaverse economy is too substantial to ignore. Today we talk about the nature and needs of digital-native consumers and businesses and how it impacts the banking world. In the next 10-15 years, we will likely witness the nature and requirements of metaverse-native firms and consumers and the subsequent impact on banking.

Metaverse is a significant technology shift that has been embedding itself into our individual, social, and commercial lives. This presents an unprecedented opportunity for banks to be the first movers and leverage its potential magic to rebuild community and reignite conversations with their customers. It is an opportunity for banks to reimagine their brand identity and product portfolio to drive deep emotional and commercial engagement with metaverse-native consumers and businesses. The trillion-dollar metaverse pie is almost certainly going to materialise. The only question is the time it takes for the virtual world to become a reality for consumers and businesses at large. Which industry and which institution gets to take a slice of that pie is up for grabs!  

A metaverse moment of truth is staring in the eyes of forward-looking enterprises. Are banks going to double down on the metaverse bets or tread safely amidst the impending economic slowdown? Keep your AR/VR Headsets on and enjoy the show!

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months.

If you're hungry for more FinTech insights, check out some of our other work at WhiteSight. 

Our latest publications include exploring the Neobanking Failures and Setbacks and journeying through Revolut's Playbook to Build a Global Financial SuperApp 

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletters—Future of FinTech and Web3 Weekly Wonderland—where we religiously track next-gen themes of the industry.

FinTech research is in the WhiteSight DNA, so if you'd like to get in touch for features, research content, or sponsorship-related services, reach out to us at hello@whitesight.net

And lastly, to stay updated on everything FinTech, follow us on LinkedIn and Twitter and don't be shy to show some 💛

Kudos to Apple for acquiring Credit Kudos in the UK! 

Apple has reportedly shelled out $150M for Credit Kudos, an open banking technology firm. This acquisition felt like a fitting event for FinTersection – a newsletter where we analyze the intersection of two sectors, industries, or business models – with at least one of them being FinTech. 

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Let’s go down the rabbit hole of the resultant phenomenon that has emerged at the intersection of BigTech and Open Banking.

Apple says hello 👋 to the Open Banking world. But wait, there’s more to Credit Kudos than just Open Banking. 

What Does Credit Kudos Bring To The Table?

In addition to holding an AISP (Account Information Service Provider) license, they are also an FCA-regulated credit reference agency. And that gives them access to both open banking data and the credit data from banks that other traditional credit bureaus have access to. Being an AISP, Credit Kudos is also authorized to access an individual’s or SME's bank account data from their financial institutions with their explicit consent. Credit Kudos is also registered with the Information Commissioner’s Office as a Data Controller and is compliant with the UK’s Data Protection Act and the EU’s General Data Protection Regulation.

In addition to having access to banking data through open banking infrastructure providers, Credit Kudos has also built several value-added technology tools – such as data classification engine (Lotus), insights engine (Atlas), credit risk models, decision engine (Assembly), and other income and identity verification tools to improve and automate the credit-decisioning process. This credit-focused approach to Open Banking offers a significant hint on how Credit Kudos may be an essential cog in Apple’s Financial wheel that it seems to be eyeing to build for quite a few years now.

Besides the domain experts and tech talent that Credit Kudos brings to the table, its experience working with various players in the FinTech segment, including partnerships with over 100+ lenders, could also have played a key role in Apple’s acqui-hiring call. Over the years, Credit Kudos has partnered with challenger banks (Atom Bank), digital wallets (Curve), tech providers (Mambu, Yobota, Goodlord), lenders (LendInvest, Moneybarn, Blue, Koodoo), etc. to conceptualize, launch, and improve several credit products such as BNPL, mortgage finance, motor finance, business loans, etc.  

Making Sense Of The Acquisition From Apple’s Lens 

While coming up with the possible objectives of Apple’s acquisition, we considered several factors – such as affiliations with Apple's other business portfolio, its current FinTech play, competitors' initiatives, etc. The launch of BNPL in the short term and building a two-sided ecosystem with merchants and consumers, in the long run, seems to be the best bet.

Since 2014, with the launch of Apple Pay, Apple has given significant importance to payments from various angles. Globally, Apple Pay is now live in 70+ countries, the UK being the second country where it went live in July 2015, shortly after the 2014 launch in the USA. In the USA, Apple Pay has become a one-stop shop to support payments through Apple Cash card, Apple Card, and any other credit or debit card. Apple Pay isn't like contactless cards because it has an extra security feature called tokenization, which keeps the card info off of the retailer's hands. Instead, the payee receives a single-use 'token,' allowing them to debit the payment only once.

Apple has been flirting with Buy Now Pay Later (BNPL) for quite some time now. You can go through the details of their FinTech bets in one of our previous blogs. They have partnered with ZestMoney in India and Affirm and Paybright in Canada to launch BNPL for the purchase of Apple devices. In 2020, Zip, a BNPL player in Australia, partnered with Visa to offer the Tap and Go feature to all merchants where Visa is accepted. It also allowed its Zip card to be added to Apple Pay. The BNPL proposition makes even more sense from a consumer segment perspective, given its appeal among GenZ consumers. With the launch of BNPL, Apple may be able to get a toehold with GenZ customers’ payment journeys as the credit card penetration happens to be relatively lower in this segment. As to how Apple will launch the BNPL services to the market – the practical route would be to forge underwriting partnerships with regulated entities or with embedded finance platforms to share the credit risk and outsource the monitoring and collection activities. 

Additionally, BNPL, specifically in the UK, is going through an identity crisis with the FCA actively reviewing the terms and conditions of the consumers' contracts. Several incumbent banks that have launched BNPL offerings and traditional credit reference agencies, such as Transunion, Experian, and Equifax, have started including BNPL payment history in their credit reports. Payment networks, such as Visa and Mastercard, have also made key acquisitions and partnerships to propel the BNPL rails' availability to merchants and retailers. In the current environment of diminishing merchant discount rates and rising interest rates, the BNPL industry is expected to go through a shake-up period, and Apple may play a significant role in how the sector transforms.  

There are also significant themes emerging in the business loans category targeted at the creators’ economy and small-medium enterprises (SMEs) – with eCommerce firms such as Shopify, eBay, and other payment service providers partnering up with regulated lenders and embedded finance platforms to bring credit products in the form of merchant cash advance and business loans to this underserved segment. Apple will undoubtedly have a leg up in the part if they decide to build the credit propositions on top of the newly launched iPhone’s payment acceptance proposition for merchants.  

Apple’s Ecosystem Play In Finance

In July 2021, it was also reported that Apple partnered with Goldman Sachs to launch its own BNPL called Apple Pay Later in the US. On the surface, it may appear that Apple Pay Later will compete with BNPL players Affirm and Klarna; however, we think that Apple's primary and formidable competitors in the FinTech-powered propositions are Amazon, PayPal, and Block (previously known as Square). We have already seen Apple’s move into Block’s territory earlier this year with the launch of the Tap to Pay on iPhone feature, a new way to allow merchants to accept contactless payments with no additional hardware. 

Apple is known to compete with ecosystem propositions, and this acquisition of Credit Kudos can help it unlock significant synergies with both consumer and merchant ecosystems through credit propositions. 

Another critical option for Apple to leverage this acquisition is to embed financial and lifestyle data to improve its core propositions around the devices and services it offers to customers and businesses. The high provenance economic behavior data could come in pretty handy in propelling Apple’s hardware subscription service through which it can lease the iPhone and other hardware products on subscription plans. Leasing iPhones instead of selling them traditionally could put a serious dent in the tech industry's current business model and help manage the growing mountain of e-waste due to customers upgrading their hardware every year. The leasing program could enable Apple to create an iPhone entirely sourced from recycled materials while convincing users to upgrade their phones every year.

Credit Kudos' current business model lies at another interesting intersection between Open Banking datasets and credit history datasets. It allows it to bring the power of Open Banking datasets to create viable credit propositions to assess the worthiness of thin-file customers who may not have any prior credit history. This overlap of datasets also improves the creditworthiness assessment process, thus reducing customer default rates. It is an ideal and vital piece for Apple, who would want to offer short-term and low-ticket credit products to underserved customer segments as they build their credit profile. The Apple Pay Later proposition would have significant synergies with Apple's core device business, reducing the affordability problem by converting the purchase price into installment loans. 

Though significant from consumer and merchant standpoints, account-to-account payments seem unlikely to get a fillip with this acquisition. The Amazon and Visa showdown last year on credit card fees and Bank of America’s recent launch of Pay by Bank in partnership with Banked in the UK does highlight the potential of account-to-account payments emerging as an essential payment method in the future.   

Credit Kudos does not hold a PISP (Payments Initiation Service Provider) license and has been primarily involved in data aggregation and enrichment for credit-related propositions. However, it does signal an attempt by Apple to bring all kinds of payment form factors in Apple Pay and could be enabled by either Credit Kudos procuring the PISP license or through an inorganic route. 

Apple’s Fintech Warchest

Apple is a scary competitor. More importantly, it is also a master collaborator, as is evident from its financial services experiments done in partnership with a slew of players. Apple has collaborated with Green Dot to launch Apple Cash and Goldman Sachs to launch Apple Card. Earlier, it had teamed with Visa, Mastercard, American Express, and JPMorgan Chase for the launch of Apple Pay. Lately, it has partnered with Stripe and Shopify; and is using the technology from a previously-acquired firm Mobeewave to launch the contactless payment acceptance for merchants. 

The art of creating, managing, and growing collaborations is a necessary trait to be successful in Open Banking and Open Finance propositions. With the acquisition of Credit Kudos, Apple may unlock several layers of network effects, as Credit Kudos is already connected with several UK banks for data aggregation and a diverse set of FinTechs who use its services for creditworthiness assessment-related activities. With the Open Banking rulebooks currently being a work in progress in the US, it presents an opportunity for Apple to use Credit Kudos’ technical and domain expertise to get a pole position in the US as the industry adopts interoperability standards and other regulatory mandates.

Apple’s Leapfrog Moment In FinTech

Contrary to popular belief, Apple is not usually known for being the first in what they do. Instead, Apple is known for being the best at what they do. That results in the massive creative destruction of seemingly robust business models, as we have witnessed in the cellphone, music, and several other industries. They were not the first to launch a smartphone. Not the first to launch a portable music device. Indeed, not the first to launch a numberless card and a digital wallet. Ironically, the hardwareless, contactless payment acceptance was launched by Samsung Pay in the form of mPOS in partnership with Mobeewave in 2019. Soon after, Mobeewave got acquired by Apple in 2020. Two years later, they have brought forth payment acceptance to merchants through iPhone devices encroaching the space that Square created since the launch of Square reader in 2009. 

Apple seems well suited to catapult itself in the two-sided ecosystem proposition for consumers and merchants. Block won’t be a pushover with Jack Dorsey at its helm with undivided attention. However, this may have a rug pull effect on Block’s traditional business model, which has been perfected over the last decade. It will be interesting to watch a counterpunch response from Block to defend its massively successful platform business and whether it can keep its focus on the ever-enticing web3 projects simultaneously! But Block has an experience of surviving the onslaught from a BigTech before. It did manage to fend off Amazon’s attempts to disrupt the status quo when it launched a card reader in 2014 to take on Square directly. Its defense was premised upon the fact that it was deeply integrated with several aspects of the business and operated differently from traditional point-of-sale companies, a phenomenon that Jim McKelvey – the co-founder of Square called an ‘innovation stack.’ So, it will be interesting to see the industry response to Apple’s attempt to reengineer the dynamics of consumer-merchant payments. 

Nevertheless, this acquisition may emerge as one of the most critical inflection points for Open banking and Open Finance, given Apple's possibilities and potentials at its disposal with Credit Kudos. With the privacy-preserving techniques that Apple seems to have perfected over the years – at least in customers' minds – it can boost consumer confidence for Open Banking. It may also help increase acceptance among the masses for the consent-driven data sharing mechanisms to access better financial and lifestyle products. 

And, well, even more FinTech acquisitions from Apple could be on the cards (pun intended) as it attempts to expand and perfect its FinTech war-chest and transform its current business model to a FinTech-powered one.

And It’s A Wrap! 👏

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months. 

If you're hungry for more FinTech insights, check out some of our other work at WhiteSight. 

Our latest publications include taking a closer look at Open Banking Innovation in Saudi Arabia in partnership with Mod5r, exploring the Intricacies of Open Banking Use Cases for the MENA Region in collaboration with Spire, and entering the immersive universe of Gamification—Into The Metaverse.

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletters—Future of FinTech and Future of Crypto—where we religiously track next-gen themes of the industry.

FinTech research is in the WhiteSight DNA, so if you'd like to get in touch for our strategic intelligence and research content services, reach out to us at hello@whitesight.net

And lastly, to stay updated on everything FinTech, follow us on LinkedIn and Twitter and don't be shy to show some 💛

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This fintersection is a sub-fintersection within financial services, if you may say so.  We’re tackling one of the controversial and exploitative aspects of financial services—the overdraft fees. We’ll be analyzing how various FinTech undercurrents overlap and eat into the money-making pie of financial institutions that is overdraft fees.

Be prepared to OD on OD – no harm intended 🙂

Overdraft fees are among one of the most controversial bank fees and have faced major criticism from the public and regulators alike in recent years. This practice, in which a bank covers for its client’s payments even in case of insufficient funds by charging an overdraft fee, was introduced by The Royal Bank of Scotland almost 300 years ago in 1728. A customer of the bank requested a cash credit to allow him to withdraw more money from the account than the balance it held. Three centuries later – the practice has not only survived but has also thrived to become a key revenue stream for banks.

During these three centuries, banking has evolved in many ways where customers fund and transact with their bank accounts through various mechanisms – such as ATMs, debit cards, mobile wallets, cashless payments, and so much more – which allows them to transact more frequently and in micro-denominations. Overdraft fees, having adapted through the means of hidden fees and fancy terms and conditions clauses, have largely escaped the regulatory radar and customer awareness to have a long and lavish life.   

In the last few years, a few banks have initiated the option to reduce this fee under the overdraft protection program, where additional money to cover a transaction is transferred from another linked account. However, increasing public pressure and disruption from emerging FinTech business models have forced traditional banks to rethink their overdraft policies. Let's take a look at some of the key events that influenced this longtime mainstay of banks to quickly fall into disfavor… and one that hopefully disappears. 

From Convenience to Connivance

Overdraft, a service that allows consumers to make transactions in excess of their available account balances, started out as a convenience that banks offered to customers. Customers, who inadvertently landed up in situations of account balance shortfall, were allowed to make transactions while the bank charged a fee for the convenience offered to them. 

From these humble beginnings, it has grown into a monster that punishes the lowest end of society by cornering them into debt traps. Overdrafts are a silent but dangerous aspect of personal finance. Ironically, the customer segment that bears the maximum brunt of overdraft fees is the one who can least afford them. From being a convenience offered as a value-add to customers, overdraft has spiraled into becoming a key revenue source for banks which most often comes at the expense of customer well-being. 

In 2017, the CFPB estimated the revenue from overdraft and insufficient funds fees to be closer to $17 billion for banks and credit unions. In 2019, another CFPB research found the overdraft and non-sufficient funds (NSF) fees generated $15.47 billion in revenue for the US banks; where three banks – JPMorgan Chase, Wells Fargo, and Bank of America – accounted for 44% of that revenue. Overdraft fees ended up costing consumers $12.4 billion in 2020; and subsequently, as per S&P Global Market Intelligence data, the US banks raked in $6.13 billion in overdraft revenue in the first nine months of 2021. While the downward trend is apparent in the overdraft fees collected by the US banks, the way it has sustained through all these years is quite remarkable.  

Enter FinTechs: Awesome Alternatives To Overdraft 

FinTechs in the US have taken aim to dismantle overdrafts in many different ways. While neobanks like Chime and Dave have brought subscription plans to allow customers to overdraw their account up to $100 on their debit cards without incurring a fee, earned wage access players have intermediated the employer-employee relationship to bring flexibility in the payroll process where employees can access their earned wages on demand.  

Cash advance players such as Brigit and Floatme have launched unique decoupled and preemptive credit offerings by gaining insights on customers’ financial and lifestyle behavior via connecting with open banking data aggregators. Brigit, a cash advance player, underwrites customers using their cash flow history and proactively predicts if and when they're going to run out of money. If necessary, Brigit automatically transfers up to $250 into a user’s account before an overdraw charge hits, thereby saving them from incurring overdraft fees. Brigit also extends emergency loans upon request that can be delivered in under 90 seconds. 

Bill negotiation startups such as Trubill and Billshark negotiate with service providers on customers’ behalf to help them save money on everyday bills and allow them to avoid hefty overdraft fees. Budgeting and money management apps such as Digit and Mint have armed customers with the knowledge and insights on their financial behavior and have helped customers improve their money management skills to avoid overdraft scenarios. Buy now pay later (BNPL) – another Fintech segment though witnessing its own identity crisis and regulatory scrutiny – has also allowed customers to make essential and discretionary purchases without overdrawing their accounts. 

First Movers: Banks Begin To Soften Overdraft Impact

One of the earliest attempts to disrupt the existing overdraft structure came from Lloyds Bank in 2017 when the UK-based banking giant announced its plans to completely scrap overdraft fees for customers of Lloyds Banking Group, which includes the Halifax and Bank of Scotland. Across the pond, another banking giant in the US, Wells Fargo launched a one-of-its-kind ‘Overdraft Rewind’ program, under which the bank stopped charging overdraft or insufficient funds fees as long as the direct deposit received the morning after a customer's account is overdrawn covers the charge. Along with this, the bank also announced that it will no longer charge overdraft fees for any transactions that are $5 and under. 

Regulatory Hammer: Policymakers’ Nudges Along The Way

However, the revenue generated by the banks as a result of their overdraft charges still were significant enough to avoid the scrutinous eyes of the financial watchdogs across the globe. In the US, the Consumer Financial Protection Bureau unveiled the ‘Know Before You Owe’ overdraft disclosure prototypes – designed to improve the form that banks and credit unions provide to consumers weighing overdraft coverage – in a bid to make overdraft coverage easier to understand and evaluate. Brazil's central bank placed a cap on interest rates for overdraft credit, prohibiting local banks from charging monthly interest rates of over 8%. 

In the UK, the Financial Conduct Authority (FCA) stepped things up a notch when it declared that Britain’s banks and building societies will have to charge the same amount for all overdrafts from April 2020. In response to this ruling, most of the high street banks introduced a near-identical overdraft rate of 40%. While Nationwide hiked overdraft rates for its FlexAccount customers from 18.9% to 39.9%, HSBC and Lloyds set a single annual overdraft rate of 39.9% for its UK customers. Although Santander announced the removal of unarranged charges, it introduced a single interest rate of 39.9% for arranged overdraft borrowing. This similar pricing by the British banks irked the FCA to a great extent and it demanded that the financial institutions provide evidence of how they concluded their pricing decisions. Nationwide learned their lesson the hard way, when the Competition and Markets Authority (CMA) ordered them to refund £6M to customers – following a breach of Part 6 of the CMA’s Retail Banking Market Investigation Order 2017, which ensures customers with personal current accounts receive a text alert before banks charge them for unarranged overdrafts. 

The Pandemic Push: Overdraft’s Tipping Point

The pandemic outbreak witnessed a major shift in the stance of financial institutions on overdraft fees. Following a request by the US regulators to waive overdraft fees, FinTechs Ally Bank and NorthOne paved the way for a major reform by eliminating all kinds of overdraft fees for their current and future customers. In the UK, Barclays became the first major bank to scrap overdraft charges for customers during the coronavirus outbreak, as the bank announced its decision to waive interest charges on arranged overdrafts until the end of April 2020. Lloyds Bank also joined this noble initiative by offering customers a £300 fee-free overdraft for three months starting from 6th April. A similar measure was undertaken by HSBC UK, when they introduced a temporary £300 interest-free buffer on overdrafts for customers with bank accounts and advance accounts for a period of three months in addition to their support package. Towards the end of 2021, Santander Bank launched the ‘Santander Safety Net’ program that raised the no-fee overdraft threshold to $100, eliminated the overdraft protection transfer fee, as well as reduced the daily overdraft fee by half. 

2021: Beginning Of The End Of Overdraft

The year 2021 proved to be a pivotal one for the US banks as their exploitative overdraft practices came under intense scrutiny from lawmakers and regulators alike. In a bid to mount pressure on the banks, US Rep Carolyn Maloney reintroduced the Overdraft Protection Act, aimed at restricting the number of times banks can collect the fees and ensuring that the charges are reasonable. Towards the end of 2021, research by the Consumer Financial Protection Bureau revealed that banks made approximately $15.47B from overdraft and non-sufficient fees in 2019; with JPMorgan Chase, Wells Fargo, and Bank of America accumulating about 44% of the total amount. This heavy-handed approach by the US watchdogs saw a number of proactive measures initiated by the banks, with CapitalOne completely eliminating all overdraft fees and non-sufficient fund fees for its consumer banking customers. 

2022: Overdraft’s End Is Nigh 

In December 2021, JPMorgan announced its plans to give customers a full day to restore overdrawn balances and to allow them to tap funds from direct deposits of paychecks two days early from 2022. 

Bank of America followed suit, and reduced its overdraft fee from $35 to $10; even eliminating the $12 transfer fee from linked accounts to an overdrawn account. Wells Fargo was hot on the heels when it provided its own array of offerings – including earlier access to direct deposits, a 24-hour grace period before incurring any overdraft fees, and the elimination of transfer fees for customers enrolled in Overdraft Protection. The biggest disruption to the long-standing overdraft practice came in Feb 2022, when Citigroup Inc. became the first major US bank to fully eliminate overdraft fees along with returned-item and overdraft-protection charges. 

Game Over For Overdraft?

We definitely think so. 

With FinTechs across sectors challenging the traditional business models of making money at the expense of customers’ well-being, awareness and understanding amongst the masses around hidden fees and unfair pricing policies of banking products has increased as of late. These FinTechs have grown to become massive multi-billion-dollar behemoths, and some of them are now publicly listed institutions. This has significantly improved the trust and brand recognition among customers for the new players. Incumbent banks can no longer ignore the real threat of losing massive chunks of their retail customer base to these challenger FinTechs if they don’t get their house in order, and that too, do it really fast. 

Regulatory steps and competition have also forced financial institutions to rethink their overdraft policy. The restructuring of this traditional system provides banks with an opportunity to offer better products and services to create stronger and more supportive relationships with their customers and—in the process—create a fairer banking system for all. 

​Curtains close, and then there was applause 👏🏼

Hope you enjoyed this edition of Fintersections! Stay tuned for more interesting think-pieces in the coming months. 

Till then, if you're hungry for more FinTech insights, check out our work at WhiteSight. Our latest publications include an overview on Honoring the Black Voices the FinTech way and Facing the Reality of Facebook's Meta Move.

If you're someone who likes to stay in the know of what’s happening in FinTech, you don’t want to miss out on our weekly newsletters—Future of FinTech and Future of Crypto—where we religiously track next-gen themes of the industry.

FinTech research is in the WhiteSight DNA, so if you'd like to get in touch for our strategic intelligence and research content services, reach out to us at hello@whitesight.net

And lastly, to stay updated on everything FinTech, follow us on LinkedIn and Twitter and don't be shy to show some 💛

We are—quite evidently—jumping the bandwagon of the ongoing hype around super-apps and the buzz that they hold for being the topic of discussion for every fintech fanatic. Just like the many divergent lanes that traverse into a freeway, the overlap of various fintech segments have their differentiated offerings to deliver and play an important role in the complex all-in-one, lifestyle ecosystem. 

Scrutinizing these independently growing lanes of non-banks, neobanks, and BNPL players, they merge to form high-speed freeways of Lifestyle Banking, Embedded Lending, and Credit-extending digital banks. These are the intermediate pit stops that firms have been taking to reach the ultimate destination of becoming a super-app. Several successful stories across geographies have set the ground for this trend to become a global phenomenon – with examples of WeChat (China), Grab (Singapore), Klarna (Sweden), and Tinkoff (Russia) amongst the first few to embrace the exploration in the unknown and emerge as super-app stalwarts. The journey of each of these innovators entails three key steps – the inception point, the transition phase, and the final destination. Understanding them through these phases provides a clear insight into the inner workings of these players.

Demystifying Super-app Playbooks

A lot of the modern-day super-app candidates embarked as standalone service providers with niche attributes that earned them a name in their respective industries. 

Non-banks have embraced the proposition of embedding contextual financial services in customer journeys with an intent to reduce friction, improve purchase experiences and increase sales. For them, the inception point involves the offering of core sectoral products such as e-commerce, travel, entertainment, retail stores, etc. Once this is established, these facilitators embed financial products—mostly beginning with payments and micro-credit—to improve customers' ability to buy their core products. With increased adoption from customers, they unfurl the whole suite of financial products such as a bank account, debit card, insurance, etc. to improve the customer’s experience as well as to diversify their revenue streams and optimize their operating costs. Non-banks end up partnering with a gamut of technology and banking-as-a-service (BaaS) providers, or even acquire their own banking license to bring this embedded finance strategy to fruition.

Digital-first challenger banks have adopted a different playbook in their quest to first challenge the status quo of the financial industry and then to expand beyond finance. Catering to the digital-savvy generation that enjoys access to checking and savings accounts at lower fees and higher deposit rates, digital-first banks enter the market with the notion of a no-friction savings account plus debit card duo – with further goals of incorporating more transitional financial products pertaining to credit, behavioral insights, and even investments and insurance. In order to leverage their customer relationships and monetize their base, these digital contenders embed lifestyle products such as e-commerce, travel, etc., and build a strong super-app proposition. 

BNPL is the latest game-changer in this series of disruptive innovators, which saw payments in a new light that resonated with new-to-credit consumers. In a typical scenario, these platforms begin by offering micro-credit products to GenZ and millennials that put the spotlight on affordable credit to meet lifestyle needs. Their transitioning phase involves going through the world of e-commerce, where they aim to improve the checkout experience of consumers throughout the customer journey. This involves pre-purchase nudges to consumers, during-purchase seamless transactions and fraud-prevention, as well as managing the post-purchase interactions. Ultimately, these credit-solution providers integrate banking products and tread down the path of gaining a full banking license or partnering with BaaS providers. Klarna’s “Shopping super-app” saga took this route for their growth strategy – establishing the removal of friction, first from the purchase journey for its users, and eventually extending its services towards the pre and post-purchase scenarios. Simultaneously, to extend its ability to offer banking services and be a part of the Open Banking trend, Klarna also applied and received a banking license from the Swedish Financial Supervisory Authority and launched an Open Banking platform.   

Each of these contenders has brought about their unique assortment of bring-and-get to the table, and the convergence of these three in varying spheres creates an incentive for further innovations to flourish upon.  

Ungrouping the Groups

Merge two new ideas and you get a whole new idea, oftentimes more powerful than its constituents. The fintech space left no stone unturned in adopting this ideology to make breakthroughs throughout the past few years. The brilliance behind this transformative result is the fact that any player, irrespective of its primary industry, today can build its way through the appropriate tools in becoming an all-inclusive powerhouse. The three-way blending of the candidates to ultimately lay the bricks for the creation of a super-app can be better grasped by understanding the interplay of these individual spheres.

Lifestyle Banking

With a mindset that is evolving towards union through motives and goals rather than physical boundaries, the merging of non-banks and digital-first banks saw the birth of a new era of what could be termed as embracing lifestyle-as-a-service where financial products are fabricated around life events that understand the diverse nature of each individual customer.

Brands like AirAsia wasted no time in virtualizing their travel offerings to align with the aftermath of a COVID-stricken world, corresponding to the aviation industry receiving a severe blow. Air Asia first experimented in the financial industry by launching BigPay in 2017, and then doubled down on its disruptor strategy by launching Financial Marketplace by airasia money in 2021. The marketplace offers credit cards and personal loans in partnership with RinggitPlus, and also has plans to introduce comparison of financial products and solutions like insurance, investments, financial awareness and education, payments, as well as Islamic financial products and services. By accelerating its technological infrastructure and working on establishing a shared community perspective, the airline brand introduced products and services across multiple verticals that were related to making the user experience a seamless delight – from fulfilling e-commerce, food, and travel services to integrating CleverTap’s push notifications for bustling conversions. 

On similar lines are – online mobile banking app digibank by DBS, retail chain offering affordable furniture Ikea, and Latin America-based delivery startup Rappi – each a multi-vertical firm that goes beyond just offering their respective products by letting consumers set goals, be inspired by personalized ideas, and receive on-demand services.

Embedded Lending

The finance sector has witnessed a paradigm shift in the way 'pay later' options are perceived – from a typical credit-card and interest-period lens to one that gives the power to the consumer to choose their funding options. The nexus of non-banks and BNPL players resulted in the formation of consumer finance, where financial solutions by non-financial platforms take the pressure off of paying upfront. Instead, every option from credit and installment loans to BNPL is readily available to make the purchase journey flexible and fully integrated for merchants and consumers combined. Amazon is one of the leading examples of embedded lending, with three of its key banking-as-a-service (BaaS) offerings:

• Amazon Lending - A partnership with Goldman Sachs’ Marcus enables Amazon to provide a credit line to its merchants to ensure they get the needed capital to continue selling on the platform.

• Amazon Pay - An e-wallet for easier transactions within the platform at the time of checkouts via an Amazon account.

• Amazon Card - An Amazon Secured Card issued by Synchrony Bank, as well as other co-branded credit cards (like with American Express) for consumers that come with attractive extras.

The embedding of credit within Amazon’s existing business is also turning tables for merchants and consumers across industries and geographies far and wide. With provisions of SME lending for merchants and BNPL for consumers, Amazon has been successful in building partnerships with global providers such as Affirm in the US, Nubank in Mexico, and Amazon-backed BNPL platform Capital Float in India.

Apple Card is another such crucial embedded financial tool that is a result of Apple’s partnership with Goldman Sachs. Consumers can make Apple Pay purchases in easy installments through four (Apple Pay in 4) or more (Apple Pay Monthly Instalments) payment plans through this credit card attribute. However, the adoption of embedded credit isn’t just limited to platforms in the US – many players globally have incorporated this convenience into their infrastructures. Mercado Libre launched the online payment platform Mercado Pago in affiliation with Bank Topazio – a partnership that has opened the doors for a connected economy in Latin America through its cash machine, digital accounts, and card operation features.

Credit-extending Digital Banks

When revolutionary digital banks join forces with BNPLs, it opens a new doorway on their path to profitability and improves their customers’ financial wellness by launching contextual micro-credit products that help them build a credit profile over time. We have covered this trend in detail in one of our blogs. 

SuperApps: The Final Destination 

By now, we can derive that the concept of a super-app is based on the novel intermesh of financial products and lifestyle products assembled in a marketplace and orchestrated in partnership with ecosystem partners. For an innovation-borne notion to originate, such as that of super-apps today, poles-apart industries have to coalesce. Industries like travel, e-commerce and payments; entertainment, rewards, and credit; e-commerce and investments, etc. have to be interwoven around consumer lifestyle and behaviors to unlock significant value for the consumers, enterprises, and the ecosystem.

In the race of emerging as a behemoth, many contenders make for possible aspirants to become the next big name in the platform finance space. Messenger app WeChat, the Chinese 'super app' launched in 2011, presently is an island of daily functionality through its hub of 1 million mini-programs. By embodying an app-within-an-app ecosystem, WeChat has become a dominant channel for users to access services pertaining to education, transportation, living goods, apparel, logistics, and much more all under one roof. 

Singapore-based Grab is making headlines across Southeast Asia not only for its ride-hailing abilities but also for its move towards becoming an extension to daily life. The startup built on innovative services like GrabPay for cashless payments, and the ambition of going above and beyond to provide hotel bookings, food deliveries, and even healthcare facilities. Without a doubt, the super-app was sure to become a favorite of the region.

Apart from constituting their programs on the fundamentals of transparency, security, user experience, and inclusivity, these marketplaces are fabricated on two basic principles of organic or inorganic strategies for growth. Organic super-apps, such as WeChat, Kakao, Grab, Gojek, and Alipay have built their business models around in-house developments and strategies that layer the many services within their existing applications. On the other hand, brands like Klarna – which is known for its million-dollar acquisitions of shopping-experience providers – have platformized their brand name through third-party partnerships that support them in the quest of becoming a super-app. Nubank is the latest entrant in this pursuit, as the Brazilian digital bank has recently added three new product categories to its e-commerce marketplace – travel, pets, and games – thereby expanding its product vertical to ensure more diversified areas are also easily accessible to the consumers.

Whatever may be the ultimate methodology, the basic foundation of a super-app lies in blurring the boundaries between diverse industries and offering the benefits of uniformity, convenience, aggregation, and data protection to users who previously had to hop around a bunch of different applications. Consider it to be just like a buffet – you get served with a variety of delicacies to choose from, at the comfort of a single eatery. For sustaining such a complex but opportune experience, all the pieces of the super-app puzzle need to fit in conveniently. The future of such overlapping novelties remain unbound by the access to behavioral insights and consumer feedbacks on the go; and in the words of Prof. Scott Galloway, as long as the “likely epicenter of aspiring super-apps is fintech”, there shouldn’t be a stop for more game-changing innovations to make their mark. Here’s to the first 10 trillion-dollar company: a super-app in the making!

Of course, things continue to exist in the blacks and whites of these circles—always have, always will—but it's when we come to the greys or the gradients that things get especially interesting. And that is where we bring in the idea of Fintersections – a thematic canvas for us to explore the intersection of FinTech with the world.

Fintech has evolved from the intersection of finance and technology and is now steadily growing into an independent industry. Think of it as metals and alloys – iron and carbon come together to form steel which is much stronger and tougher than the two metals on their own. Fintech is that alloy—and it doesn't stop there. Products and services being developed at the intersection of fintech and numerous other industries, such as e-commerce, travel, logistics, agriculture, climate-tech, food-tech, healthcare, business management, crypto assets, and much more, are defining twenty-first-century experiences.

Fintersections is a spin-off of our work at WhiteSight – what we've learned so far, what we continue to witness in and around us, and what we think the future of the industry is going to look like. We'll be bringing you one blog every month highlighting a fintersection that's picking up steam or has already witnessed a stratospheric launch into mainstream applications.

What can you expect? Well, if you've seen some of our work, you know it's going to be legen—wait for it—dary, and if not, you may definitely expect some data-driven, well-analyzed hypothesis and market-dynamics presented with spectacular visuals and easy-on-the-mind commentary that'll make for the perfect midweek or weekend read – take your pick.

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