Swinburne: Fintech Regulations and the Future of Embedded Finances

Kay Swinburne, Deputy Head of Financial Services at KPMG sat down with FinTech Magazine at the Innovate Finance Global Summit (IFGS) 2023 to discuss the future of embedded finance and what to expect from any future regulations.

A growing market

As embedded finance continues to grow, KPMG estimates that the market could reach $230 billion by 2025. Should it reach such a scale, it is doubtful that technical infrastructure will be able to keep up with the demand for these services.

Despite doubts, this should not be a problem for Swinburne. “It’s a big number. But the reality is that each country will actually have its own payment system and central architecture that the payment system and fintech will also play into. Given the locale, I don’t think the infrastructure will be overwhelmed.

“In the UK, upgrade plans are underway at both the Bank of England and the National Payments Architecture with Pay UK. These two new upgrades should provide massive capacity for new payment dynamics and for all embedded digital finance to continue. I therefore hope that the infrastructure will keep pace with it potential future demand.”

Regulators to open the floor?

As in any growing market, the threat of tighter regulations is always a possibility. For embedded economics, however, Swinburne feels that regulators will “put themselves in a position where the onus is on the firms going forward.”

She continues: “In the UK, regulators look at whether the right product goes to the right customer, and the associated safeguards. It is about ensuring that customers, whether they are individuals or companies, are properly informed.

“This approach to regulations is a big step forward. UK high street banks will say they have always taken that stance, but they have had to demonstrate that a product is suitable for the customer they are selling it to. The reality now is that all the technology providers must also start thinking about this when they enter a financial product into a system. They are not so easy to pick out for the end user, so it is fintech firms that are responsible for ensuring that the right product goes to the right customer.

“Putting the customer at the heart of the development program as a FinTech is very important. If you have that vision from the very beginning, you’re less likely to go wrong further down the road and the regulators are less likely to be concerned about what you’re doing because you have already put these security measures in place.”

The scope of embedded economy

Despite many of the industry’s embedded finance firms coming from San Francisco’s Silicon Valley and a growing number of UK fintechs taking significant market share, Swinburne feels “Asian markets are going to see massive growth”.

“There are already big global payments companies coming out of China. Asia is a very big market for this new payment mechanism. And for me, Asia has the most early adopters, much more than any of the UK’s European neighbours. I think the UK is somewhere in the middle in terms of adoption.”

For Swinburne, it is important that embedded economy serves the needs of local markets. “Cash is still going to exist – in certain European countries cash is still very dominant. In the EU you find countries at the opposite end of the spectrum.

“You have Estonia, which is known for making everything digital. Then there are Sweden and Finland, which are also very advanced in terms of technology and adoption. But on the other hand, you have countries like Belgium where for a long time you had to take cash with you everywhere because many institutions didn’t accept anything but cash.”

KPMG supports embedded financial services

KPMG’s role in supporting embedded financial services is “wide-ranging”, according to Swinburne, given its history of working with large legacy banks and large market infrastructures.

“We do a huge amount of work with our fintech and payments team working with both smaller fintech firms and large banks. We make sure that we now have them married together, that they actually go in sync, and that we are able to support both ends of the spectrum.

“We help banks that may need a fintech partner by helping them establish partnership agreements and implement their related technology. We also work directly with fintech firms by helping them on their growth journey, including seeking regulatory approval and helping them scale their business.”