From Banking-as-a-Service to Embedded Finance at the SMB and Enterprise level, Rize delves into those who have guided the industry to where it is today
Rize Money Inc., a fintech infrastructure platform, released a sequel to their original industry insight whitepaper in which they outline how the industry has developed from Banking as a Service (BaaS) 1.0 to where it is today and what current trends are for the future of Fintech 3.0. The key insight that is driven throughout the whitepaper is that standalone products that provided direct-to-consumer offerings through independent companies or partnerships with larger financial institutions are now going to be replaced by tied-in embedded finance products. While the “as-a-service” is far from going away, the fintech-as-a-service age of Fintech 3.0 will provide a leap in technology with regards to reliability, increased ability to scale, and embedded compliance protocols that are beneficial to businesses of all sizes looking to avoid costly fines.
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“The rise of embedded finance has allowed fintech to evolve exponentially in the past few years. It’s an exciting time to be a fintech, but an even more exciting time to be a customer as brands are able to offer personalized financial solutions, integrated directly into apps that are used every day,” said Rize Founder and CEO Justin Howell. “At Rize, we’re committed to bringing our customers, and the rest of the world, into the world of Fintech 3.0 where financial services are completely decentralized. By starting with a solid infrastructure, banks, fintech, and non-finance brands will all be able to deliver the future of finance.”
One of the key propositions of Rize’s white paper is the functionality of synthetic cores versus regulated, on-core financial accounts, called custodial accounts” (“CA”) which often have specific rules about the transactions they can perform. Rize’s proprietary Synthetic Core, built upon the Rize Synthetic Account (“SA”), overturns these limits, redefining what is possible with financial services. The Core allows fintech companies and their users to move money across account types while staying fully compliant and making no changes to the underlying infrastructure.The SA is like any other traditional account in that it is a container and ledger, but instead of being account driven it is objective-driven. This differentiation inherently builds flexibility and customizability into the potential use cases of SAs such as those listed below
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- Challenger Banks can automatically move money from every one of a customer’s paycheck into savings and/or investments based on a time horizon set for each goal. Additionally, customers can outline future financial goals they would like to make tangible and create appropriate asset allocations for each goal
- For consumer lending, the SA automatically pulls the right amount out of each paycheck and make the monthly payment, while also enabling customers to earn yield on idle cash in the ecosystem, offsetting their effective interest rate
- When it comes to subscription and bill pay, companies could deploy a fully-packaged, fully-compliant bill pay product without in-depth banking relationships or KYC flows.
- Customers could link deposit accounts to an existing crypto solution, allowing them to liquidate and spend crypto-assets quickly and securely
While fintech 3.0 is set to open up the door to many new product use cases and financial solutions, identity, risk, security and other problems still remain a top priority. The synthetic core enables this fintech infrastructure of the future to be dramatically more flexible in terms of user freedoms and product capabilities, while remaining completely secure for customers and end-users. The result is a sophisticated financial tool that evolves alongside the needs of the customers while breaking the boundaries of banking, brokerage, and other financial silos.
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