Embedded Finance News: Generative AI, Open Banking, B2B Finance Companies – The Takeaway

Every month we compile some of the most important and interesting embedded finance and fintech news stories and tell you why they matter. Find last month’s issue of The Takeaway here.

Don’t forget to sign up for our newsletter to get the Takeaway and more embedded finance news delivered straight to your inbox. We promise we’ll only send you the important stuff.

1. Fed vice chair says banks need to invest in generative AI to combat cyberattacks

During a cyber risk conference, the Federal Reserve Vice Chair for Supervision Anthony Barr said that the rise of generative AI will lead to an “arms race” between those using AI for fraud and those using AI to block cyberattacks. As a result, Barr said that financial institutions need to make investments in generative AI to protect against such attacks and ensure that their third-party vendors are also properly managing risk.

Barr added that, in the case of a cyberattack where a bank has to cut itself off from the rest of the U.S. financial system, banks need to find creative ways to recover and resume operations with as little impact on customers as possible.

The Takeaway: Generative AI could become a powerful and necessary tool for financial institutions to combat fraud.

Financial institutions have been exploring the uses of generative AI to enhance customer service and increase productivity, but now Barr has laid out another – risk and compliance.

Fraudsters are becoming more advanced, so it’s imperative that financial institutions not only stay up-to-date on new risks but try to get ahead of them by investing in new technology. JPMorgan Chase is using large language models, which is one of the foundations of generative AI, to detect email fraud. Swift is also using AI to build fraud detection models for payments. While Barr didn’t specify how generative AI would be used to combat cyber fraud, it could become a powerful tool for any financial organization’s risk and compliance programs.

Want to learn more about how AI is being used in fraud detection?  Listen to Unit21 CEO Trisha Kothari and Treasury Prime VP of Product Ann Olinger discuss it on our fintech podcast ChatTPE.

2. Visa plans to invest $100 million in generative AI companies

Visa announced that it was earmarking $100 million to invest in companies that are using generative AI to solve “real problems” in the payments and commerce space. David Rolf, the head of Visa’s investment arm Visa Ventures, said that they are specifically looking at companies that target B2B payments processes and commerce infrastructure.

According to Rolf, generative AI has the potential to be one of the most “transformative technologies” out there. Although the payments industry has used various forms of AI for decades, a PYMNTS article posited that generative AI could drastically streamline processes and reduce friction around compliance and risk controls, authorizations, detection, international transactions, and more.

The Takeaway: Generative AI has the potential to make improvements in the payments space.

Generative AI’s potential operational efficiencies could lead to functional improvements in digital wallets and contactless payments, as well as increase the number of users. According to that same PYMNTS article, unlike other predictive AI models, generative AI is able to analyze data in real-time and without interrupting the flow of payments. That means, it could make these processes safer and more seamless – and, as a result, help financial firms capture more consumers.

“It’s exciting to think about how as AI advances happen, it allows companies to focus less on manual tasks, and more on value additive work,” according to Treasury Prime Chief Platform Officer Mark Vermeersch, who moderated a panel on the future of AI in banking at Treasury Prime’s User Conference Activate during Money2020.

Here are some highlights from the discussion: 

You can watch the full session on demand:

3. Global survey finds that SMBs want to switch to cloud-based financial services

In a new survey, payments and financial platform Airwallex found that 80% of global small and medium-sized businesses want to switch away from traditional banks for payments. Historically, banks have been unable to meet the specific needs of SMBs in certain industries, which has led to inefficient payment systems and dissatisfaction with their banking partners. 

64% of SMBs believe that vertical SaaS companies and marketplaces that offer embedded finance solutions are better equipped to serve their particular needs. 82% said that they would actually move over to their existing software platform or marketplace if they offered a “like-for-like alternative.” The report found that 76% of SMBs would be willing to pay more for a “one-stop-shop provider.”

The Takeaway: SMB B2B payments present a big area of opportunity for embedded finance, especially in niche areas.

SMBs have historically been underserved by traditional banks, especially in areas of B2B and international payments. 

For example, a labor marketplace can utilize embedded finance to offer payment services and checking accounts to help companies pay contractors more quickly. A construction software platform can utilize embedded finance to open bank accounts and reduce payment friction for construction companies. Software platforms and marketplaces that serve SMBs and better understand their needs are well-equipped to fill this gap if they implement embedded finance solutions.  Of course for this endeavor to be successful, software platforms need to have open communication and collaboration with its bank partners to ensure risk and regulatory concerns are prioritized and satisfied.

To find out how vertical SaaS companies can increase revenue through embedded finance products, download the full BaaS for SaaS guide. 

4. CFPB takes step toward finalizing open banking regulation

The Consumer Financial Protection Bureau proposed a rule that would be the first step in implementing Section 1033 of the Consumer Financial Protection Act. Section 1033 would put the CFPB in charge of implementing personal financial data sharing standards and protections, and require banks to make transaction data and pricing information such as APR and fees available to customers and authorized third parties upon request. 

The Takeaway: Open banking may lead to more opportunities for community banks  

CFPB Director Rohit Chopra released a statement that explained how this move towards open banking would increase competition and decentralize banking. 

“The Personal Financial Data Rights rule would help address many of the root causes of sticky banking – by giving people more power to walk away from bad service and enabling small community banks and nascent competitors to peel away customers through better products and services with more favorable rates.”

He goes on to say that this provision “can lead to a more open and decentralized banking and finance system where consumers can more easily switch, escape junk fees, and obtain better service, rather than feeling stuck and taken for granted.”

The CFPB is taking comments on the proposed rule until the end of December 2023, and is seeking to finalize the rule by the fall of 2024.

Wondering how embedded banking could help your business? Contact Treasury Prime — we have a true multi-bank network, the deepest bank core integrations, and extensive compliance experience. Read more about our $40 million Series C Funding and why Tearsheet named us the Best Banking as a Service company for the second year in a row. Talk to the best embedded finance team in the industry.

Additional embedded finance examples:

Fintech Focus: First Dollar

Launching the First Digital Community Bank for Black Entrepreneurs

How Wagestream is Helping Workers Achieve Financial Well-Being with Embedded Banking

Harnessing the Power of Embedded Banking to Build New Revenue Streams