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How FinTech Ecosystems Are Enabling Marketplaces

Prove
January 25, 2022

FinTech has reinvented all types of marketplaces, be it a B2B marketplace—a digital platform that connects organizations and facilitates multiple businesses in one place—or a SaaS marketplace—a type of an application marketplace where customers can go to an online storefront to find, purchase, and manage cloud-based SaaS applications. Some of the earliest FinTech marketplaces are Stripe (Payments), Plaid (Banking), Leif (Income Share Agreement), Underwrite.ai (Insurance), and Sift (Security).

FinTech Marketplaces or FinTech-Enabled Marketplaces Are Building the Ecosystem

B2C, B2B, C2C, and P2P are some models of online marketplaces. Typically, a B2B marketplace has organizations that sell merchandise to suppliers in bulk, for example, Alibaba, while marketplace banking has Alibaba as a non-bank player offering financial products and services to customers who integrate or plug them into their service and solution offerings for end customers.

The Three Layers of FinTech Marketplaces

1. FinTech-Enabled Marketplaces: These marketplaces have tech-enabled financial services embedded directly into the platform. Here are some of their financial service buckets:

Insurance

Financing

Banking

 

In-house insurance products facilitated by improved underwriting models

 

Non-traditional financing options such as rent-to-own or income-sharing

 

Novel and customer-specific solutions to manage transactions, deposits, and payments

These financial service buckets use AI and data advancements to enable them with one or more components. Incorporating FinTech elements seems like an incremental change, but the effect can be revolutionary. For example, Airbnb’s $1 million insurance policy mitigated the risk of guests damaging hosts’ property. Similarly, in 2019, Apple embedded financial services deeper into its iOS marketplace by launching Apple Card.

Most e-commerce marketplaces fit into this category, whereas players such as Amazon and Google are embedding almost an entire de-coupled bank in their marketplaces.

2. Marketplace Banking: A marketplace banking model is an ecosystem of aggregated products and services sharing similar characteristics presented to a customer (by a bank or financial institution) as a set of offers that also address specific customer needs. These products and services can be offered by various ecosystem partners, such as retail or healthcare players, or banks. Here’s why marketplace banking is popular:

  • It provides a host of products and services. Examples include GoBear, PolicyAdvisor.com, and Starling Marketplace.
  • It offers a one-stop-shop that enables deep integrations with select third-party (smart) ecosystem partners to address specific customer needs. Examples include the online car marketplace by VTB Bank, Russia’s second-largest bank.
  • It leverages ecosystem partnerships with non-financial service providers. For example, Singapore-based OCBC Bank’s OCBC OneAdvisor Home is a one-stop advisory service portal for property purchases.
  • It enables businesses to embed FinTech or finance into their business models. For example, Facebook, Paytm, and WeChat, among others, are social media/single-service platforms becoming marketplaces. Wisetack enables software companies, mainly operating in home services, to become lending companies. 

3. FinTech App Marketplace: It is an ecosystem of FinTech solutions for financial institutions, primarily banks. FinTech app marketplaces are mostly owned and launched by financial services BigTechs that offer products or product suites to the industry. 

Temenos Marketplace and Surecomp Marketplace are two FinTech app marketplaces owned by such BigTechs. Temenos MarketPlace curates world-class pre-integrated FinTech solutions with robust APIs in the Payment Processing, Digital Identity and Security, Digital Engagement, Regulatory and Compliance, Infrastructure and Compliance, and Wealth Management segments. It has recently added Marqeta—a card issuing platform that powers innovative payment solution providers such as Klarna, Uber, and Square—to its FinTech solutions ecosystem. 

All these marketplaces focus on embedding FinTech into larger customer service lines in the smart ecosystem and even offer white label options to financial institutions. 

The Need for FinTech Marketplaces

Here’s why the ecosystem needs FinTech marketplaces:

  1. These smart marketplaces are mindful of customers’ needs, ensure transparency, and offer multiple choices and better pricing.
  2. A number of marketplaces partner with third-party FinTechs to control and improve user experience and lower initial costs.
  3. FinTech marketplaces leverage innovative technologies to provide a competitive edge to customers.
  4. These marketplaces enable an intelligent network of connected platforms and digital solutions as the emerging urban ecosystems in smart cities integrate digital technology, knowledge, assets, and financial services. 
  5. FinTech marketplaces ensure decentralization.
  6. They are creating digital infrastructure worldwide. 

Source: Adevinta FinTech-enabled market research report, 2021

Closing Thoughts 

The traditional operating model of organizations making money by charging fees for products and services with a product-focused approach is fast becoming obsolete. FinTechs step in by creating value for customers and saving time, resources, and money. Modern-day open architecture operates with Open REST APIs, microservices, containers, private and public cloud usage, and SaaS delivery models. FinTech marketplaces enable edge computing, big data, RPA, AI, SaaS, and cloud services to build quickly.

The lines between FinTech and marketplaces are blurring. Pairing financial services with online marketplaces yields massive returns. Online marketplaces saw a record investment of €78 billion in 2021 (YTD). The long-term success of marketplaces depends on their ability to adapt and integrate FinTech solutions into their platforms. FinTech-enabled marketplaces becoming the new norm could be called a new revolution.

To learn about Prove’s identity solutions and how to accelerate revenue while mitigating fraud, schedule a demo today.


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