Embedded finance is the game changer we never knew we needed.
Robert Cortright , Founder & CEO at DriveWealth , walks us through the what, how, and why on the latest episode of Payments Innovation.
DriveWealth’s role in the retail investment ecosystem
The fintech industry faces new challenges almost every week. As society evolves, retailers and those working with them are under pressure to meet both today’s and tomorrow’s needs simultaneously. DriveWealth’s focus lies across the infrastructural trinity:
- Payment infrastructure (moving money)
- Banking infrastructure (storing money)
- Savings and investment
DriveWealth is a global infrastructure platform that powers embedded finance within ecosystems that provide retail financial services.
Fractional trading
Bob believes that there’s something bigger going on than what most of us are seeing. With unusual cases like GameStop and Reddit providing different angles to contemplate, it appears a new mental model of investing is emerging.
“You only learn by your mistakes.”
— Robert Cortright
Bob’s view is that newer younger investors are part of a gaming generation that enjoys action. He goes on to say that he thinks it’s important for them to engage and learn from their errors as they go. His support of fractional trading is linked to it being an ecosystem in which small amounts of money are exposed to risk, enabling learning over time without losing too much.
Fractional trading enables affordable access to the markets for the next generation of investors who operate on a completely different risk model to their parents and grandparents. The markets keep moving and investors control their own risk exposure: win-win.
Financial literacy by doing
Bob praises initiatives like Greenlight: financial literacy targeting families, specifically teenagers, to prepare the next generation for making responsible financial decisions. We’re missing the opportunity to teach financial literacy in schools. With platforms like this, there’s no separation of theory and practicals.
You test the waters to a depth you’re comfortable with, every time.
Most people buy what they know, meaning they’re likely to invest in the brands that they relate to on a regular basis. If you’re a techie by nature, you might have more of an appetite for biotech stocks than you do for commodities or forex.
Fractionalization is an inroad to building a solid portfolio, empowering new investors to develop their own strategies and tactics with time.
“Whether it’s $5 or $5,000, just start. Start to experience it, to understand it and know that over the long term it’s going to pay big dividends.”
— Robert Cortright
Embedded finance vs. brokerage
Bob’s clear about the distinction between brokerage and embedded finance.
Brokerage
Bob explains brokerage as something for the wealthiest 20% of the population. It’s more formal, it’s intimidating to a lot of people to open up brokerage accounts, there are usually bigger figures thrown around and the brokers control the funds.
Embedded finance
He defines embedded finance as a consumer-linked saving and investment strategy. There are round-ups, stock returns, stock rewards that work with other platforms. These are the kinds of activities that occur daily within digital wallets and retail financial service ecosystems.
If you need to borrow some money, you can achieve that within these systems, on demand. For developing good habits, you’re rewarded. It’s a direct relationship between you and the app provider.
Bob understands the embedded finance ecosystem as an evolving landscape that’s going to improve the standard of living for people more so in the next 10 years than people can even imagine today. This holds promise for the unbanked and underbanked markets, and what their expectations of embedded finance could lead to.
AI and machine learning in embedded finance
As people rely more on data, the flaws in legacy systems become clearer. Banks and brokerage houses are product-first institutions; there’s no infrastructure that prioritizes our needs as customers.
Think about it: all they ask or talk about is what mortgage, lending or brokerage departments are doing. They’re not asking about our intentions, aspirations or even the queries we’re submitting, which are ironically filled with product development clues.
Traditional banks charge high fees and they’re not generous with interest. Embedded finance enables new ways of new organizations getting your money and managing it much better. Suddenly, we’re able to invest in higher-yield products where our cash can sit until the very second we need to access it.
I mean, why pay your Netflix bill two weeks early when you could earn interest on that money then make a real-time payment? Not to mention the lightning fast process of applying for, qualifying for, and accessing credit. Used in the right way, AI enables organizations to empower us as consumers.
People earn more, invest more, and so on. AI is the future of how we store and move money.
“With brokerage, you invest and give someone else all the control. With embedded finance, you’re empowered to create your own wealth over time.” — Robert Cortright
Trends around the world
While it’s a key market, the US isn’t the only financial market experiencing shifting trends. Bob’s experience of brokerage within the US is that it does in fact serve more than the wealthiest 20% of the market, but elsewhere around the world brokerage remains an elite investment service.
At least it’s perceived that way.
As the digital ecosystems continue to evolve, it’s expected that the costs of moving money globally will reduce. This increases access and opportunity for engagement with premium markets, no matter where you are. Time delays and transactional fees are likely to dwindle, which is great for all of us.
Will this new system completely replace day traders? Unlikely, in Bob’s view. But it will radically change the global standard of living.
As for the next 12-18 months, we’re likely to see advancements in AI and the way it’s applied to digital ecosystems. Personal financial power loading…
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Until next time!
