Embedded Finance: A Conversation with Simon Torrance

The following article is an adapted transcript based on the audio recording of Season 5, Episode 4 of the Mr. Open Banking podcast, which Ozone API are proud to be sponsoring. The audio version is available here.

Imagine a world where financial services are no longer separate, daunting entities but seamlessly integrated into the digital experiences you already know and love. A world where buying a car, booking a trip, or even just grabbing a coffee means having instant access to personalised financing options, secure payments, and innovative insurance solutions. 

This is embedded finance: an omnipresent, invisible hand guiding your financial decisions with unprecedented ease and intelligence.

If open banking is the ‘how,’ then embedded finance is the ‘why’. Together, these two forces create the foundation upon which the delivery of financial services will be radically re-invented. A transformation which has already begun. 

A Conversation with Simon Torrance, CEO of Embedded Finance & Insurance Strategies

Simon Torrance is the CEO and Founder of Embedded Finance & Insurance Strategies, a virtual advisory firm that helps business leaders leverage fintech and insurtech to provide new kinds of value. With more than 25 years of experience helping companies design and adapt to advanced technology, Simon is an expert on new growth strategy, systemic risks and technology innovation. Most recently, he launched AI Risk, a company that provides research and innovation services to help organisations manage the risks of AI development and deployment.

Simon also serves as an advisor, author, keynote speaker and guest lecturer, regularly collaborating with organisations like the World Economic Forum, Singularity University, MIT, Imperial and London Business Schools to help leaders across industries use technology to their fullest advantage, especially embedded finance. 

The embedded finance value stack

“Essentially [embedded finance] is financial service organisations collaborating with non-financial service organisations,” Simon tells Eyal. “The idea is to leverage the relationships and the trusted frequency of interactions that many non-financial institutions have with end users, to help design new types of solutions that can bring greater financial health and wellness to many more people.” In other words, banks hope to capitalise on the relationships and interactions that non-banks already have, offering them new routes to new markets. Meanwhile, the non-banks can offer financial options to their customers that are simply not possible without a bank under the hood.

“What’s now possible is that any company, big or small, can do these types of things at a cost that was just too prohibitive in terms of the technical requirements,” says Simon.

“If you take the case of small businesses, they’ve been using software to run their operations to manage all the activity that they undertake. And because that software is being used day in, day out they generate a huge amount of insights that they can then take advantage of.”

Next, we arrive at what Simon calls the “critical piece” in the embedded finance puzzle: the operating system. 

“In a technical world, an operating system is something like Android or iOS or Windows. It controls the ability for a system to take on applications, innovative solutions and make them available through an interface to an end user.

In the embedded finance world, the operating system is a set of organisations that act as intermediaries between all those financial service components. They can be products, they can be capabilities as well, which in the past were all locked away within individual organisations, or all proprietary to individual financial institutions. But now through APIs and other technology those products are abstracted into software. Modularized. And are available to developers around the world who can do clever things with them.”

In fact, the operating system is part of what Simon refers to as a “value stack”. “You can think about it like a value chain,” he adds. “But stack is the way that technologists talk about markets because there are foundational elements that build on top of each other.” At the bottom of the stack, you’ll find the supply side: capabilities that in the past were just locked away within individual financial institutions. Think about balance sheets or regulatory licences. Above them are the operating systems, which manifest themselves as businesses that provide managed services. Above the operating systems are the non-financial brands that want to do embedded finance. And finally, at the top of the stack, is the end-user. 

Gone are the days when people went to a bank when they needed banking. Instead, banks must meet people wherever they are. After all, a bank customer can now be anywhere, doing anything. And wherever they may be, they expect their bank to be there if they need them… and to leave them alone if they don’t. 

The banks, and other fintech providers, who can do this successfully will become a seamless part of their customers’ digital lives. The ones who cannot, will not survive.

Thankfully, open banking compels them to move in the right direction, by providing open standards that ensure participation in the digital economy happens on a level playing field. 

Embedded finance could not ask for a better friend.

Banking is necessary. Banks are not.

Finally, we come to real-time payments and agentic A.I., the final pieces to the embed finance puzzle. “Payments and financial services are the lubricants to innovation, trade, and getting what you want,” he adds. “There’s a lot of unnecessary cost caused by technical friction. So real-time payments make it easier for goods and services, and other sources of value, to be traded and transacted. That just helps the whole process and the whole system.”

Likewise, the role of Agentic A.I. could be that of a digital agent that acts on your behalf. “You tell them, ‘Can you find me a mortgage?’ or ‘Can you find me some insurance for this sort of price and for this purpose?’ And the artificial agent sorts it out by interacting with other systems and other A.I. robots. It is undertaking complex end-to-end tasks to your requirement.” And according to Torrance, a version of what he’s describing could be a reality within the next three years. 

So what does the future of banking look like when all these puzzle pieces come together? Increasingly invisible, according to Simon. “Once those moats disappear, then traditional banks will disappear. Unless they can work out where to play and how to win in this new world.”

Way back in 1994, Bill Gates gave us what is perhaps the single most iconic quote about banking and technology, ever: “Banking is necessary. Banks are not.” This year, that quote is thirty years old.

What Bill Gates understood three decades ago is starting to become plainly obvious. In a perfect world, people prefer their banking to be invisible, but ever present. Technology now affords us the ability to deliver banking in just such a way. Embedded finance, and the technologies surrounding it, mean that banking can be offered anywhere, by anyone. Not only does this increase the size of the pie for banks and non-banks alike, it also improves the financial wellness of their customers, and as a result, of society at large. 

Paired with open banking, real-time payments and agentic AI, embedded finance promises to tear down the walls between commerce and finance, finally filling the gap between financial needs and financial services.

The banking that is necessary, without the banks that are not.

Learn more about Simon and his work on LinkedIn.

To listen to the full podcast episode and & subscribe via your favourite player, click here.

Visit Mr. Open Banking @ http://mropenbanking.com. 

If you missed the first season of the podcast, click here: https://www.mropenbanking.com/podcast