If we are to create better digital trust for everyone, we need to work out how to better embrace and embed digital identity.

When I first attended Money20/20, the conference’s name was a nod towards a vision of financial services in a future year. Ironically, when the year 2020 finally arrived, the conference organizers were unable to continue their guidance - in that period of pandemic, in-person events were not possible. Time was up.

But after a tentative reboot in 2021, Money20/20 Amsterdam came back properly last week. It was boisterous, with some conference break-out sessions themed on edgier topics within the banking, payments, and fintech space.

This report summarizes my thoughts and takeaways from the event. I start with a search for a dominant theme - a successor for previous trends like crypto, APIs, or AI. Having landed on a buzz-phrase of the week, "embedded finance", I’ll explore what it might actually mean and why it might be genuinely good stuff. 

Embedded finance projects a shift away from businesses being forced to tediously negotiate the individual components of banking and payments. Instead, they will seek more control over their direct relationships with their consumers and how they interact over a lifetime (not just transact at a checkout). And vice versa, citizens and consumers will have more control in how they interact, and on what terms. The theory is that banking and payments could get tucked away neatly, allowing us to focus on the important interactions that matter in our lives rather than constantly being bogged down by the hassles of individual financial transactions.

At last week’s event, it became clear to me that digital identity is still the foundation for the future of money. The number of participants representing digital ID solution providers seemed to be the biggest community. Many keynote talks from distinguished speakers highlighted the need to sort out digital ID, not just for esoteric subjects like Central Bank Digital Currency (CBDC) in the future, but also to create better digital trust for all of us, now. And many of the future visions of convenience in embedded finance will only work if trust, credentials and broader identity concepts get sorted first.

If the ugly mechanics of banking and payments have been tidied-up, perhaps money needs no further sorting-out. Maybe the next Money20/20 ought to be renamed as Identity20/20? On the other hand, identity is not literally the new money, so I think we’ll be going with Money20/20 for a few years to come. The way we think about identity and its interaction with money, however, needs some fresh thinking. If we are to create better digital trust services for everyone, we’d better work out how to better embrace and embed digital ID within new money. 

Moving from API to AI to I

I have previously joked about a progression towards a singularity event where there would be nothing left to talk about at Money20/20. The conference takeaway themes were already seeming to count down to zero. When I first attended, the focus was on APIs and the need for engagement with developer ecosystems, fintechs and early open banking. In subsequent years, we saw the emergence of AI, either as a must-have capability or as a component of pattern-finding and fraud prevention in payments. More recently, identity became the trending topic. So over time,  I’ve witnessed a formulaic progression from API to AI to I. What could come next in such a mathematically inexorable sequence other than some form of nothing?

Nevertheless, we found plenty to talk about in Amsterdam last week. Trending topics included the metaverse, crypto (much more sober this year), “buy now, pay later” (still hanging on), and digital identity (so many exhibitors!).

Some of my favorite insights came from unexpected places; I attended talks by the leaders of the OnlyFans platform. Like many attendees, I now have new insights into a booming creator/contributor economy where the money flows and content controls, managed directly by individuals (rather than Big Tech or large publishing platforms). Frankly, traditional financial services could learn a thing or two here. For those of you tutting, I learned that only 10% of the OnlyFans traffic is what some might describe as, ahem, “embedded” content. The management team were a great advert for future commerce models based on consumer and citizen-centric control.

The new era of embedded finance

Having observed things in Amsterdam last week with a new 20/20 vision, it would appear that the trend for payments and financial services to compress and simplify has continued. The volume of attendees and exhibitors (and the vivacity of presenters) provided plenty of evidence of continuing high energy in financial services technology. But it did not feel that the momentum was being generated by standalone payments providers, by core banking software vendors, nor indeed by any kind of traditional technology vendors.

For me, the dominant narrative and theme was clearly embedded finance, hinting at how banking and payments are being tucked away neatly behind more important real-life needs of citizens, consumers, and merchants. And the energy at Money20/20 was being created by participants explaining how new value can be generated during broader customer relationship engagements and interactions, not just at specific financial transaction events.

This theme might have been championed by banking-as-a-service and bank platform providers, but it was clearly adopted by a wider audience of speakers and attendees.

From financial transactions to monetizable interactions

If I’ve interpreted embedded finance correctly, it will be a worthwhile pursuit - this shift from single payment transactions towards multiple ecommerce interactions will force financial services companies to work harder to earn and retain the transaction revenues that underpinned company valuations in previous eras of ecommerce. Payments service providers will help their merchant customers to get closer and more relevant to their end consumers, who in turn will expect better engagement based on trust, convenience and security.

The suppliers who get this right will be able to charge premium prices - fairly - for the newly created value-added services and still make money on the volumes of connected payment transactions. For merchants, billers, and anyone building an audience, the prize is sustainable relationships with buyers, lower costs of customer acquisition, and long-term reductions in the cost of running a business.

But one should not underestimate the costs of creating the foundations of these new interactions. The foundational components of new relationship-based services must include customer-informed controls, access methods, consent, and verification processes. And hence, my interest in digital identity and the consequential details of verifiable credentials, electronic ID wallets, compliance with new EU eIDAS regulations, and heaps of other practical challenges of fixing digital trust. 

The presence of dozens of ID technology companies - probably the largest single category of exhibitor - at Money20/20 confirmed to me that ID will be a foundation for the future of payments and financial services. 

EmFi-as-a-service?

I was rather amused to see the disparate and sometimes conflicting views of what I suspect will soon be known as “EmFi”.  (Full disclosure:I have already registered the domain names of Emfisize, Embedifi, EmFit. And EmbedifAI, as some investors still love anything with a bit of AI in the creation narrative.) 

Dominant exhibitors were promoting their x-as-a-service offerings as examples of the new embedded movement. “x" would include banking, payments, compliance, and so on. I even saw one promoting "journey-as-a-service” - I’m not sure if they were a user experience designer, an ID&V onboarding service, or a travel company. Clearly, we have not yet hit peak terminology-as-a-service. 

In conversations with some of the proponents of the banking platforms, I noticed how they were still pretty focused on the traditional transactions (core banking and payments), monetized based on volume. Product managers would explain their range and agility, but there was a sense of sameness in many of these offerings, despite the razzmatazz and celebrity endorsements that differentiate some of the companies on show.

Many of the payments platform providers (retail acceptance focused) were also tending to offer similar services too, although there was a bit more urgency in trying to understand how to differentiate and to offer new value to merchants. Particularly in an era where frauds and scams are rising and when many retailers and brands are seeking better value from their marketing, advertising, and general relationship building with consumers.

Curiously - and I think this is a problem that the organizers of Money20/20 need to address - there were almost no retailers in attendance. It is quite a challenge to build the future of EmFi without consulting the merchants and brands - many of which are trying to shift direct to consumer on what they desire in their future interactions. 

As you have probably detected, I listened to a lot of talk about EmFi with some cynicism. I believe EmFi is inevitable and desirable, but there was a lot of guff around in Amsterdam too. 

Retailers need to orchestrate. Wait, what?

I attended a few talk tracks that explored the “orchestration layer” of payments. I’m a payments geek, so I loved those. But I was painfully aware that I was in a tiny minority. 

In short, merchants have to deal with a lot of complexity when it comes to optimizing their payment acceptance strategy, bearing in mind that they probably want maximum possible coverage of payment types (including taking payments from weird places where citizens chose to avoid Visa or Mastercard). They also want the lowest possible “friction” - the extra checks and challenges that get thrown in front of consumers that often lead to purchase abandonment. But they don’t want to take unnecessary liability for fraud either, so they know there are constant trade-offs to be considered. The larger merchants can also take advantage of having multiple acquirers and payment service providers, with each individual transaction that’s generated in a retail POS platform being subject to a decision about where it is best (lowest cost, most reliable, least liability, best experience…) to send it.

So you can imagine why so-called orchestration layers need to exist at big retailer systems to automate this kind of decisioning and routing.

But what if these retailers are also progressing their own loyalty/membership schemes, with their own onboarding and identity/verification systems (increasingly useful to deal with restricted sales, regulated products, etc.) and those businesses are also developing customer contact systems designed for life-after-cookies where consumers will have more power over how their personal data is recycled?

Although "orchestration” might sound like a terrible consequence of old-school payments ecosystems, the concept provides a way of connecting the foundational elements of future merchant-buyer interactions based on mutual trust and personal controls. It sounds horrible, but it’s logical. And don’t worry - the complexity will still be hidden away and “embedded”. 

Embedded identity as a service: Creating a better digital life for all of us

I will go early on my predictions for themes for the 2023 edition of Money20/20: Pure payments, core banking, and related infrastructure capabilities will continue to disappear into a new state of embedded commodity. 

The systems and services that allow merchants, sellers, and platforms to orchestrate best outcomes for their business and for their end-users will become highly sought-after.

Creating these sorts of embedded interactions between buyers and sellers will require greater cooperation on both sides of these multi-sided platforms - so expect to see more engagement with merchants at Money20/20. This might not happen overnight, though, as many merchants are still committed to finding the best deals like lowest-cost transaction routing. Few have yet joined up their operations which deal separately with payments, ecommerce operations, media planning, marketing production, and first-party data management. But it seems a logical next step.

These new interactions will be underpinned by digital identity systems. There will be even more ID industry participants at the next Money20/20, and it will soon be apparent that digital ID will need to become easier to access (by consumers and by the relying parties that need access to verifiable credentials). This will lead to more consolidation and aggregation in the industry so that users can be confident of maximizing reach and relevance of ID schemes. The European Commission’s mandates on digital ID wallets will focus more attention on the creation of easy-to-use (and easily embedded) propositions that make digital life easier for citizens and for businesses.

If we are to create better digital trust for everyone, we need to work out how to better embrace and embed digital ID, not just into money and payments, but also into our regular interactions between people, businesses, and governments. This identity narrative should not be framed as just a necessary transactional element of money. Identity needs to be center stage, seen as the key for all of our meaningful interactions. And handled on terms defined by the owners of these identities.