Business Insider
MX deal spotlights data sharing's starring role in embedded finance
By Tyler Brown
January 8, 2021

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Data aggregator MX and embedded banking startup Hydrogen have announced an integration partnership, per Finovate. This brings together an established fintech with a growing presence in financial data sharing, and a startup that aims to make it easier for developers to create embedded finance apps. the banking services stack MX deal spotlights data sharing's starring role in embedded finance. Insider Intelligence

In the MX-Hydrogen partnership, two major trends in financial services converge: the development of API ecosystems for securely sharing financial data between networks of financial institutions (FIs) and fintechs, and the rapidly evolving embedded finance landscape.

Hydrogen's customer growth depends on API connections with FIs and fintechs. Hydrogen's no-code platform lets nonfinancial companies add financial services to their digital products. This makes it easier for companies without significant developer resources or fintech expertise to offer financial services and software to their customers. In this partnership, MX will provide infrastructure that helps enable features like card issuance, payments, personal financial management, and deposit accounts.

Data-sharing platform services are key to embedded finance, for both large companies and small ones, like Hydrogen. Big names have moved into embedded banking and payments: Stripe recently  announced that it would partner with Goldman Sachs and Citi to offer bank accounts, cards, and cash management services. Stripe's BaaS API will let its US clients offer services to customers, such as ecommerce companies like Shopify seeking to provide banking services to merchants on their platforms. The heavyweights in the embedded finance space control the flow of data between FIs and fintechs, and any FI or fintech that uses them depends on the network effects of its connections.

Even with MX's partnership, Hydrogen will struggle to gain a foothold in the embedded finance landscape. It's not clear that there's a meaningful addressable market for no-code, "drag-and-drop" embedded finance platforms: The most likely customer for them would be a company without the scale to have significant development resources, but that would also want to offer financial services directly to customers.

It's a narrow niche—and embedded finance without a higher level of customization will quickly become a commodity in the face of products from companies with the engineering resources to implement a broad array of APIs and customize the user experience. Hydrogen should thus switch gears to emphasize its developer toolkit, a layer on top of a data-sharing network, which gives customers mix-and-match code for both access to third-party integrations and the ability to interact with them.