Thomas Priore on Balancing Innovation and Regulation in the Finance Industry

Thomas Priore, Chairman & CEO of Priority, underscores the importance of embedded finance even though it may not be a familiar term to every entrepreneur.

He believes it is worth the attention of those interested in improving their business operations. In today's digital age, consumers have come to expect and enjoy seamless, modern digital payment experiences that make checkout more convenient, thanks to investments in technology and smart device usage. But the question is how technological innovations can be applied to businesses to improve outdated payment and banking models. And why should companies care about innovation in finance and technology? Priore advocates that digital innovations like embedded finance and unified commerce are the answer. These have the potential to unlock value-added benefits for businesses - from improving cash flow to streamlining front- and back-office operations.

“Embedded Finance: Regulation and Strategic Choices” is a 2022 report from leading accounting and advisory firm Deloitte which discusses the momentum of embedded finance in business as being “driven by consumers’ growing demand for integrated online experiences, and enabled by digital and technological innovation.” However, maintaining the balance of embracing digital finance while staying compliant with changing regulations is critically important in financial services. It can seem risky for businesses, but when a knowledgeable implementation partner is used, the rewards can far outweigh the risks. 

Thomas Priore, Chairman & CEO of Priority, the fifth-largest non-bank payments business in the US, provided his perspective on balancing innovation and regulation in the finance industry. He shared that while it can be tricky, it is not impossible. Priority knows what its customers are up against, anticipates their needs, and focuses on delivering the technology to help them succeed. 

Emerging Technology Often Brings Rise to Emerging Regulations

Burgeoning financial services offerings are attractive and bring excitement but create new regulatory challenges. Thomas Priore believes in the advantages of financial services but also knows the risks associated with an uncharted and continuously evolving financial solutions landscape that must be vetted carefully and that changing regulations are part of the process. 

“A prime example is the critical role that business brands will play in the embedded finance value chain and their control over the customer journey, relationship, data, and technology stack,” Deloitte notes. “Yet, business brands will typically be unfamiliar with financial services regulatory requirements. This may put pressure on embedded finance partnerships where there are challenges in reconciling customer experience, commercial priorities, and compliance,” states Deloitte.  

Gearing Up for Change: How Technology is Redefining the Finance Industry

Studies conducted by top global management consulting firms McKinsey and Bain show that the embedded finance industry is undergoing a colossal growth spurt. “According to our estimates, the market could double in size within the next three to five years,” McKinsey reports. Bain calculates the total 2021 U.S. revenue from embedded finance at $22 billion. Their projected figure for 2026 is $51 billion. Likewise, the transaction value of embedded finance is predicted to grow from $2.6 trillion to $7 trillion by 2026 — topping over 10% of the U.S. total — while B2B payment market forecasts are expected to reach close to $33.3 trillion.

As exciting as the promise of those figures may be, McKinsey cautions that businesses unfamiliar with the ins and outs of the new digital payments and banking landscape might need to prepare to take advantage of them. “Despite the scale of this opportunity, many banks, payments providers, fintechs, investors, software firms, and potential distributors are unsure what embedded finance involves, how they can participate, and what it takes to win.”

Thomas Priore states, “Priority has been at the frontier of embedded finance from our inception, and we leveraged emerging technology to create innovative financial services, banking, and payments solutions. Our solutions were purpose-built to keep pace with industry regulations as they are updated, ensuring clients remain compliant as the parameters and requirements evolve.” 

Navigating the Complex Lines Between Innovation and Regulation

Priore acknowledges that creating “traffic regulations” for the intersections where new technology meets compliance standards is an important but complicated endeavor.

“There’s a host of business industries where money needs to be collected and then distributed,” Priore explains. “And that’s where embedded finance becomes an important element to modern commerce. What happens after that transaction occurs for the seller, for the merchant? How does reordering happen? Maybe another party led a consumer to the retail site and required a commission payment. So how can a system keep track of that and accurately make a payment?”

To get that kind of system up and running, Priore says you need a treasury ledger, or as he puts it, “a way of calculating what everybody is owed in that value chain.” However, to ensure accountability, each link in the chain requires oversight and a system of checks and balances. “Maybe one person prefers their money sent to a bank account, but someone else is interested in a debit card to access their money because it is more convenient for their lifestyle or the types of transactions they handle,” said Priore.

Priore shares that one way to think of how embedded finance works is to consider how it is comparable to a railway hub. Trains come in and go out through numerous tracks, taking various routes with scheduled (and sometimes unscheduled) stops along the way before eventually reaching their final destination. “For businesses, the demands of everyone involved in the ecosystem have to be considered to keep things from potentially slowing down or stopping altogether. The comings and goings have to be scheduled and are coordinated with complex choreography in large ecosystems,” he states. 

Complex Financial Ecosystems Must Balance Innovation with Accountability

Citing healthcare as a prime example of a complex ecosystem in business, Priore says, “Think about the patients, providers, suppliers, and insurers in that value chain. New business models are emerging for industries like healthcare or construction. There are multiple subcontractors, staff members, lenders, customers, and also perhaps an equity holder. Money is moving in different directions to take care of different things. And businesses need a seamless payments experience and banking at scale to support collecting, storing, and sending money. So that’s where the notion of embedded finance has taken root in the modernization of how money moves.” 

When embedded finance solutions can strike a balance between innovation and regulatory compliance, that is where the companies behind these solutions will best serve their customers and turn a profit. According to Priore, Passport is Priority’s unified commerce platform that was developed out of his and the executive leadership’s pulse on the industry and the pain points described by customers. Passport is on the cutting edge of integrated payments and banking solutions and prioritizes transparency and accountability with ease of use. 

Priority’s solutions also include up-to-code regulatory and compliance requirements built-in to their technology stack and dedicated team members that keep abreast of fluctuating regulatory requirements. Priority serves multiple segments (SMB, B2B, Enterprise) and capably takes on high-risk and specialty industries like CBD that others in the marketplace can’t touch. 

“We are excited about what the future holds for us, given our strategic diversification and the unique toolset we have, not just for tech and payments, which is the underpinnings of our foundation, but because we’ve added banking as a service to that mix, which we think is the path forward for our industry,” Priore says.