This article was co-authored by Sophia Sanders, Head of Partnerships at Chetwood Financial.
To fully discuss embedded finance and the many doors it unlocks, we must first return to an older but no less relevant buzz phrase: open banking. Open banking has captured the industry’s attention for some time now. Allowing users to share their financial data across banking and fintech institutions, open banking has created the ability for a user to gain a comprehensive view of their accounts from a single source and has facilitated payment innovations. Most profoundly, open banking has provided the
first steps toward personalised financial products.
Although such innovations are great, especially in terms of their complementary effect on user experience (UX), the concept of sharing data puts some users on edge. This has no doubt been exacerbated by the endless reports of major data breaches within brands and Big Tech alike.
Embedded finance
Meanwhile, embedded finance allows brands to integrate financial services into their existing platforms and applications, streamlining the customer journey and presenting a fertile revenue opportunity which places UX at the heart of its design. Such innovation was born from the advanced capabilities of fintech-designed APIs.
The innovations brought about by embedded finance and open banking are impressive by their own account, but their most profound application arises when used in tandem. The addition of embedded finance alongside open banking means that businesses can expand the services offered to customers, offering personalised, in-house, financial solutions that are guided by customer insights and designed around the individual’s unique needs.
The presence of embedded finance is already widely felt – online marketplaces and lending services are but a couple of the sectors already offering these services. In fact, interest in embedded finance is so great that its global market value is expected to reach over $7 trillion in the next ten years. By comparison, this is close to double the existing market value of the world’s 30 largest banks. Evidently, embedded finance is set to become an ever more present part of our lives; understanding the factors driving this propulsion as well as its consequences will be key to taking full advantage of its opportunities.
Growing opportunities with data
While consumers are still cautious over data sharing and handling – and rightly so – they should also be excited about the prospects data insights enable for embedded finance products.
Open banking allows institutions to develop insights into consumers’ financial behaviour and gain a clear view of an individual’s financial situation, subsequently allowing them to develop better products and services which bolster customer experience and precisely serve unmet needs. Applying this technology to embedded finance products means that businesses can offer financial services, such as credit or loans, based on a customer’s unique financial situation. This allows consumers to borrow more securely, effectively enhancing their spending power with repayment terms moulded around their financial capabilities.
Enhanced user experience
In terms of UX, embedded finance removes much of the friction along the customer journey. Firstly, consumers will no longer be redirected onto third-party sites (with which they may have little familiarity and brand association) to access achievable financing options. Rather, embedded finance means that the consumer can complete their transaction – while amassing the necessary funds – with their trusted brands and retailers. Insights into the processes that usually lead to consumers ‘dropping off’ before the checkout allow companies to refine their processes and bolster customer experience; businesses offering embedded finance products unlock a massive new revenue-building opportunity.
Wrestling consumer anxiety over data access will be essential for brands looking to take full advantage of the embedded finance opportunity. Transparency and a robust demonstration of security measures will be integral to achieving this.
Widening participation
The wider implication of non-financial brands launching their own financial services is that the number of financial products and services available to consumers is set to undergo rapid expansion. More importantly, these products and services will be originating from a much more diverse set of companies, covering different market segments and different customer needs. Consequently, financial products are set to become much more varied – their design inspired by the needs of a wider section of society and new communities – ushering in an age of greater financial inclusion.
At the same time, non-financial brands have a strong opportunity to bolster their brand identity and appeal through the careful design of unique embedded finance products. In an age where brand loyalty is eroded by all-encompassing e-commerce sites, embedded finanace allows brands to reassert their brand identity by carrying the customer along the whole product journey and by designing financial products around their specific needs.
Overall, embedded finance presents many opportunities for both businesses and consumers alike. At the forefront of these is its offer of greater financial inclusion. As the number of products launched from companies traditionally outside the financial sector grows by virtue of their different target markets, so too does the reach of financial services to the masses.
However, the key to creating successful embedded finance products lies in the effective use of data (enabled by open anking) – identifying customer pain points and the types of products that will enhance spending power without the risk of insurmountable debt. Integral to this success is robust and transparent data management; only then will the consumer be confident that the use of their data is still serving them.
Source : From the Web