Embedded Finance – A Win-Win For Customers & Businesses
Embedded finance is the next big trend in fintech. Find out why it’s a win for customers and businesses alike.
Written by Victoria Kent, Senior Investment Specialist
Photo by Markus Spiske on Unsplash
This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
What is embedded finance?
Far from a saucy romp between the sheets with your banker, embedded finance actually relates to “the integration of financial services into (third party platforms such as) non-financial websites, mobile applications, and business processes.”
In a nutshell, when a financial service is offered by a non-financial provider – embedded finance is likely at play. Think: Apple Pay or Uber Wallet.
Forbes estimates revenue from embedded finance will increase ten-fold to $230 billion by 2025.
Additiv dubbed it “a $100 billion market opportunity hiding in plain sight” in a recent white paper.
It’s set to become so prolific, Angela Strange of Andreessen Horowitz has claimed: “Every Company Will Be a Fintech Company".
Opportunity or threat?
That depends on your perspective; and your willingness to innovate.
Embedded finance will allow previously non-financial providers to capitalize on new distribution channels using their existing customer base – for the companies willing to embrace it, that is.
By offering products at the most relevant point in a customer’s user journey, a company can remove friction and dramatically increase their product adoption.
Ultimately, this increases a customer's lifetime value and makes it just that bit harder for the customer to leave.
For customers, the appeal is ease of use, as well as reducing the cost to shop around.
According to McKinsey, this plays into the trend of customers seeking simple, holistic, embedded, and direct experiences. This search for simplicity, alongside a growing distrust of traditional financial institutions, means customers are flocking to embrace fintech solutions instead.
Banks currently spend a lot of money maintaining their ecosystems (and dominance); but much of it is to maintain legacy systems, rather than on innovations to enhance customer service.
Context is key
Companies already have a lot of data about their customers. Embedded finance leverages this data and turns it into information – offering personalised financial products in contextually relevant situations.
This way, companies can be proactive; anticipating needs and offering up solutions without customers having to go through the effort of searching.
Starting a new job? Well now is the time to get on top of your superannuation.
About to go on maternity leave? You probably need to refresh your life insurance.
Simply put, if you are in the business of making money, you are in the finance business.
Embedded finance is the underlying concept enabling your customers to access financial services in a fast and hassle-free manner.
It’s a win-win for customers and businesses alike.
Expect to see more non-financial companies embracing embedded finance, and venturing into this space.
