The benefits of embracing embedded finance are significant. Can FIs overcome their brand egocentricity and reap the rewards?
We expect 2022 will be a significant year for embedded finance. The process of buying a car, acquiring a loan, or simply shopping for low-cost items, has changed over the last few years. How we pay for things is slicker and quicker (which is good and bad!). Fintech companies and technology companies partnered with financial institutions (FIs) to provide better payment services, digital wallets, credit and debit cards, instant lending services, and so much more. The way we spend, earn, save and invest has been irrevocably disrupted, and the best is yet to come.
The “cloak of invisibility” that is embedded finance has helped people make better financial decisions. The invisible part is critical. It means people can buy a car from the manufacturer complete with financing options, all tied up in a neat bow. The outcome is a smooth end-to-end customer journey, which creates loyalty. Greater loyalty generates greater value, which leads to more revenue opportunities to explore. The more companies that come to realise this simple algorithm, the better financial services will become for all of us.
There are many examples to consider, too. Companies that have truly mastered the concept of embedded finance are the likes of Square, Uber, Apple, Stripe, and many more. What many companies like this do is use the financial heft of traditional FIs to handle the machinery, while applying their layer of customer experience on top. Does the customer see the machinery? No, they see the smooth layer of technology that provides the experience they’re looking for. We think the next logical step is for incumbent FIs that haven’t yet adopted embedded finance to flood the market.
Creating better customer experiences
Right now, many of the large tech companies are reaping significant rewards in terms of loyalty and revenue opportunities. They have the know-how in terms of design and user experience, as well as how best to distribute technology. They think customer-first, not product-first. Traditional brands that are not necessarily technology companies have also done well in embracing embedded finance. Volvo is a good case study to look at.
If you visit the Volvo UK website, you’ll notice how Apple-like it is. The layout is slimline, easy to read, easy to navigate, and there aren’t too many options. Choose a car and you’re presented with options to customise it. Once you decide to buy, the process looks similar to buying an iPhone! Traditional terminology is upgraded so that leasing is now subscribing, and the customer journey extends to after-sale benefits such as service and maintenance, vehicle tax, insurance, and more. It’s a complete package, which is incredibly enticing when you consider the alternative, which is dealing with multiple companies to handle the loan, insurance, tax, delivery, and so on.
The key to embedded finance going stratospheric is to maintain this level of “invisibility” so that the customer experience remains smooth, and for more incumbents to partner up with brands large and small.
The hard truth to accept for many FIs is that people aren’t interested in your brand. They find it easier to connect to cool brands like Starbucks, not NatWest. When they visit Starbucks, they can pay using their Starbucks app, which generates reward points. They can even skip the queue by preordering their drinks through the app. Did they have to open their NatWest account to do any of this?
The realisation that people will always connect better, and remain loyal to, much cooler brands than their bank or building society doesn’t signal the end of the world. It means there are opportunities to be had by partnering with brands that have more pull than you do, bolstering and becoming a crucial cog in their ecosystem. By becoming a vital part of the customer experience through mutually beneficial partnerships, FIs can tap into the world of embedded finance and create better experiences for everyone.