As embedded finance becomes an increasingly innate part of modern business strategy, the question we, as positioning experts, need to ask is to what extent is it starting to become an organisation’s defining raison d’être? According to Gartner some of the biggest names in financial services have shifted their stance on digital innovation. Not so long ago the aim was to create better customer experiences. This has already been replaced by a drive to support customers’ financial lives through easier self-service transactions, empowered customer journeys and embedded financial relationships.
However, we think an important thing to note is that this trend is not merely confined to financial services. It is a universal phenomenon affecting all organisations everywhere regardless of whether their customer engagements are B2C or B2B. In fact, so intrinsic has embedded finance become to organisations’ strategic direction it is forcing many of them to completely reassess who they are and how they want the world to see them.
What is our view of embedded finance?
So key are financial services to owning the customer relationship that more and more businesses are transforming their ecosystems to be truly centred around the customer. In practice this means embedding finance into every part of every process until it becomes an automatic, innate element of products and services. This makes for seamless customer buying journeys and positive experiences that prompt them to try a wider set of engagements. This holds true not just for consumer relations but perhaps even more so for business-to-business relations where the smooth ebb and flow of payments across supply chains are critical to competitiveness and profitability.
How we identify examples of embedded finance
Embedded finance services competing to manage relationships take many forms. The differences between them are often very nuanced resulting in a degree of confusion in the market. Four of the most common ones are as follows:
- FinTechs and Neobanks – the last couple of years have seen the emergence of new digital-only financial services companies starting to eat away at the market share of the dominant traditional banks. FinTech is a broad term that may be applied to everything from Open banking, cryptocurrency, and payment services to budgeting and wealth/investment applications. A Neobank, on the other hand, is principally mobile app-based, offering a wide range of digital-only services including payments, money lending, capital transfers and so on.
- Payment platforms – leading technology players like Google, Apple, Facebook and, most recently, Twitter are all offering users ways to pay for things via their platforms. They have been joined by so-called Super Apps like PayPal, Stripe, Adyen and others. Here, financial services such as payments, banking, credit in the form of ‘buy now pay later’ (BNPL), investment, and insurance are all available in a single platform.
- Mobile-first – parts of the world like Southeast Asia, South America and sub-Saharan Africa lack the robust telecommunications infrastructure traditionally needed for digital financial services to thrive. Consequently, much of the population is unbanked. These regions, however, do have large numbers of smartphone-enabled people who are using mobile to leapfrog and overcome local infrastructure drawbacks. Here, users previously excluded from traditional finance can access services easily from non-financial companies ranging from insurers to ride-hailing apps. Unsurprisingly perhaps, digital finance services adoption among younger generations in these regions outstrips Europe and North America completely.
- Metaverse and Web3 – while interest in the Metaverse has currently cooled its future potential to own the customer relationship following in-Metaverse purchases remains huge. Elsewhere blockchain and embedded finance are tipped to come together as Web3. The idea here is that digital financial technology’s flexibility will enable friction-free financial user experiences to be deeply embedded into all kinds of software platforms.
Traditional banks fighting back
Banks have trust, reliability, and robustness on their side. Incidents like the collapse of FTX create the impression that blockchain, NFTs etc are simply passing fads. The arrival of open banking is enabling many to fight back by developing digital banking services of their own. The race is on to actively open up their legacy infrastructure, connect operational silos and develop sophisticated shared ecosystems with partners. The overall aim of this is to reclaim ownership of the customer relationship by optimising their use of valuable customer data.
Organisations forced to confront their identity
As mentioned earlier, the potential for embedded finance to help organisations own the customer relationship goes way beyond financial services organisations. From banks to telcos, manufacturers to utilities and the public sector everyone wants to embed financial services for added customer convenience and to create opportunities for other services beyond finance. In agriculture, for example, agri-finance is being tipped to be the next word in B2B embedded finance. Cloud-based commercial SaaS platforms may help input suppliers and grain companies manage sales, procurement, and marketing campaigns much more efficiently, while providing a direct communications channel to farmers. Non-financial brands across many other industries are expanding beyond their traditional boundaries to get in on the act. Amazon, Apple, Chanel, Chevrolet, Fitbit, Ford, Gucci, The Home Depot, and Walgreens are among the big brands finding that their combination of convenience, brand loyalty and savings provides customers – and their own internal partnership ecosystem – with more rewarding experiences.
Embedded finance gives every company the potential to be a FinTech company. For many leading brands this is creating something of an identity crisis. Is their traditional public image still accurate or do they need to change? In our view the answer depends on so many variables. There needs to be frank discussion and honest agreement at the most senior level about the quintessential definition of the organisation today and where it wants to be in the future. These are the sorts of conversations we have with clients every day. They come to us because we understand the complexity involved with change. Together we can chart a way for organisations to communicate themselves meaningfully and uniformly to their customers and their clients in a way that is true to who they have become.
To share your thoughts and explore further ideas on embedded finance or how our work could help positioning your organisation, get in touch here to make some time with our strategic people.