Building an Embedded Finance strategy: dos and don'ts

Embedded Finance is big news for brands.

This new wave of the fintech revolution allows non-finance brands to embed financial services within their own product ecosystems. Simple API integrations, plus the simplicity of one-stop-shop Embedded Finance 'platform' operators, mean that businesses of virtually every size can use financial services to better serve their customers and add new revenue streams.

So you know you want to make use of Embedded Finance as a brand. But how do you approach this complex ecosystem in a way that enables you to maximise its potential? And how do you think strategically about Embedded Finance and its implications for your business?

1. Do: Work out what you want from Embedded Finance

As with any other strategic exercise, it's important to identify the goals of your Embedded Finance project and how these technologies and techniques can help. For example, have your customers asked for it? Do you think it’s going to answer their needs or help solve a problem they experience? Are you aiming to leverage your existing customer base? Or are you launching an entirely new venture in order to fulfil a specific customer need? Are you hoping to increase customer loyalty, or to add additional revenue streams to your products? 

2. Do: Understand your position in the ecosystem

Embedded Finance is an ecosystem, and different participants have different roles. Licence holders offer access to regulatory coverage; service providers offer access to elements of the banking technology 'stack'; and brands pay for access to them with a view to embedded financial services within their products. Think about your Buy vs. Build strategy. Nowadays, you can “buy” most parts of your embedded finance propositions. Some actors start by “buying” until the concept is proven and they move into “building”. It is specifically the case on the licence front. What aspects of your embedded finance proposition are the most critical and strategic? How fast do you need to go to market?

3. Do: Identify the relevant layers of the stack

It can be difficult to understand exactly what's on offer within the Embedded Finance ecosystem. There are many players and many fields of specialism. These categories include card processing, FX liquidity and payout capabilities, fiat-to-crypto conversion, corporate account topups, and of course Open Banking applications.

Clearly, it can be difficult for non-financial brands to navigate this ecosystem. In addition, it can be time-consuming to contract with individual service providers offering access to the specific parts of the banking stack that you require. The platform model is one solution to this problem. Platform operators such as OpenPayd offer a single point of access into the Embedded Finance ecosystem. These platforms each have partnerships with a range of providers, and they allow for services and licences to be added by customers in a plug-and-play or modular manner. It ensures the best customer experience and the services that are best adapted to your proposition.

4. Don't: Assume Embedded Finance is just for the 'big boys'

Commentary on Embedded Finance still tends to focus on the biggest names: Uber and their bank for drivers; Ant Financial and their core banking product; Google and their payment rails ambitions; or Amazon and their credit cards. While this is understandable, it can give the false impression that Embedded Finance is the preserve of multinationals.

In fact, accessibility is part of the very foundations of Embedded Finance. The simplicity of the best banking and payments APIs, access to regulatory coverage, and the freedom offered by the burgeoning platform model all combine in a way that puts financial integrations within the reach of virtually every business. And brands can get started with little or no investment - especially as many providers now offer pay-as-you-grow, transaction-based pricing models.

And, indeed, this is going to be the defining trend in the next decade of finance. It will become the norm for businesses in virtually every industry to integrate banking and payments within their ecosystems - however small or large they may be.

It might be useful to think about Embedded Finance as doing for finance what no-code platforms are doing for development: removing barriers to access. An important principle shared by both might be: "If you can have the idea, you can build it."

5. Don't: Ignore the benefits of specialisation

I think specialisation is going to be one of the most important tendencies in the coming years. Embedded Finance is going to allow for very specific, even niche use-cases targeted at comparatively small customer segments. There is huge potential for brands with great product design skills to succeed in traditionally under-served industries. The best of these will combine data science, Open Banking, and Embedded Finance, plus customer-centric thinking and innovative UX approaches, to create highly profitable businesses solving real-world problems.

I'm particularly excited to see what this means for the global 'unbanked'. There are still many millions of people worldwide without access to banking services. By ensuring that the people with real knowledge of those markets and communities have access to the infrastructure they require in order to build useful products (particularly focusing on mobile banking), I am confident that this new wave of fintech is going to become much more useful in the fight for fairer and wider access to financial services.