From talk to action
Embedded finance is a growing and potentially very valuable opportunity for companies that get it right. The ability to build financial products that are designed around the needs of customers and offered at the heart of the customer journey can be a winning
formula.
Getting it right means the chance to build long-lasting customer relationships. However, as with most things that are hot topics, embedded finance is much discussed but perhaps not always successfully actioned. An effective strategy is what translates talk
into action.
"In real life, strategy is actually very straightforward. You pick a general direction and implement like hell." — Jack Welch, Former CEO of General Electric
Inspiring words. But what are the components of a successful embedded finance strategy? Where to begin is crucial and with embedded finance, that is with the customer.
1. Understanding the customer
Embedded finance is catalysed by
evolving customer behaviour. The modern customer (whether a consumer or a business) is motivated by some important factors. Though certainly not a monolith, they are increasingly digital by default and have an expectation that they can access what they
want, when they want it and in the channel of their choosing. They are increasingly intolerant of friction and, in the absence of a seamless experience, are likely to move on to another provider.
Beyond what might be viewed as an overall expectation of ease, the modern customer often seeks value beyond any given transaction. That means that the principles they hold dear, whether around their identity, beliefs, coping with a fast-changing world etc,
influence their purchasing decisions.
Businesses that understand those changes and put them at the centre of their strategic decision-making are best positioned to leverage embedded finance successfully.
2. Value built on understanding
Understanding those behaviours in the context of where they are being expressed is an opportunity to tailor the customer product and experience. A customer who is purchasing a bicycle for their daily commute may, among other things, be driven by concerns
around sustainable travel, fitness or health risks associated with public transport, for example. A company that can both understand those drivers and offer the right financial product or ancillary service at the time of purchase can deliver greater value
for their customer, demonstrate empathy with their concerns and ultimately foster greater loyalty. Loyalty that will likely be rewarded with future business.
Leveraging data is central to building an understanding of the customer. Technology tools that collect and leverage data to provide ongoing insight about customer behaviour are central to building a full picture. In the modern world, that understanding is
increasingly found in non-financial brands (not banks) that interact with their customers more frequently and understand the value of an excellent customer experience.
As noted, good experiences drive loyalty. Brands that can pull more of the customer’s attention have far more opportunity to create those positive outcomes. A sneaker lover may visit a website repeatedly to look at new makes or models but are not so motivated
to visit their banking app or insurance provider with such consistent interest.
3. From the transactional to the relational
As the manufacture of financial products and services are increasingly distinct from their distribution a new set of relationships need to be built and sustained. This requires the formation of new partnerships, such as that between a BaaS provider and a
non-financial brand or a fintech.
There is no denying that financial services is an industry with complex requirements and regulatory frameworks. The new distributors of financial products and services may increasingly own the customer relationship but securing trusted partners for their
embedded finance strategy is essential. A poor experience can damage the relationship and trust a brand has built with a customer. Additionally, falling foul of the regulator creates a whole new host of potential pitfalls.
Relationship building also extends to the strategic view of the customer. A transaction is distinct and, unless something goes wrong, there is little need or desire to continue the interaction.
With embedded finance, particularly when it comes to offering longer term products such as lending and digital wallets, it is not a quick execution and farewell until next time. It needs to be underpinned by trust and knowledge, accumulated over frequent
and ongoing interactions.
Understanding, building value, and the ability to develop relationships with partners and customers is a winning combination. An end-to-end BaaS platform covering everything from the financial product to the back-end operations, and the regulatory compliance
and balance sheet, will be well positioned to be a trusted BaaS partner for businesses on this journey.