Embedded Finance: Amplifying consumer experience via banking-as-a-service

With the onset of the digital era, the evolution of embedded finance gradually transformed what we as consumers now see as banking-as-a-service, seamlessly backed by both Tech-for-Tech and Tech-for-Business.

With the onset of the digital era, the evolution of embedded finance gradually transformed what we as consumers now see as banking-as-a-service, seamlessly backed by both Tech-for-Tech and Tech-for-Business. The advent of internet banking pushed traditional banks to extend services to their wallet share via digital channels. Emerging tech heralded the era of digital banking, shaping interconnectivity and data exchange between financial services and consumers. Reduction of friction to ensure that consumers switch between digital channels has evolved significantly over the last three decades. Each decade symbolised a change, incrementally leading to a trust-based interlock between the developer community and consumer.

In efforts to broaden consumer outreach, the competitive outlook between traditional and Neo-banking started to translate into a synergised approach. Over a decade, this advancement benefits consumers today in the form of embedded finance, reshaped banking into banking-as-a-service, delivered via omnichannel convergence and adaptive context-aware embedded customer journeys.

The key building blocks for the consumer exchange ecosystem comprise core banking, treasury, funding, loan accounting, wealth and advisory, cards, and insurance. Marketplace participants have now started interacting with the end customer beyond producer & consumer channels.

The three mediums of consumer & producer intersections are:

• Digital Neo banks via improved digital channels interface
• Hyperconnected FinTechs via API marketplace
• Traditional Banks onboarding their services through the developer community

Contemporary consumers today transact via Premium APIs, encompassing deposits and transactions, lending, digital payments, portfolio and trading, eOnboarding, and custody, driving the most trending consumer-centric use cases within embedded finance. Not just retention of consumers, but an expansion of their wallet share, is leading to the development of monetisation avenues and platforms to be leveraged for developing a modern value chain around mobile payments, virtual cards, augmented reality, voice-enabled services, and crowdfunding, amongst others.

When the consumer context-aware building blocks coalesce seamlessly, it drives value chain restructuring and introduces new offerings to the consumers. Most of the embedded finance is driven by existing data within the digital ecosystem, which learns from integration with external systems and data from service partners. This data hosts a high degree of derived intelligence across multiple dimensions: consumer insights, systems of regulatory boundaries, distributed patterns, probabilistic and deterministic sentiment analysis, consumer spend behavior and buying preferences and connecting and cross-sharing insights with partners. These data packets not only know about themselves but also know how they’ll transact and trade within the consumer ecosystem. This enriched intelligence further introduces context, making the services more personalized and relevant for consumers. Context-awareness derived from data is both proactive and adaptive, resulting in amplification of consumer experience via aggrandized Banking-as-a-service.

Similar to how embedded finance empowers consumers to access payment, lending and insurance products from non-traditional providers, Embedded Wealth enables businesses to incorporate wealth and investment services for their consumers. Most recently, Klarna has grown into a $45 billion company – $20 billion more than Deutsche Bank – by enabling brands to offer innovative credit solutions at the point of purchase, for example, by paying in installments.

Embedded Insurance bundles coverage within a product ecosystem, service, or platform packaged at the point of sale, either as an add-on to an underlying service or as an inclusion instead of standalone services for consumers. Integrated contractor insurance for a driver joining a gig economy service is quite popular in this category. According to the report by InsTech London, the Embedded Insurance market is forecast to grow to $722 billion in gross written premiums (GWP) by 2030, more than six times its current size.

Embedded Credit, seamless integration of Lending-as-a-Feature, instead of redirecting customers to a third-party site, offers credit to their customers at the time of the request. National Australia Bank (NAB) Simple Home Loan process significantly reduced ‘time to yes’ across its customer base. More than 30 per cent of customers receive unconditional approval in less than an hour and 60 per cent in less than one day. NAB’s aim is to make this the norm and further change the digital exchange, especially post-pandemic.

Embedded Finance will continue to pivot customer centricity around three vectors (i) higher customer lifetime-value – embedment of derived structured financial products into elevated customer journeys, increasing customer value-add and lifetime value, while lowering churn (ii) lower acquisition cost – with growing addressable market combined with context-aware offerings, firms will lower customer acquisition costs, thus boosting profits and (iii) richer consumer interlinkage spearheaded by emerging technologies – hybrid cloud-based platforms for managing Premium APIs and integrate with third-party partners and service providers.

FinTechs are betting on expanding Embedded Finance, compounded with modish emerging tech themes like Digital Twins, Blockchain, AR/VR, 6G networks, IoT, etc. The next decade will see opulent context-aware offerings derived from consumer data, with consumers leading the transformation canvas.

Anand Chandra is Growth Leader for EU and APAC at Accolite Digital.

This article was originally published in Financial Express.

https://www.financialexpress.com/money/embedded-finance-amplifying-consumer-experience-via-banking-as-a-service/2706216/