by Morten Kriek.
Key Takeaways
- Embedded finance seamlessly integrates financial services into non-financial platforms, enhancing customer experiences and driving revenue growth.
- Collaboration between banks, fintechs, and non-bank distributors is crucial for successful embedded finance offerings.
- Banks face a risk of disintermediation but can also expand their role in the value chain by embracing ecosystem partnerships.
- Key players in embedded finance include distribution partners, technology providers, and financial product providers.
- Successful embedded finance platforms require dynamic onboarding, value distribution, governance, and cybersecurity infrastructure.
Understanding Embedded Finance
- Integrates financial services (e.g., payments, lending) into customer journeys on non-financial platforms (e.g., e-commerce, healthcare).
- Enhances customer experience by simplifying purchase processes and streamlining post-purchase management.
- Expands financial services beyond traditional banking offerings into areas like insurance and wealth management.
- One-third of all transactions are expected to be embedded by 2030.
Benefits of Embedded Finance
- Enhanced customer experience: Seamless and convenient integration of financial services.
- Increased engagement and loyalty: Personalized offers and ease of use drive customer satisfaction.
- Improved financial product performance: Embedded services complement core offerings, boosting revenue.
Current Market Landscape
- Banks face competition from non-bank distributors disintermediating customer relationships.
- Embedded finance is distinct from ‘beyond banking,’ which involves extending financial services within existing value chains.
Collaboration Models
- Single Brand: Banks offer digitized financial products under their own brand.
- Multibrand: Banks distribute financial products through third-party platforms.
- Banking as a Service: Banks make their financial products available to third parties for integration.
- Pure Play Embedded Finance: Directly integrates financial services into customer journeys owned by non-bank distributors.
- Ecosystem Platform: Distributes financial services through a platform connected to multiple non-bank partners.
Key Players in Embedded Finance
- Distribution Partner: Owns the customer journey where embedded finance is offered.
- Technology Provider: Connects parties involved in embedded finance offerings.
- Financial Product Provider: Provides the embedded financial services.
Building Successful Ecosystem Platforms
- Integration and connectivity: Dynamic onboarding and offboarding of players.
- Value distribution: Equitable distribution of value among partners.
- Governance: Effective management of the ecosystem to maintain alignment.
- Cybersecurity: Robust measures to protect sensitive data and transactions.
Global Examples
Ant Group (Alibaba)
- Launched Alibaba’s e-commerce platform, Alipay, to facilitate transactions between buyers and sellers.
- Integrated a comprehensive financial services ecosystem, including payments, loans, wealth management, and insurance.
- Leveraged access to customer data to tailor personalized offerings, drive customer engagement, and expand service offerings.
Ping An
- Started as a health insurance company, expanded into a healthcare community.
- Integrated finance into the healthcare platform, offering a seamless experience for healthcare payments, insurance, and provider connections.
- Expanded beyond healthcare into areas like automotive, social services, and other businesses.