Embedded Finance – the future of CX?

Jul 23, 2020

The shift to digital is by no means new – but the COVID crisis has undoubtedly accelerated our digital journey. Though we will likely see a slow transition back to some sort of normality, an acceleration in digital transformation seems to be non-negotiable. I’ve previously touched on product diversification as one way to embrace this change and having spoken with several investors in our network, one concept that comes out on top is the use of embedded finance to enhance CX.

What is embedded finance?

The concept of embedded finance is that financial services, rather than being offered as a standalone product, will become part of the native user interface of other products, i.e. becoming embedded. – Techcrunch.com

Payments solutions, digital wallets and banking-esque services will become an integral part of internet-led companies spanning all aspects of the global economy – from health to retail, transport, media, property, and energy. By positioning products and solutions closer to the customer in this way, fintech businesses will be privy to an intimate level of insight that can be used to deliver a more personalised and seamless experience for business and consumer customers alike.Todd Latham, Chief Growth Officer at Currency Cloud.

 For example, Currency Cloud’s entire global banking ecosystem is powered by API’s so that they can create an entirely customised global banking experience. They have recently partnered with Derivative Path Inc, a cloud-based trading platform for IR and FX derivatives, to provide an end to end solution. This includes order management, electronic spot FX execution, 3rd Party international payments and receipts, derivatives valuation and risk and compliance reporting.

Another example is fintech banking platform – Curve’s partnership with Samsung to power its upcoming debit card which is due to launch later this year. The aim of this is to provide a true digital wallet experience by offering a single view of spend whilst making it a simple and secure way to pay.

In early 2010 many financial institutions had begun to invest in unbundling their various financial products and upgrading legacy technology however, embedded fintech essentially came around to rebundle some of these products and increase cross-selling opportunities. The aim being to acquire new customers and to also make these hard-earned customers ‘stickier’ as a direct result of a more seamless customer journey.

“Partnering with fintechs enables community financial institutions to compete with the big players. Similarly, banks bring a wealth of knowledge to fintechs, particularly around compliance, regulation and other banking issues.”Cara Hayward, Currency Cloud.

Consumer demands have changed dramatically. Long-term financial planning and investment has become an area of focus for low and moderate income consumers, who have experienced acute financial stress. The COVID crisis has accentuated the consumer pain points and reinforced the need for better banking targeting these consumers. B2C models are becoming more dominant for areas of development and investment. Again, this ultimately comes back to enhancing the customer journey whilst adopting infrastructure that enables you to have a competitive digital ecosystem.

“Every company, as [we’ve seen] with Uber, Lyft, Shopify, Mindbody, should be thinking about how to leverage financial services to better serve their customers, better retain their customers, and drive more margin” Angela Strange, Andreessen Horowitz

Neil Kapur at B Capital Group made reference to the fact that ‘even though we’ve seen a tonne of innovation there are still a lot of green-field opportunities and many new profit tools to be discovered’. This could prove an exciting opportunity for many emerging fintech’s coming onto the scene – with COVID encouraging momentum.

As we continue our journey through Q3 there is increased discussion around working remotely vs going back to the office. It’s safe to say most companies are in hybrid mode for the foreseeable future and have generally been more conservative in willingness to open things back up. However, this does not reflect the current pace of digital transformation that we are seeing.

Customer experience is now more important than ever and ability to adapt quickly is imperative.

 

   Hannah Mayes – Managing Director

 

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