From brands to banking: unlocking the potential of Embedded Finance

Skaleet's Nicolas Pinto explains how Embedded Finance helps brands access their customer base, boost revenue, enhance loyalty, and offer fitting financial services.

Embedded Finance refers to the integration of financial services into non-financial companies, specifically into platforms, applications, or processes, whereby they offer additional financial products or services that are not typically directly related to their core activity. This integration enables customers to seamlessly access value-added financial services within their existing user experience. Typically, these services revolve around fundamental functions such as banking, payments, lending, or insurance.

For brands, Embedded Finance offers opportunities to tap into their existing customer base and generate additional revenue streams. By leveraging contextual data, brands can foster stronger customer loyalty and deliver appropriate financial services.

Embedded Finance services are gaining traction, particularly in retail and ecommerce where advanced digital infrastructure enables convenient checkout options. Two-sided marketplaces in meal, grocery delivery, ridesharing, and mobility sectors are also embracing Embedded Finance for seamless payment transactions. However, slower adoption is observed in real estate due to platform caps and regulatory constraints.

Embedded Finance remains to be a lucrative opportunity, with experts forecasting a market value of USD 7.2 trillion by 2030, according to Dealroom.co. Embedded Finance can enable every company to be a fintech company by integrating fintech offerings. Any company will have the opportunity to significantly increase its revenue potential by 2x-5x increase in revenue according to A16z. This winning approach allows companies to attract new customers, boost their revenue streams, and improve customer retention rates, ultimately driving their overall business success.

While the GAFAs have already integrated financial services into their product ecosystems and customer experiences (bank accounts, payment cards, and loans), they have witnessed a surge in customer loyalty, multiple touchpoints, and additional revenue streams.

The phenomenon of Embedded Finance extends well beyond the Big Tech companies. Presently, any brand possesses the capability to reinforce its ecosystem by incorporating financial services into its portfolio. Notable brands with solid customer connections such as Tesla, Starbucks, IKEA, Walmart, Carrefour, Française des Jeux, and Lufthansa have embraced this approach.

And rightfully so! However, the path to successful implementation may not be immediately apparent. A new option opens up to them: become a regulated financial institution!

It is a complex endeavour that requires substantial resources and expertise. Several obstacles must be overcome to effectively design and operate banking products. In Europe, offering any financial services is subject to licencing conditions (AML regulations, capital requirements, audits, etc.). To seamlessly integrate your competitive banking offering, your technological infrastructure needs to be cutting-edge, scalable, and deeply ingrained within your business operations.

Becoming a regulated financial institution holds significant advantages for brands, (1) independence as a standalone entity to have greater control over their financial services offerings, (2) agility to improve the speed of execution and faster product development, (3) credibility to instil confidence and reassurance that can lead to increase loyalty and customer satisfaction, and (4) profitability to retain a larger portion of the profits generated (for example, EUR 0.25 markup on every SEPA payment or on EUR 100 in card spend generates EUR 1.50 in interchange).

The fintech landscape underwent a revolutionary transformation with the emergence of ‘as-a-Service’ infrastructure. ‘As-a-Service’ enablers emerged with the primary goal of simplifying processes and enhancing user experience. Enablers that excel in seamlessly integrating Embedded Finance into brands, while delivering exceptional service, gain a competitive edge.

On the other hand, brands have the opportunity to increase customer retention and unlock new revenue streams at relatively low costs. Those with control over distribution channels can provide unparalleled convenience to end users, leading to significant revenue growth. However, their success hinges on a careful selection of partners that truly meet their requirements. This includes partnering with technological companies that align with their goals and enablers that have a laser-like focus on fulfilling their specific needs.

By adopting the ‘as-a-Service’ approach, brands can leverage pre-built components from the fintech stack and streamline their operations. This newfound agility allows them to concentrate on launching innovative financial products and services, without getting entangled in building a comprehensive banking stack.

Embedded Finance providers will keep undergoing a significant transformation. They must prioritise enhancing capabilities in compliance, fraud prevention, and risk management. Additionally, they have to act as orchestrators, streamlining integration across multiple providers and expanding the service scope for brands. Furthermore, these providers are growing internationally, seeking new opportunities for global expansion. Lastly, they are focused on scaling and contextualising services for a more personalised customer experience.

This is where the Core Banking Orchestrator comes into play. These technological providers offer tech platforms and open APIs that facilitate the creation of infrastructure for future non-bank financial institutions. As it suggests, these platforms employ a modular and scalable architecture that offers greater flexibility and personalisation, enabling access to various banking modules such as current accounts, payment services, and loans.

In today’s context, Core Banking Orchestrator acts as a composition of services, with its effectiveness measured by the ease and speed of business integration with partners. Brands have the freedom to connect with their preferred solutions in specialised areas to build their own ecosystems while maintaining coherence in their overall operations.

By leveraging a Core Banking Orchestrator, brands can accelerate their time to market to integrate financial products or services into their user journeys. Additionally, the platform enables cost savings by streamlining processes and minimizing unnecessary complexities. As a result, brands can optimise their revenue streams and increase their Customer Lifetime Value.

This article was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2023, which is the latest comprehensive market overview and analysis focusing on the key products and players within the Embedded Finance and BaaS ecosystem.       

About Nicolas Pinto

A marketing expert with proven international success, Nicolas leads the brand, content, and growth marketing strategies at Skaleet. He worked for several years in the consulting industry and holds an MBA in International Marketing.

About Skaleet

Skaleet Core Banking Platform empowers financial institutions for perpetual evolution. The platform provides the technological capabilities to launch new innovative financial services to delight and exceed the client’s expectations. Skaleet manages the technology while financial institutions focus on what matters: building cutting-edge offers and crafting proximity with clients.