Embedded finance: Trends, brands, and the post-pandemic customer behaviour

What is embedded finance and how does it benefit customers?

Embedded finance enables non-financial brands, ranging from retailers to sports clubs, to integrate financial products and services into their own offerings. This means that they can offer products such as current accounts, credit cards or loans, and tailor them to become a more natural part of their customers’ experiences. Historically, these products required extensive and costly infrastructure, which is why they were only available through established banks. However, Railsbank’s platform now enables non-financial brands to affordably enter this market.

Customers will benefit from financial products that are more closely related to what they purchase. A supermarket debit card that offers exclusive discounts and rewards to everyday customers is more beneficial than a small cashback incentive from a bank. For more one-off purchases, a customer wakes up dreaming of buying a car, not a car loan, so why should they have to separately seek third-party car finance providers? The embedded finance market is predicted to be worth USD 7.2 trillion by 2030, and this is because it enables more relevant brands to deliver financial products that simply add greater value to customers’ experiences.

Why are consumer brands driving the demand for deeper embedded finance experiences?

While fintechs were among the first ones to explore embedded finance, followed by the tech giants, the next phase is driven by consumer brands that are on a mission to increase engagement and loyalty. The day-to-day use of financial services products offers an attractive way to achieve this. In this sense, brands are starting to realise that embedded finance represents a great opportunity to get closer to their customers before and create a trustworthy relationship.

Brands’ increasing focus on finding new and differentiated ways to engage with their customers is why last year our company launched a new Embedded Finance Experiences category. We wanted brands to see embedded finance not only as a transactional tool, but as an opportunity to become a bigger part of customers’ daily lives. Take, for example, the McLaren F1 Racing team, who launched their own branded debit card with loyalty rewards like exclusive access to the pit lane at the Gran Prix. A brand that previously had meaningful but intermittent interactions with fans leveraged embedded finance to become part of their day-to-day lives.

What is the role of worldwide known brands in hyping embedded finance experiences and how much do these brands have to say when it comes to it?

When it comes to it, the performance of worldwide brands who adopted embedded finance speaks for itself. Uber was one of the first apps to embed payments and own its entire relationship with customers, whereas in the UK, Tesco has the largest market share of any supermarket. Its Clubcard Pay+ debit card enables members to earn points for every transaction both in-store and elsewhere, to take advantage of exclusive member discounts that are prominent throughout the store, and to spend their membership points with either Tesco or partner brands.

As for brands’ roles in hyping embedded finance, there is little chance for something similar to happen. Historically, financial infrastructure hasn’t been a part of brands’ narratives, and we don’t think the optics will soon change. However, as brands increasingly improve their platforms and create new ways of engaging and rewarding customers, embedded finance is going to be playing a part. The one thing we are keeping an eye on is for SME brands to not make the mistake of thinking that they can’t also leverage embedded finance and compete with the larger players.

What's your take on embedded payments' integration into social media? Would you describe it as a complicated or relatively straightforward process?    

It's hard to ignore the global popularity of P2P payments via social media and, in countries such as China, the popularity of B2C social media payments as well. There are certain attributed risks that need to be managed, such as payments fraud and data security threats. Nonetheless, technology comes as a second nature to the younger demographic, and youngsters expect brands to be able to serve them across channels, whether that be on their website, in-store, or via social media. 

Social media’s rapid evolution brings both complexities and opportunities for embedded payments. The metaverse is likely to prove one of the most fertile transactional spaces over the coming decades but exactly how this plays out is still uncertain.

Could you forecast the future of these integrated, customer-oriented financial services as we are passing by the COVID-19 pandemic and most people are eager to return to their former lives, including shopping in brick-and-mortar stores, as opposed to online platforms?

As with many industries, the pandemic accelerated changes that were already underway in the financial services sector. The move from physical cash to digital money was already on the cards, as was the growth in ecommerce. The real impact of the pandemic is that the habits of demographics that may have, otherwise, been the slowest digital adopters, evolved at an unprecedented rate. Nowadays, both young and old consumers are highly experienced with digital retail experiences.

As the pandemic becomes less of a factor, many consumers will remain with digitally native ecommerce merchants, for which the opportunities for embedded finance are clear. As for the customers who return to bricks-and-mortar stores, they will do so with greater expectations, no longer considering in-store shopping as a necessity, but a choice. 

Brick-and-mortar retailers hoping to retain these customers can leverage embedded finance to remove friction from in-store payments and create differentiated experiences that incentivise customers to shop in-store. Many customers will also expect to be able to join up their online and in-store shopping experiences, so bricks-and-mortar retailers would be remiss in thinking that e-commerce innovation has no role to play in their success. 

About Louisa Murray

Louisa Murray is Chief Operating Officer for UK and Europe at Railsbank. She is a commercial business and financial markets professional who joined the company as its fourth employee in 2017. As COO, Louisa wants to bring the best out of her team as Railsbank enjoys rapid international growth. 

About Railsbank

Railsbank is the global leader in Embedded Finance Experiences. It is passionate about enabling brands to build relevant finance experiences to drive customer engagement and loyalty. Railsbank was founded in London (HQ) in 2016 and operates throughout the UK, Europe, APAC, and the US.