The term ‘every company will be a fintech company’ was first coined by Angela Strange from VC firm Andreessen Horowitz in 2019 – and today, her prediction is becoming a reality.
This idea relates to the burgeoning demand for embedded finance (EF), which is radically changing the way consumers interact with brands and banking products. In the past, most individuals relied exclusively on legacy banking institutions for their financial interactions. This is a far cry from today’s landscape, where businesses across all industries have access to embedded banking products enabled by Open Banking policies and powered by Banking-as-a-Service (BaaS) providers, which allows brands to offer cost-effective and easily implemented financial offerings of their own.
One sector that is embracing the wholesale shift towards embedded finance is retail. Tailored financial solutions are helping retailers and ecommerce players navigate an increasingly competitive market. Crucially, Open Banking innovation is delivering this promise. Open Banking regulation prompted banks to allow open APIs to access their customer data – upon consent from the user – which sparked fintech innovation and new products and services to make consumers’ lives better. BaaS followed; the same open API framework allows providers to offer white labelled banking products, giving brands the ability to engage with their customers in a new way, and, in turn, access to better financial products.
Now, embedded finance is enabling brands to differentiate themselves even further. From improving the customer experience to expanding into new markets and customer segments and leveraging data and insights to enhance personalisation, retailers can seamlessly integrate novel financial products and services in their ecosystems, without needing the technology of a fintech or the licence and expertise of a bank.
Moreover, these providers take care of the regulatory and compliance requirements, meaning that brands can focus on doing what they do best – providing a first-class customer experience.
Today, customer expectations find leaving the checkout journey to access third-party financial service providers too intrusive. This should provide reason enough for brands to embed their own products at the point of sale. By offering built-in payments, cards, loans, insurance, and more, merchants can drive online conversion, increase the size of customer shopping baskets and increase repeat visits, all of which paint a clear picture of the potential revenue-building opportunities.
Already, many retailers are taking note of the shift to embedded finance. Vodeno’s recent survey amongst 753 senior retail decision-makers across the UK, Germany and Belgium revealed that 74% of businesses already offer embedded financial products or services to their customers. Significantly, the majority (56%) plan to roll out new offerings over the next 12 months, compared with just 5% who do not currently offer embedded finance and have no plans to start doing so this year.
In many ways, the impetus behind these investments stems from both customers and competitors. According to the research, 65% of retailers observed their competitors adopting embedded finance solutions in 2021, while similar numbers (67%) have experienced greater demand directly from their customers.
Combined, Open Banking and BaaS are making their mark on fintech innovation, as well as new and evolving business models. Banking is no longer limited to financial institutions but will come from retailers, fintechs, as well as banks. The sharing of financial data, safely and securely, and with user consent, enables truly customer-focused, personalised and agile financial services.
In the current climate, where high inflation and the cost of living are weighing heavy, applications like Plum and Mint are already harnessing the power of Open Banking to offer tailored money management tips. By securely collecting user data, these platforms aggregate bank account details, and based on this information, provide customers with suggestions to better manage their money – from cheaper car insurance options to alternative energy providers and more.
Elsewhere, while many brands already offer the ability to pay for products in instalments, looking ahead to the future, Open Banking-enabled BaaS solutions are helping retailers go a step further to deliver personalised lending and insurance options to their customers, based on their individual financial profile.
Say, for example, that a customer wanted to purchase an electric bike; by giving consent to share their financial data, a merchant can provide the customer with a list of affordable product options and seamlessly embed a loan application into the payments process. This means that customers could gain access to instalment plans that are specifically catered to their individual financial profile without needing to set foot in a physical bank, making the repayment process much more manageable and less daunting.
Moreover, because consumers will not have to juggle several different intermediaries and loan options when evaluating their finances – all of which may deter them from going ahead with their purchase – Open Banking-powered embedded finance provides a strong retention strategy for businesses, which often lose customers at the checkout.
With a whole host of new financial products at their disposal, customers will be able to reap the benefits of an improved end-to-end experience – but what else do retailers stand to gain?
A further look at our research reveals that the creation of new revenue streams ranked the highest amongst the priorities of those surveyed, with 41% of retailers selecting this as a major motivating factor for implementing embedded financial solutions into their offering. Growing the customer basket and increasing customer loyalty followed closely behind, as 40% of respondents ranked these factors as some of their most important considerations.
While not every merchant will become a fintech company per se, developments in Open Banking and embedded finance simply mean that they won’t have to. By fostering partnerships with pioneering BaaS providers and making the most of the Open Banking-enabled financial services, brands can unlock new revenue streams and ultimately make their customers’ lives easier. As customer expectations for better shopping experiences rise, retailers who do not embrace the potential of Open Banking will risk being left behind.
Tom Bentley is the Chief Commercial Officer of VODENO. Tom is an expert in the banking and financial services sector with more than 15 years of experience. Tom joined VODENO from Thought Machine where he was responsible for growing its business across Europe. Prior to Thought Machine, he held executive roles at banking software company, Temenos, across Asia and Australia, working with some of the most disruptive fintechs in the world.
Vodeno's mission is to revolutionise the Financial Services Industry. Combining a modern cloud-native, API-based platform with deep banking experience, we are uniquely positioned to help regulated and non-regulated entities offer compelling and unique financial products. The VODENO Cloud Platform (VCP) is one of the world's first and most comprehensive fully cloud-based 'Banking-as-a-service' platforms, enabled in partnership with ECB-licensed Aion Bank, to deliver embedded financial services for banks, lenders and merchants across multiple sectors. Vodeno offers the ability to meet the demands of regulation while enabling innovation at speed. For more information, please visit our site.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now