Amid the ongoing digital revolution and shifting customer preferences, embedded finance is reshaping the financial industry. Banking has transcended its traditional confines, forging innovative partnerships that prioritise convenience and accessibility.
Andrew Ellis is the CEO of NatWest Boxed, a partnership between Vodeno and NatWest offering banking-as-a-service. Following an early career with Accenture and a long stretch running banking strategy teams, Ellis was, until recently, CEO of Mettle, a digital banking app.
In this guest post, Ellis offers a perspective on the profound opportunities that arise from collaborating with non-financial brands and fintech companies to meet the ever-changing demands of customers.
Embedded finance represents a transformative shift in the financial landscape, driven by the digital revolution and changing customer preferences. With customers favouring convenience, banking is increasingly an activity that happens outside of a bank and involves new and innovative partnerships.
Understanding the opportunity to collaborate with non-financial brands and fintechs to meet the fast-evolving demands of customers is a potential game changer. For those banks, brands and fintechs that get it right, the rewards are substantial. In fact, the UK banking-as-a-service (BaaS) market alone represents an estimated revenue opportunity of around £5.5billion as estimated by NatWest Boxed.
Digital by default, seamless by demand
Customers are increasingly digital by default. Access to information and services is seldom limited by time, geography, or channel. Competition is less and less bound by borders and the options open to customers are continually growing. In a crowded landscape, the ability to draw customer attention, retain it and translate that into loyalty is crucial to the success of a brand. Customer loyalty is the bedrock of any business.
Looking at Starbucks, for example, its very successful loyalty programme has allowed it to accumulate customer money that exceeds the deposits of many banks. Customers load around $10billion a year onto Starbucks cards, an achievement built on the back of great customer experience and loyalty to the brand.
Digital experiences are also increasingly synonymous with seamless experiences. What was tolerable just a few years ago, paying at the end of a taxi ride, for example, is now considered untenable friction. Once a customer has experienced the ease of an embedded payment, there really is no turning back.
Relationships are not transactional
Keeping the customer engaged with a brand means meeting them where they are and becoming part of their journey. If a customer must leave a platform or an experience to complete a transaction, it’s an opportunity for someone else to grab their valuable attention. It’s not just about the loss of engagement. In practical terms, the all too-frequent result is a transaction that is abandoned altogether.
Beyond the requirements of a particular transaction, customers also expect products or experiences to be tailored around their individual needs. That understanding of a customer’s needs and the ability to offer them a product or service built on that comprehension, at the moment of impact, are the fundamentals of relationship building.
Whether, for example, that is offering the right insurance product in the context where it makes sense or understanding that when a couple is buying goods for the impending birth of a child, a whole new host of financial considerations are on the horizon. Being there for a customer (whether an individual or a business) when they need it as well as personalisation can nurture an ongoing relationship with a brand. Understanding is fundamental to all successful long-term relationships.
Embedded financial services built on the knowledge and security of banks
Embedded finance has quickly moved on from a nascent concept to a proven strategy for a number of businesses around the world. Given the extent to which financial services are increasingly delivered and consumed as part of the everyday lives of consumers and businesses, the use cases for embedded finance are growing. The challenge however is the increasing regulatory scrutiny, and when combined with the impact of the Consumer Duty, getting it wrong can have serious consequences for a brand.
Finding the right partner to capitalise on the opportunity while navigating the potential pitfalls is crucial. Working with bank-backed BaaS providers means access to industry knowledge and infrastructure built up over many years. It also means access to a banking licence, balance sheet and compliance expertise that can provide the confidence needed to offer, or embed, financial products and services into a variety of customer journeys.
What’s needed is a future-proof, cloud native platform, coupled with a banking licence and balance sheet of a leading UK bank. A platform that allows brands to offer their customers financial services, not only in the seamless fashion that is fast becoming the norm, but also safely and in compliance with complex regulatory frameworks.
The provision of financial services in the customer journey and the ability to adapt to future changes are the hallmarks of success across the ecosystem.
The future is here, and success will be built and distributed with the right partnerships.