Earlier this week, FinTech Alliance hosted a fireside chat with Doug Woolridge, Vice President, Head of Financial Services, Canada at EPAM and Kunal Galav, Global Head Partnership Development & Advisory at Mambu.
We discussed their recently released white paper on embedded finance and how retailers and retail banks can navigate this emerging landscape to help build a competitive advantage.
An introduction to embedded finance
As outlined in the white paper, embedded finance is predicted to be a $7.2tn opportunity by 2030, with the retail sector accounting for almost half of this.
So how will embedded finance help companies? Doug Woolridge believes that it is much more than “just a software product.” It represents a great opportunity for organisations to offer financial services to their existing customer base.
Kunal Galav explained how embedded finance is ultimately “driven by customer needs” and has become a positive buzzword as expectations evolve towards a seamless user experience. This will create a new opportunity for businesses to give their customers “the flexibility to embed and integrate different platforms” in one place, he said.
Customer experience and demand
At the heart of the embedded finance opportunity lies the dramatic change in consumers’ approach to their personal finances - over recent years we’ve seen a significant development in how people want to save, borrow, and invest their money. This has been aided by the development of new FinTech products that are more aligned with the customer’s need, contributing to the rise of Buy Now Pay Later amongst other new financial offerings.
Doug pointed out that, while the new generation of consumers still require a bank account, they don’t necessarily want or need a branch presence. To meet this consumer shift, businesses will need to embed financial solutions into their offerings. It is “a revolutionary change driven by the next generation of 18- to 29-year-olds who will determine the future of banking,” he explained.
The concept of embedding financial services technology and offerings into non-financial services companies is not completely new – it’s just that digitally-enabled embedded finance has supercharged this integration.
Doug noted how North American supermarket chain, Loblaws, demonstrated great success with the launch of PC financial. This moved financial services offerings into supermarkets, “providing PC financial kiosks in Loblaws stores for you to have a relationship with debit, credit, deposit, savings, and loans, all created in this environment.” Kunal added that in Portugal, Mambu has a client called Sanaya offering a similar product that has enabled their brand to corner 6.5% of the market share for credit cards while also creating a loyalty programme. This allows customers to feel that their purchase is embedded in their user experience.
One of the largest retail examples in the UK is Tesco. It successfully delivered financial services to customers and built a loyalty model allowing "Clubcard Pay” users to collect points when shopping.
All these examples demonstrate that embedded finance can work successfully by utilising customer bases to gain knowledge and insights around consumer patterns and so further consolidating a leadership position.
Why do retailers want to embed financial solutions?
During the chat, Doug explained that one of the primary drivers for embedded finance is creating greater lifetime value for existing customers, in order to create a stronger relationship with your product/service. Another reason is that it allows the business to create further revenue streams. He noted that embedding financial solutions is not “a short-term solution but a journey to create more value for your target market.” Kunal added that the most important thing to consider is what the priority for your business is and to understand why moving towards this new business model is beneficial.
The future of embedded finance
For Kunal, there are three potential sectors, aside from retail, that present significant opportunities for embedded finance: telecommunications, automobile and education. One example where it has already been rolled out is the telco provider, Orange, which is offering financial services products to its customer base.
In addition, Doug highlighted how there will be further scope for the expansion of offerings in the insurance and wealth management industry.
If you want to discover more about this topic, please download their white paper- https://www.epam.com/navigating-the-journey-from-retailer-to-fintech
EPAM and Mambu will be attending Money 20/20 where they will discuss in more detail this topic, do not hesitate to reach out to discover more. Connect with EPAM at Money 20/20 by clicking here.