Together, embedded finance and embedded fintech have led to a new era of financial innovation where traditional industries can integrate financial services seamlessly into their products and services. While the phenomenon has opened doors for banks and credit unions, embedding products does not come without challenges.  

Learn how businesses can leverage the evolving landscape to revolutionize the future of financial services. 

What is Embedded Finance? 

Embedded finance refers to the integration of financial services into non-financial products or services, such as websites, mobile apps, and business processes. While some consider embedded finance a threat to banks and credit unions, it presents them with a considerable opportunity because financial services still need to be provided by licensed financial institutions. 

By leveraging APIs and partnerships with fintech providers, banks and credit unions can seamlessly offer financial services such as payments, lending, compliance, and more to their partners’ customer bases at a much lower acquisition rate. It is estimated that by 2026, embedded finance transactions will reach $7 trillion in value and account for 10% of all financial transactions in the U.S.  

Who’s Using Embedded Finance? 

Many consumers have already embraced embedded financial products and services from their favorite brands and are looking forward to future capabilities. Gamers are interested in in-game accounts, while home fitness fans are interested in getting health insurance based on their activity habits, and home DIYers are interested in savings accounts that automatically set aside money for large projects.  

According to our report with Cornerstone advisors,  

Among consumers who already get a financial product from a non-financial brand, a third said the product caused them to spend more money with the brand, three in 10 said they now choose the brand over its competitors more often, and a little more than a quarter feel more loyal to the brand.

John Doe, LineThemes

To that end, brands can financially benefit beyond the initial launch of embedded products or services.  

What is Embedded Fintech? 

Essentially the opposite of embedded finance, embedded fintech is all about distributing products and services from non-financial institutions, such as fintech, through traditional financial institutions. Embedded fintech is known as the integration of fintech products and services into a financial institution’s product sets, websites, mobile apps, and business processes.  

The integration is made possible through APIs that allow different systems to communicate and exchange data securely. By embedding financial services such as payments, lending, insurance, and wealth management into their offerings, businesses can give customers an elevated experience.  

Embedded fintech has allowed consumers to better manage their finances. 47% of Gen Z and 44% of Millennials have subscribed and pay for fintech services each month. Annually, fintech spend has risen to more than $13 billion (about $40 per person in the US). 

Embedding Fintech into Financial Products 

While many consumers are getting embedded fintech products directly from fintech providers, they have expressed significant interest in obtaining services directly from their trusted bank or credit union. Here are a few services they would like to bundle with existing accounts: 

• Identity theft protection
• Data breach protection
• Cell phone damage protection
• Purchase protection
• Extended warranties
• Bill negotiation service
• Subscription-cancelling service
• Personal/family data storage
• Child identity theft protection 

Teaming up with a tech provider to embed fintech solutions into existing products can expand financial institutions’ revenue sources. A great way to accelerate the launch, servicing, and expansion of financial solutions is by using a fintech enablement platform.  

Fintech Enablement: The Holy Grail for Banks 

A fintech enablement platform comes with the infrastructure, tools, and APIs needed to seamlessly connect businesses and financial service providers. This includes prebuilt and customizable product definitions, data models, customer journeys, SaaS ecosystem connectors, and non-technical tools used to simplify the innovation process.  

A fintech enablement platform also empowers businesses to offer a wide range of financial services without the need for extensive in-house development. This type of platform is designed with the understanding that banks and credit unions need to innovate and modernize, simultaneously.  

Lastly, these platforms can improve customer journeys by implementing point-of-sale lending capabilities, end-to-end digital account onboarding processes, SME lending models based on captured data, and more.  

Capitalizing on Embedded Fintech Opportunities 

When it comes time to build, develop, and deploy new products or services – using a fintech enablement platform or not – there are three areas all banks and credit unions should focus on: working around core systems, product development, and skills and organizational structures 

Stubborn, inflexible core systems are the last thing financial institutions want to pour money into. Especially when there are exciting new products to develop and introduce to customers.  

Thankfully, with the shift towards the cloud and open APIs, more vendors are putting together low-code/no-code software platforms – such as FintechOS’s fintech enablement platform – to reduce dependency on the core and instead shift investments to product deployment or upskilling/reskilling the internal workforce. 

Navigating Challenges 

While the opportunities associated with embedded finance and embedded fintech are vast, financial and non-financial institutions alike must navigate the challenges associated with this evolving landscape. 

• Regulatory Environment – As embedded finance blurs the lines between different industries, regulatory frameworks must adapt. Compliance becomes more difficult as financial regulations and data privacy requirements to mitigate legal risks evolve.
• Security and Trust – With the integration of financial services, businesses must prioritize security measures to protect sensitive user information and transactions. Establishing robust cybersecurity protocols and leveraging trusted partners are critical to maintaining trust with customers.
• Technology Integration – Integrating financial services into existing platforms requires technical expertise and seamless integration. APIs can ensure smooth user experience.  

Partnering with a trusted fintech provider can make navigating these challenges a lot easier for banks and credit unions. 

The Future of Embedded Opportunities 

Embedded fintech is not a passing trend, but a fundamental shift shaping the future of financial services with opportunities for businesses across industries. Financial institutions armed with a customer-centric mindset and willingness to adapt and collaborate will see the most success in today’s evolving landscape. 

To learn more about capitalizing on embedded opportunities and how fintech enablement can reduce dependency on legacy systems, download our recent report with Cornerstone Advisors. 

Via: https://fintechos.com/

The banking industry is undergoing a profound tech transformation. As technology continues to reshape customer expectations and disrupt traditional business models, it is imperative for banks in the UK and Europe to reassess their strategies and adapt to the evolving landscape. To deliver value to their clients and remain competitive, banks must proactively invest in technology.  

While we recognize banks face many challenges at any given time, they should consider including transformative projects in their next budget. 

The Ever-Growing Challenges Facing UK Banks

The landscape in which banks operate is evolving rapidly, presenting a series of challenges that cannot be ignored. These challenges encompass rising customer expectations, fierce competition from fintech start-ups, evolving regulatory compliance, and security concerns, as well as the need for operational efficiency and cost optimization. Let’s explore each of these challenges and understand why embracing technology is crucial for banks to overcome them. 

1. Rising Customer Expectations 

Today’s customers have grown accustomed to seamless digital experiences, personalized services, and instant accessibility. They expect not only traditional deposit and credit products but also insurance and embedded finance options. Meeting these expectations requires banks to invest in technology that enables them to provide a superior customer journey. By leveraging advanced technologies such as artificial intelligence (AI), data analytics, and automation, banks can create tailored experiences that cater to individual preferences. From intuitive mobile applications to AI-driven chatbots, technology empowers banks to meet and exceed customer expectations. 

2. Fierce Competition from Fintech Start-Ups 

Fintech start-ups have emerged as disruptors in the financial services sector, challenging traditional banks with their innovative offerings and streamlined processes. To stay relevant and ward off this competition, banks must embrace new technology. Fintech companies often operate with lower costs due to the absence of legacy technology, making it essential for more mature banks to invest strategically to achieve similar results. By leveraging technology, banks can enhance their agility, customer-centricity, and innovation capabilities. It allows them to deliver new products and services quickly, explore partnerships, and create unique value propositions that differentiate them from fintech start-ups. 

3. Regulatory Compliance and Security 

Regulatory compliance has become increasingly complex for banks, necessitating robust security measures to protect customer data. Investing in technology can help banks automate compliance processes, streamline reporting, and strengthen security frameworks. Advanced technologies like blockchain, biometrics, and encryption provide opportunities to enhance data security, while machine learning and natural language processing can automate compliance tasks, reducing the burden on bank personnel. By leveraging technology to meet regulatory requirements, banks can instill trust in their customers and regulators alike. With the introduction of new Consumer Duty rules for new and existing products or services open to sales or renewals, firms must remain on track to identify gaps and implement the Duty effectively with suitable technology. This is likely to require the redesign of products and services to ensure the right data, MI and other intelligence is being used to monitor their fair value.

4. Operational Efficiency and Cost Optimization 

Traditional banks often grapple with legacy systems, manual processes, and high operational costs. These factors can hinder their ability to adapt quickly to changing market dynamics. Embracing technology is vital for streamlining operations, reducing costs, and improving overall efficiency. By digitizing manual processes, implementing workflow automation, and leveraging data analytics, banks can eliminate redundancies, optimize resource allocation, and enhance operational efficiency. This, in turn, allows banks to reallocate resources strategically, redirecting them towards areas that drive innovation, customer experience, and growth. 

The Urgent Need for Technological Investment 

As we look ahead to the new fiscal year, the urgency to embrace tech transformation becomes apparent. In this section, we will explore why banks must act promptly to initiate transformative projects, secure budget allocations, and lay the foundation for a successful technology investment journey. 

1: Enhancing Customer Experience 

Technology plays a pivotal role in enhancing the customer experience. By investing in advanced analytics, banks can gain deep insights into customer behavior and preferences, enabling them to tailor their products and services accordingly. Furthermore, AI-driven chatbots and intuitive mobile applications allow customers to access banking services seamlessly, regardless of the channel they choose. Personalization, convenience, and responsiveness are key drivers of customer satisfaction, and technology provides the tools to deliver on these expectations. 

2: Unlocking Data Insights 

Data is an invaluable asset for banks, and technology unlocks its full potential. By harnessing data analytics and AI capabilities, banks can derive actionable insights that inform decision-making, risk mitigation, and product development. These insights enable banks to understand customer needs better, identify market trends, and develop strategies to meet changing demands. Moreover, data-driven approaches empower banks to optimize risk management processes, identify fraud patterns, and enhance credit underwriting, ultimately leading to improved business outcomes. 

3: Accelerating Innovation 

Technology is a catalyst for innovation in the banking industry. By embracing emerging technologies such as Open Banking APIs, cloud computing, and blockchain, banks can drive transformation and explore new revenue streams. Open Banking APIs enable collaboration with third-party providers, facilitating the development of innovative products and services. Cloud computing offers scalability, agility, and cost-efficiency, enabling banks to experiment with new solutions without significant infrastructure investments. Blockchain technology, with its inherent transparency and security, has the potential to revolutionize areas such as identity verification and cross-border transactions. By embracing innovation, banks can stay ahead of the curve and actively shape the future of the financial services industry. 

The Imperative for Action: A Five-Step Plan 

Recognizing the urgency and importance of technology investment, banks need a strategic approach to guide their transformation journey. Here is a five-step action plan that outlines the key steps banks should take to embrace technology effectively. 

Step 1: Assess Current Technology Landscape

Banks should begin by conducting a comprehensive evaluation of their existing technology landscape. This assessment involves identifying strengths, weaknesses, and gaps that hinder their ability to deliver value to clients. By understanding the current state of technology infrastructure, banks can prioritize areas for improvement and make informed decisions regarding future investments. 

Step 2: Formulate a Technology Roadmap

Based on the assessment, banks should develop a robust technology roadmap that aligns with their business goals, customer expectations, and regulatory requirements. This roadmap serves as a strategic guide, outlining the sequence of technology initiatives and the timeline for their implementation. It should prioritize investments in areas such as digital channels, automation, data analytics, and cybersecurity, ensuring a holistic approach to tech transformation. 

Step 3: Budget for Technology Investments

To execute the technology roadmap successfully, banks must allocate adequate resources. This requires prioritizing budget allocation for technology investments in the upcoming fiscal year. Collaboration with IT leaders and stakeholders is crucial to ensure that the necessary funds are allocated to initiate transformative projects and support ongoing technology initiatives. Clear communication of the benefits and return on investment of technology investments is essential to secure budget approvals. 

Step 4: Mitigating Implementation Delays

Implementing technology projects often involves multiple stages and complex processes. To mitigate potential implementation delays, banks should initiate the process well in advance. This includes activities such as vendor selection, solution customization, integration, and testing. By proactively managing the project timeline and collaborating closely with technology partners, banks can ensure a smooth and efficient implementation process. 

Step 5: Foster Collaboration and Partnerships

Collaboration and partnerships play a crucial role in tech transformation. Banks should actively seek opportunities to collaborate with fintech start-ups, technology vendors, and industry experts. These partnerships provide access to specialized skills, accelerate innovation, and facilitate a culture of continuous learning. Collaborating with external stakeholders helps banks stay at the forefront of technological advancements and gain a competitive edge in the evolving landscape. 

Conclusion

The challenges faced by banks in the UK are significant, but the opportunities presented by technological advancements are equally immense. Embracing technology is no longer a luxury; it is a necessity for banks to thrive in the digital age. By recognizing the urgency to invest in technology, conducting a thorough assessment, formulating a technology roadmap, allocating budgets strategically, mitigating implementation delays, and fostering collaboration, banks can position themselves for success.  

The new fiscal year provides a fresh start and an opportunity to embark on a transformative technology journey that will drive innovation, enhance customer experiences, and future-proof operations. Banks must seize this opportunity and embrace tech transformation wholeheartedly. 

Learn more about putting change into action in our upcoming webinar with The Financial Brand. Register here.

Via: https://fintechos.com/