Financial services companies need to focus on strategy, acquisition of customers and partners, platform and capability designs, and their delivery model if they are to successfully implement embedded finance offerings, according to Publicis Sapient, a digital transformation enabler.
These elements are highlighted in the firm's new white paper entitled "How to make Embedded Banking at Scale".
"The great advantage of embedded finance is it brings banking services to where the customer is, creating simple, linear journeys that can be completed without opening a banking app or website, or inputting card details. This is a strong potential market, but there are challenges that can daunt potential entrants," said Korbinian Krainau, co-author of the white paper and associate managing director in Publicis Sapient's strategy group.
Embedded finance is estimated to be worth US$50 billion with an annual growth rate of 40%.
Although fintechs currently dominate the conversation about embedded finance, banks are starting to engage, particularly in retail with 'buy now pay later'.
"Banks have several potential commercial strategies for embedded finance. However, a key challenge will be to scale the proposition quickly and efficiently," said Mr Krainau.
Embedded finance represents a new business model in which the bank must form strong, mutually beneficial partnerships with non-financial distributors of its services and understand how it will engage with the end-customer under this model, he said.
Mr Krainau said that to successfully design, build, and run an embedded finance business, banks need to set the direction across a set of priority areas with strategy, which concerns commercial objectives, target clients, partner landscape and approach, economic model, and regulatory approach.
Second, they need to gear up for customer acquisition by differentiating propositions for target segments, proposition co-creation models with partners, and client servicing models through partners.
Third, they need to heed partner acquisition through partner-facing propositions, partner selection and acquisition approaches, and partner servicing models.
Fourth, they must have platform and capability designs by considering target architecture, key components to upgrade, and options on what to build.
Finally, they need to have a delivery model with multidisciplinary development and operations teams, 'test-and-learn'-focused product governance, and interlock with further capabilities across the organisation and funding models.
"Without the capability to scale an embedded finance proposition, banks will never become economically viable. To achieve this, it is essential to retain the flexibility that the modular approach to service design and development brings," said Mr Krainau.
