Dos and Don’ts of Building an Embedded Finance Strategy

Over the past couple of years, embedded finance has witnessed a massive uptick in popularity and today an increasing number of brands are looking to offer this innovative solution. Primarily driven by consumer demand for convenience and personalisation, brands are excited to embed financial services directly into their existing products or services as it not only allows them to empower customers with a seamless experience that increases engagement and loyalty, but also nurture a new revenue stream.

As a result, many businesses are now turning to solutions like embedded finance to better serve their customer base and stay competitive in an increasingly digital world.

However, before brands engage in operations to fully offer this service, it is important that they formulate a strategy to decide the way forward.

Forming a strategy will not only ensure that the brand is able to meet all its goal but also achieve so in the most efficient and economical manner possible. Thus, in today's blog we will take a deeper dive into how brands can formulate a strategy for offering embedded finance and the various do's and don'ts they need to keep in mind.

Steps and Mindsets Worth Approaching

1. Identify Your Goals From Embedded Finance

The first step a brand needs to take to formulate a strategy for embedded finance is to accurately identify the goals they are aiming to achieve. An efficient way of doing so is by asking questions, such as

• What are our primary objectives of introducing embedded finance?
• Is our goal to increase revenue or to enhance customer experience?
• Are there any cost considerations that must be taken into account before implementation?
• How can we ensure compliance with regulatory requirements when using this technology?
• Will customers prefer the convenience and security offered by embedded payments over traditional banking models??

While these questions might appear rudimentary at first glance, taking the time to compose and answer these questions, will set the foundation for the way forward.

2. Identify the Different Players in the Embedded Finance Ecosystem

The second step in the process is to identify the various stakeholders who operate within the embedded finance ecosystem. These primarily include the license holders, service providers and the platforms.

As the name suggests, license holders refer to those entities, such as banks or non-banking financial institutions, who have the required licenses to legally facilitate financial services. As obtaining their own license can be a challenging and time-consuming process, most brands prefer to lease them from a relevant financial regulator in exchange for a fixed fee, as it helps them offer the services in a secure and compliant manner.

The next stakeholder on the list is the service providers who offer the technology to enable embedded finance solutions. These include payment processors, accounting services and data analytics firms, who offer brands access to different stacks of the embedded finance ecosystem. One benefit of partnering with an embedded finance service provider is the bespoke customization these partners offer. Brands can share their requirements and the service provider will customize the technology to meet their exact needs.

Lastly are the platforms, which bridge the gap between license holders and service providers and offer brands a one-stop destination for offering embedded finance. At its essence, platforms reduce the hassle of brands to start offering an embedded finance solution by doing the heavy work for them.

Identifying all these three stakeholders and how each of them contribute to the ecosystem is crucial as they will determine how you engage with them to achieve the goals you outlined in the last step.

3. Recognise the Different Solutions Offered by Embedded Finance

Embedded finance has the potential to offer a wide range of use cases starting all the way from embedded payments and forex to insurance and lending. This makes it particularly appealing to many brands, as they are able to tailor their solutions and services to best meet the needs of their customers.

For instance, with embedded payments, brands can provide customers with a simple and secure way to make payments for services, without having to switch between different applications. Similarly, with embedded insurance, brands can provide customers with a tailored experience where they can seamlessly insure their products or services effortlessly at the booking screen, without needing to approach a external insurer.

By taking the time to understand the different solutions offered by embedded finance, brands can decide which solution best meets their goals and objectives. This will not only ensure that the brand engages with the right stakeholders in the ecosystem but is also able to deliver the intended solution with a short turnaround.

Steps and Mindsets to Avoid

1. Assuming Embedded Finance Is Only for Multinationals

?Many brands mistakenly assume that embedded finance is only meant for multinational companies, and not for small businesses. This misconception leads them to overlook the potential of embedded finance solutions to help their businesses scale and stay ahead of the competition.

The reality is that embedded finance can be incredibly beneficial for small businesses as well. It can not only provide them with the tools and resources to compete with their larger counterpart, but also enables them to offer more comprehensive services and solutions to customers, without having to invest heavily in building infrastructure or obtaining licenses.

For example, small businesses such as upcoming eCommerce platforms and marketplaces can use embedded finance solutions to provide customers with secure and seamless payment methods without needing to switch between different applications. Likewise, other small establishments can leverage embedded finance to offer a bespoke experience to its customers, where they can seamlessly insure their purchases during checkout without having to approach an external investor.

While the benefits of embedded finance for small businesses might not be evident at first glance, with the right mindset, businesses of any scale can leverage its potential.

2. The Potential of Highly Specialised Services

The future of embedded finance, like all other technologies before it, will be offering highly specialised and bespoke services. Mastering the ability to customise this technology for businesses, both large and small, will not only empower early movers to position themselves as highly specialised experts but also empower their customers with competitive and alternative solutions that are tailored to their particular needs. The best part - as embedded finance is still a new offering in the market, there is hardly any competition for those willing to take the leap.

Thus, if you are a small business looking to leverage the power of embedded finance, make sure you keep an eye out for this aspect.

The Takeaway

From payments and forex to insurance and lending, embedded finance has the potential to revolutionize how businesses interact with customers.

For small businesses in particular, it can provide them with the tools they need to compete on a larger scale while also offering more comprehensive services without needing extensive infrastructure or licenses. While taking advantage of this technology may seem daunting at first, those who take the leap will be able to position themselves as highly specialised experts and offer competitive alternatives tailored specifically for their customers' needs. With an understanding of these principles and an open mind towards innovation, any business can unlock its full potential using embedded finance solutions.

Looking to offer your B2B customers an embedded finance experience? Get in touch with us today to learn more about how we can empower your business with an embedded finance experience.