Well-known names such as Uber, Starbucks and – most recently – Twitter are often cited whenever the topic of embedded finance comes up. But while their stories may have the wow factor, it isn’t always clear what other business leaders should take from them. This is especially true for companies whose core offerings might seem a million miles away from things like digital wallets, on-demand loans and a multitude of other features that come under the broad financial services umbrella.
Real-life lessons for ALL businesses: this was the focus of a recent webinar hosted by Weavr COO, Daniel Greiller and our team. The webinar included analysis of some of those well-known embedded finance trailblazers, but with clear emphasis on the universally applicable business case for this type of technology. There was an illuminating round-table discussion on this, and over a hundred attendees were invited to consider their own position on the embedded finance ‘disruption radar’.
In the meantime, we’ve drawn out six lessons – or jumping-off points – for businesses to think about as they consider the viability of embedded finance for their own models.
1. The disruptor stereotype can be misleading
That phrase, ‘industry disruptor’ can conjure up the image of a certain type of business. The archetype that often springs to mind is of a seed stage company brimming with VC cash and with a blank canvas to play with, ready to take on the world. Suppose you are an established player in your field, perhaps a logistics partner with a decades-old operating model, or a niche business software vendor. In that case, it can be difficult to picture yourself stepping into these disruptor shoes.
So it’s worth bearing in mind the clearest, most useful definition of a disruptor we’ve seen: someone who introduces a new way of doing things in their field, where this new way is so effective that no-one wants to go back.
Alongside this, consider McKinsey’s definition of this type of technology:
“Put simply, embedded finance is the placing of a financial product in a non-financial customer experience, journey or platform”.
What is striking is that the names synonymous with disruption in this area did not ‘come from nowhere’ with a ready-to-go embedded finance feature stack from scratch. Shopify is one of many examples. The business was already a leader in its field; a SaaS model enabling e-sellers to create and host their business websites. Bit by bit, they have added carefully integrated financial features that complement the core business.
The moral? Established businesses need to step away from the assumption that disruption and financial products are ‘not for the likes of us’. A move into this area may, in fact, represent the next obvious step in your growth trajectory.
2. Address your customer pain points – with embedded finance disruption
Starbucks realised that customers’ mornings would be much easier if their very specific coffee orders could be placed in advance and picked up quickly and easily. Over time, its app has expanded to include features such as preloaded funds in closed loop cards, peer-to-peer gifting and rewards schemes. These features speak directly to customer preferences; things like convenience, speed of service and the quest for ‘good value’. Not forgetting loyalty, which is now to a large degree driven by technology, specifically a stack of financial technology.
In both product development and marketing, there should always be an emphasis on discovering and responding to customer pain points, and keeping happy customers loyal to your products and services. In the current climate especially, these concerns tend to include a desire to keep track of spending, to ring-fence cash for specific resources, to amend recurring orders and payments with ease, to break down silos between different areas of expenses (e.g. between car lease and insurance payments), and to perhaps even access new lines of credit quickly and easily.
In 2023, this type of technology deserves to be front and centre in any conversations around strengthening your value proposition. The question is, “what do our customers really need, and could embedded finance help us deliver it?”
3. Widen the scope of user experience optimisation
While financial products may be a new stream to add into your business, your team is probably already familiar with the concept of user experience (UX) optimisation. This involves looking at the buyer journey holistically across all channels, to design an experience whereby customers can access the information or services they need, precisely when they need them, without any friction and on terms that work for them.
A fully optimised UX is something akin to an ecosystem; one where users have no incentive to leave your branded space, because everything they need is right there. The restaurant tech specialist, Toast provides a good example of this. The company started as a point-of-sale platform before expanding its reach into areas such as inventory management, accounting, facilitating payment and working capital loans. This layering-on of financial services becomes an important way of enriching the user experience. And once they can get everything they need within one ecosystem, users are likely to stick around.
4. Go beyond your core product offerings for monetisation opportunities
Introducing new financial products can certainly be a credible way to enhance the value proposition attached to your existing core services (e.g. digital wallets for a consumer-facing retail app, or a service to support intercompany reconciliations to help flesh out the ‘enterprise tier’ of your new business solution).
But alongside this, don’t underestimate the potential of this technology to usher in entirely new monetisation opportunities. This includes finance or credit facilities. Amazon’s services for merchants provide a taste of what may be possible here: lines of credit with payment schedules determined by a fixed percentage of merchandise sales as opposed to traditional interest-based fees. It is innovative, competes with existing players, and opens up a fresh line of revenue for the company.
5. Consider ways to strengthen relationships with other stakeholders
We love being able to summon an Uber and pay for it with zero hassle. For any business considering the wider applicability of embedded finance, however, the ‘under-the-bonnet’ aspect of Uber’s model is just as noteworthy. The same platform delivers both the customer experience and manages the driver relationship; enrolling drivers and providing them with options for payment.
Beyond your customers, it is worth considering how embedded finance can help you serve multiple constituencies: e.g. employees, occasional contractors and supply chain partners. The ability to, for instance, reimburse expenses faster, roll out company cards and even deploy reward schemes can help to strengthen those relationships, eliminate swathes of admin and boost productivity.
6. Find your place on the disruption radar
Embedded finance is an area that should prompt all businesses to adopt the ‘disruptor mindset’. This involves thinking afresh about monetisation, addressing stakeholder pain points and how best to optimise the customer experience. There are, however, multiple avenues to explore here, ranging from back-office expense management, through to full-fledged marketplace or service platform offerings. So how, when and where should your business take action? As with any major initiative, it starts with defining the type of outcomes you want to achieve, realistic goal setting and charting a viable path to execution.
To kick-start this, Weavr’s disruption radar for B2B use cases examines a range of sectors and possible routes to embedded finance adoption. You can explore and download this resource here.