Embedded Finance Marketplaces - Now is the Time to Get Involved
By
Andrew Naoum
It's no surprise that 85% of Americans own a smartphone and use it daily, and 31% are online "constantly." These technological trends have changed the way consumers experience and interact with your business and brand. As this ease of access has changed, businesses are forced to continue to adapt in order to stay competitive and relative.
One of the nearly countless examples of financial technology's impact on the average person is the rise of embedded finance. What this means — and how your business can take advantage of these changes — has become a highly relevant and timely topic; with 84% of US companies believing adding financial services to be critical to their future success.
WHAT IS AN EMBEDDED FINANCE MARKETPLACE?
Embedded finance is the technology that allows any organization to embed third-party financial products into their environments. These products allow customers to enroll in services traditionally offered only by banks and other financial institutions. Specific examples of embedded financial products include:
- Payment processing software used by businesses, including point-of-sale devices or e-commerce software.
- Debit cards or digital wallets offered by non-banking businesses directly to customers or employees.
- Lending , credit, or other capital needs offered to consumers
An embedded finance marketplace allows customers or businesses to access various financial services via a third party. Specifically, such a marketplace enables customers to search for certain products, like loans, or insurance, with various optionality. Customers can search across multiple providers to find a finance product that suits their needs.
Rather than managing individual relationships with financial services providers, partnering with a marketplace provider allows businesses to outsource the necessary technology, relationship management, and infrastructure installation. Keep in mind that not all providers are created equal. While being able to add financial products to your business is important, ease of use, and a personalized consumer experience is paramount for adoption and growth.
WHY IS THE MARKETPLACE APPROACH BEST FOR EMBEDDED FINANCE?
A marketplace approach can offer customers numerous benefits directly improving their financial lives. In doing so, businesses can also expect to reap significant rewards.
Easy access
One of the main benefits of digital marketplaces is that they offer customers easy access. With a few clicks on their phone or laptop, customers can quickly determine what products are available to them. and make a direct comparison about fees, rates, benefits, and more.
Simplified experiences
An embedded financial marketplace can help simplify the experience for customers. According to Mirakl’s 2020 State of Marketplace report, "57% of online customers said they shopped at marketplaces either 'a lot' or 'exclusively’,'' meaning the financial marketplace takes advantage of built-in or already preferred shopping methods. By using an embedded financial marketplace, businesses can find ways to connect with customers whose preference is to shop through marketplace methods.
Expanded reach to new customers
Marketplaces allow companies to reach new customers inexpensively. Every business has a limited marketing budget. By participating in a marketplace, businesses can quickly get in front of all the customers that use that marketplace. This allows businesses to improve both their CAC/LTV ratios while increasing their direct consumer engagement.
Enhanced offerings
Offering customers access to an embedded financial marketplace can ensure that companies expand what they offer and who they offer it to. Banks or financial service companies can't always provide everything to their customers directly. However, by using an embedded financial marketplace, they can help their customers find everything they need in a single experience. Thus, using an embedded financial marketplace creates additional value and allows businesses to provide their customers with access to more services, even if they don't provide those services themselves.
WHY IS NOW THE BEST TIME TO GET INVOLVED?
Changes in technology and increased revenue opportunities have made today the best time to take advantage of embedded financial marketplaces.
There's no question that your customers — and the businesses they deal with — are busier than ever. With your customers' time and attention pulled in a thousand different directions, the people you serve are looking for ways to simplify their financial experiences and ensure they can still access the products they need.
Data backs up this new paradigm. According to the Mirakl report referenced above , 7 in 10 customers value marketplace offerings that can simplify their purchasing experience. This statistic reflects more than just a desire for easier access to complex financial products: The same survey found that 73% of customers wished their favorite retailers participated in online marketplaces.
This trend has accelerated over time. Before the pandemic, 42% of customers did their shopping at an online marketplace. After the pandemic, that number rose to 57%.
Banks and other financial services providers that clearly understand the value of an embedded financial marketplace have noted this change in consumer patterns. In fact, 60% of banks surveyed said they were likely to form or join such a marketplace. This change represents a stark shift in the attitude of banks towards financial marketplaces. Previously, banks jealously guarded their engagement with other institutions, fearing competition and a negative impact on brand loyalty. They typically did not participate in marketplaces that allowed customers to break away from the banks they had traditionally used.
However, the increased digitization of financial services has led banks to realize that the old axiom is true: If you can't beat them, join them. Now, more financial companies than ever participate in these marketplaces.
This new reality creates an opportunity to participate in an embedded financial marketplace. Customers expect such a marketplace and have come to value it. By taking advantage of this new opportunity, your business can provide customers with a practical, valuable product. More to the point, you can substantially increase your bottom line.
THE OPPORTUNITY OF EMBEDDED FINANCE MARKETPLACES
Embedded financial marketplaces offer opportunities to provide valuable products, enhance brand loyalty, and serve your clients better. However, the potential profit behind embedded financial marketplaces is also extensive.
How extensive? According to a Forbes survey, the profit opportunities behind embedded financial marketplaces are massive. A survey of 1,000 non-financial companies found nearly half had already invested in embedded financial solutions. The same study found many reasons for these increased offerings, including:
- The opportunity to provide additional services — at a lower cost — to a bank's customers
- The chance to create new revenue lines for the participating business
- A significant opportunity for cross-selling opportunities and using the embedded financial services to upsell
According to a Plaid survey, which can be downloaded here, businesses have proven this strategy works. Of those who offer embedded financial services:
- 88% said they were "successful" or very successful in increasing customer engagement. This statistic means customers spend more time on apps or logging into accounts.
- 85% said the embedded financial marketplace allowed them to attract or acquire new customers.
- 70% said they were working with a specific partner to buy or license technology that would enable them to expand their offerings.
While your business cannot ignore the opportunities to enhance customer loyalty and build more customer engagement, you must also consider the revenue opportunities that come with increased reliance on financial technology. Fortunately, those revenue opportunities are ample. One study found that participating businesses can potentially increase revenue five-fold per customer by integrating financial services into their business.
Fundamentally, the opportunity for any business to expand its access to embedded finance marketplaces exists. Embedded finance marketplaces allow businesses to do more for their customers without investing in new product lines. They can enhance brand loyalty, increase customer engagement, and drive more revenue.
LET ENGINE BY MONEYLION HELP
If your organization is interested in adding financial products to your business, we're here to help. Engine by MoneyLion allows companies to add financial products to their business through our embedded finance marketplaces and API.
