“The next phase of insurance is going to see two directions: embedding insurance into real-world services that can be delivered or accessed digitally, and incorporating real world services as features or benefits into insurance products. Integrated digital providers have shown the path by redefining industry boundaries and bringing together value propositions in a powerful way.”
—Jonathan Larsen, Chief Innovation Officer, Ping An
“Scarlett's and Sophie's combined backgrounds give them a unique perspective into the future of this space. Their strategic thinking, operational excellence and deep understanding of key players and technologies afford them background knowledge that few people have mastered. If you want to master it, too, read their book.”
—Jelena McWilliams, Chairman, FDIC
“Embedding is not an incremental step forward, it's actually transformative. Eventually it's going to sound goofy to say you're a fintech company when such a large percentage of all technology companies and brands are leveraging embedded financial services. Getting to know about embedded finance is a must for tech and brand executives, and this book is a good place to start.”
—Matt Harris, Partner, Bain Capital Ventures
WHEN PAYMENTS BECOME AN EXPERIENCE
Copyright © 2022 by Scarlett Sieber and Sophie Guibaud. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data
Names: Sieber, Scarlett, author. | Guibaud, Sophie, author.
Title: Embedded finance : when payments become an experience / Scarlett Sieber, Sophie Guibaud.
Description: Hoboken, New Jersey : Wiley, [2022] | Includes index.
Identifiers: LCCN 2022008545 (print) | LCCN 2022008546 (ebook) | ISBN 9781119891055 (cloth) | ISBN 9781119891079 (adobe pdf) | ISBN 9781119891062 (epub)
Subjects: LCSH: Financial services industry—Technological innovations. | Banks and banking.
Classification: LCC HG173 .S524 2022 (print) | LCC HG173 (ebook) | DDC 332.1—dc23/eng/20220322
LC record available at https://lccn.loc.gov/2022008545
LC ebook record available at https://lccn.loc.gov/2022008546
Cover Design: Paul McCarthy
Cover Art: © Getty Images | Jose A. Bernat Bacete
We dedicate this book to the people who have made it possible for two full-time working moms and wives to try to follow their dreams and share their passion with the world. To our husbands, and kids, we love you and we hope we are making you proud. To the rest of you, thanks for your continued support.
Go back for a moment to the early 2000s and imagine hearing about a new phone concept that was going to be more than a phone. In fact, it was actually a mini-computer with most of the screen as glass. That concept would have seemed unbelievable at the time but of course we know now that the concept was the first iPhone. The story we are about to tell about another new concept is as exciting as that and will arguably have an even larger impact. This is the story about embedded finance. It's about a revolution in how people live, interact with, and manage their money.
The early versions of it are already here, whether you realize it or not. Embedded finance is changing how every company in the world, from the largest bank and tech company to the smallest mom and pop shop, does business and how they engage with you.
Part of the history of financial services is the separate but related story of financial technology, popularly known as fintech. Fintech emerged from a crisis in banking and delivered a smoother customer-centric experience with less friction. Have you sent money to a friend via Venmo, Zelle, CashApp, or another app? You were utilizing fintech. Have you used your phone or a tap of your card to pay for your groceries? You were utilizing fintech. What about opening up an account to directly invest in the market yourself through Robinhood, Acorns, or Public? You were utilizing fintech.
How did this technology transform banking, and who were the companies and entrepreneurs to make it happen? How did fintech change consumer expectations, and what impact did this have on banks’ strategies? These are all critical questions, because they were the basis of fintech, and fintech is the foundation for embedded finance. Fintech brought banks and technology companies together in order to create new products and serve the digital-centric customer. As we will see throughout this book, embedded finance completes the journey fintech started.
The embedded finance revolution is fundamentally about the seamless movement of money that keeps our society functioning. The friction, the barriers that slow it down, are disappearing. Everyone knows that in most cases, we no longer have to wait in line at a bank branch to complete basic transactions. You can do all (or most of) your transactions from the comfort of your home through your phone or your computer. But it's getting even easier than that. Your money—or rather, your access to your money—is everywhere. It appears when needed at every point of context, instantly and transparently. It's a natural evolution powered by genuine consumer need, enabled by technology. This is a cool concept, but what does this look like in practice?
Today this takes the form of loans at the point of purchase, enabling you to finance a flat tire, or home insurance that appears alongside your new rental agreement. The companies we deal with every day can offer us financial services exactly when we need them, and often we don't need to do anything further, just agree to it. The services, informed by data and powered by machine learning, are optimized for us and are up and running in minutes, sometimes even in seconds.
We call this “embedded finance” because the finance is embedded in another context—a checkout line, a mobile app, etc. From the consumer perspective, it could be summarized as “invisible payments” or “invisible finance,” because the key message is that the financial transaction becomes naturally integrated into what you are doing to the point it feels invisible.
Embedded finance is different because it enables companies across industries, with existing audiences, to cater to their customers’ financial needs at the point of context. It is an enabler of new revenue streams, stronger customer engagement, and better visibility and access to key pieces of data. Most importantly, it equips technology companies, brands, and retailers with the ability to provide a banking and payments experience to their customers in a seamless, convenient, and authentic way by providing financial services when they need it most, naturally integrated into the experience.
Those of us who have ever gone to a car dealership and explored the option of purchasing a car (new or used) will be familiar with car dealers offering loans on cars. The dealer is not making the loan himself, he is a conduit for the loan, which is made by a bank or a captive finance company affiliated with an automotive manufacturer. The dealership is not offering finance as an act of charity. Without it, the dealer wouldn't make the sale to you, and he earns a percentage of the money you pay for on the loan as well. This works for all sides though, because without the loan, you might not be able to buy the car.
Another classic case of embedded finance in today's world is through Buy Now, Pay Later (BNPL), which happens at the point of sale. You are at an appliance store and want to purchase a $500 TV but only have $200 available to spend. The appliance store, typically backed by a network of partners, will front the money and you, the consumer, have a certain period of time to pay it back.
Buy Now, Pay Later is experiencing a tremendous renaissance today. A recent study from the financial marketplace LendingTree notes that 33% of consumers have tried BNPL and 67% of them plan on continuing to use it.1 Later in this book, we will explore the reasons behind this trend, and the companies and factors driving it.
This book was written to capture a moment in time as well as to serve as a guide to what lies ahead. Whether you operate within financial services, technology, a brand, or business in general, or if you happen to be tech curious, this book is relevant for you because embedded finance is here and only growing and, as with much of life, it is best to be prepared. Embedded finance, by definition, is a global phenomenon and is not limited to any one region or demographic. It touches everyone, which is part of its power. This book tells that story.
It begins with the consumer. She has lived through great financial upheaval, experienced changes in the delivery of services, and is comfortable performing financial transactions digitally. She has a need that a financial product can meet. How does the product get to her? This book tells that story, along with many others. How have her needs and expectations evolved in the digital age? How has the ubiquity of computing power and internet access in the mobile era empowered her? What will her life look like in 2030?
This book will look at all consumers, not just those in the middle class who have the luxury of choosing from financial providers. We will also look at the underserved, the struggling consumer who works multiple jobs and needs innovative financial solutions to make ends meet. For this consumer, investing, and even saving, may be only a dream. How will embedded finance help all consumers live stronger, healthier financial lives?
And while consumers are a crucial part of the story, embedded finance is not only for them, but also for the small businesses. It is for the small businesses who are growing and scaling rapidly, not only the ones who will become the next big IPO, but it is also for the struggling businesses who need a loan to hire that extra pair of hands to take their business to the next level. It is for those small businesses traditionally overlooked by traditional banks but who have great ideas and interesting data points to support a strong probability of success in the future. Those businesses who can utilize embedded finance to make a massive difference in their story.
From an industry perspective, this book provides a glimpse into the future of financial services. The industry is evolving at a rapid pace and while at one time in the past, the bank was the only place you could get a loan or deposit your money, now there are many options. What role will banks, as we know them today, play in the future? How will banks adapt to this new role? Which banks are poised for success and what are the strategies and technologies they have in place to make this happen? We will look at the banks that are embracing the change and thriving, and the banks that are building new products for the new digital age.
Scarlett, the Strategist and Leader, and Sophie, the Entrepreneur and Operator, have been friends for a number of years, sparked by their shared passion around the conversion of technology and financial services. Their combined experience offers a unique, truly global approach to embedded finance. Scarlett has experienced these changes first hand in the boardroom while designing the strategic roadmaps for banks, large and small, on the global level, with a particular focus on the approach to Banking-as-a-Service (BAAS) and the opportunities that lie within. On the other hand, Sophie has spent the last 10 years designing the go-to-market strategy and execution of BAAS providers and more recently, embedded finance propositions across the continent of Europe.
As Jelena McWilliams, the chairman of the FDIC puts it, “Scarlett's and Sophie's combined backgrounds give them a unique perspective into the future of this space. Their strategic thinking, operational excellence and deep understanding of key players and technologies afford them background knowledge that few people have mastered.”
With deep expertise in the space, they share a vision and excitement about where and how embedded finance will impact the lives of everyday consumers and the role that Big Tech companies and beyond will have as they become a monumental part of the fintech ecosystem.
After many conversations and many sleepless nights contemplating the vast opportunities, they have agreed that now is the time to tell this story.
Whether you're a banker, work at a fintech company, are a business owner, or just a curious consumer excited about the space, we have a lot to share about this new way of connecting consumers with financial services and most importantly, share how your day-to-day life will be impacted for the better.
Banks need to learn to adapt to remain relevant in the new hierarchy. Fintech companies need to shape the financial products that the consumer-facing businesses will ultimately deliver. Once financial services can be delivered through a company or product consumers use every day, there is a tremendous opportunity to reach a greater number of people than ever before, and there is already evidence from early success stories that more progress is possible. We are just at the beginning.
The book will provide you everything you need to know about the evolving world of embedded finance from inception to predictions for the future. We will cover:
Failing to prepare for, and at minimum be aware of, this monumental shift in how financial products are delivered to customers could lead to serious challenges down the road. The challenges have the ability to impact your talent, revenue, technology you use, and more. This is not the first push toward a new technological world order and we are not far from the days of Kodak failing to seize the digital picture boulevard or Best Buy failing to capture the future of cinematic entertainment. Not everyone should partake in such a journey but, regardless of your ambitions, it is important to understand what is happening at the macroeconomic level as the impact will reverberate into all parts of business. Taking your strategic career hat off and acting as a consumer like everyone else, as a consumer, this book will prepare you for the seismic changes you are about to experience in your day-to-day life.
After all, with a projected $3.6 trillion global market capitalization by 2030, why wouldn't you want to know more?2 Let the journey begin.