Unlocking the Power of Embedded Finance: Brands Redefine Customer Engagement

Financial products have become an integral part of the strategy for retail brands, and for good reason: embedded finance allows brands to go beyond the traditional retail experience and connect more deeply with how consumers spend, store, and manage their money. This shift is transforming the way brands interact with their customers, opening up new avenues for revenue growth, customer loyalty, and enhanced customer experiences.

Elevating the Customer Experience with Embedded Finance

The Payments Frontier: Brands' Gateway to Embedded Finance

Payments have emerged as the most common entry point for brands looking to dive into the world of embedded finance. According to research, 80% of consumer companies currently offer payments-related products, 61% offer credit and debit products, and 56% offer rewards programs. This trend is driven by several key factors:The technological advancements in payment systems, coupled with the availability of open APIs and third-party payment processors, have made it easier for brands to integrate payment services without the need to build complex infrastructure from scratch.Payments present immediate monetization opportunities through transaction fees, interchange income, and customer loyalty programs, offering a clear path to revenue growth.Compared to other financial services like lending or insurance, payments typically come with fewer regulatory hurdles, enabling brands to enter the market more quickly and with less risk.

Beyond Payments: Brands Diversifying into Embedded Finance

While payments remain a popular starting point, some brands are taking their embedded finance strategies even further. They are expanding their offerings to include other financial products, such as insurance, to enhance the customer experience and capture a larger share of their customers' financial lives.For instance, the digital bank Monzo offers a Premium account that includes mobile phone insurance, while Tesla provides car insurance, and Petco offers pet insurance. These consumer-facing brands are leveraging their deep understanding of their customers' needs to integrate complementary financial services that seamlessly fit into their core offerings.

Strategizing for Embedded Finance Success

Brands looking to build successful embedded finance programs must take a strategic approach, carefully considering the types of financial services that align with their business and customer base. It's not as simple as just launching a payment card or lending product and waiting for revenue and engagement to skyrocket.According to Paul Dunning, Senior Manager of Business Development at Galileo, "Consumer-focused brands must thoughtfully evaluate how such financial tools would best fit into the context of their overarching offering and deliver value to their customers."

Rewards: The Next Frontier in Embedded Finance

As brands continue to expand their embedded finance programs, rewards-based products are emerging as a particularly promising avenue. Consumers have a clear preference for rewards, with 74% rating them as their top interest, compared to 59% for other embedded finance products.This preference is driven by several factors:Instant gratification: Earning rewards provides immediate feedback and distributes incentives like cash back, unlike banking products that generally take time to reveal their value and differentiation.Perceived extra value: Rewards are seen as bonuses, whereas banking products often include fees or limitations.Interactive experience: Rewards-based offerings make the financial experience more fun, unexpected, and engaging, unlike the transactional nature of basic banking products.To succeed with rewards-based embedded finance, brands must focus on ensuring that the rules are simple enough for consumers to understand and the value they will receive is obvious from the outset – both of which help build trust.

Navigating the Embedded Finance Ecosystem

As brands expand their embedded finance ambitions, they often find themselves managing an increasingly complex web of relationships with various technology providers. Currently, 53% of executives report working with three or more technology partners.This can lead to several challenges, including:Contract management: Juggling multiple contracts with varying terms, pricing structures, and renewal schedules can quickly become overwhelming.Data silos: Incompatible data formats across different providers can create challenges in consolidating customer information for insights or delivering personalized services.Duplicative costs: Handling multiple vendors can result in redundant expenses, service overlaps, and inefficiencies in vendor management.To address these challenges, brands can optimize their embedded finance program structure by choosing partners with a broader range of available services, using platforms with unified APIs for multiple services, and developing a data integration strategy that allows disparate systems to work together seamlessly.By taking a strategic and proactive approach, brands can capitalize on the monetary benefits of embedded finance while ensuring their programs don't strain internal resources or create operational headaches.