The power of partnership: Why communication is key to embedded finance success

2023 tested the fintech industry's resilience. And the embedded finance sector passed with flying colors.

Far from going away, embedded finance has grown from strength to strength over the past 12 months. So much so, that a 2023 survey found 74% of businesses plan on launching embedded financial services products, with 64% looking to do so by 2025.

These numbers are good news for consumers, who will benefit from a wider choice of tailor-made financial services products delivered at the point of need.

But the inevitable downside of greater competition is that, as a business, it makes it harder for your proposition to stand out. Which is why how you communicate with customers — to date, a relatively undervalued aspect of embedded finance — will be critical moving forward.

Embedded finance basics: a refresher

To understand why approaching customer communications strategically is such an important component of the embedded finance equation, it's worth quickly recapping what embedded finance is and how it works.

At its most basic, embedded finance enables any business — even if their core activities have nothing to do with financial services — to offer bank accounts, payment cards, loans, and other financial services products.

Third-party providers productize their financial services license, back-office operations, and know-how into pieces of code called APIs, or application programming interfaces. The non-financial services business then uses one or more APIs to create its unique suite of financial services products and make them available to customers at the point in the buying journey when it makes most sense.

As a business, embedded finance enables you to diversify, creating new revenue streams over and above your core offering, whether it's through insurance premiums, loan interest, or interchange fees.

But the far more powerful aspect of the technology is that it can transform the customer-merchant relationship from purely transactional to one where you're a trusted dialog partner and advisor.

The "right to communicate"

When you sell a product or service, the customer journey goes something like this: the customer browses your inventory, chooses what they want to buy, and pays. And that's it… at least until the next time.

At best, you can email them the occasional upsell, cross-sell, or promotional offer. But there aren't too many other opportunities to interact between sales. And if you send promotional emails too often, it may backfire.

Embedded finance, on the other hand, creates a right to communicate far more frequently. And this means you can deepen the relationship and increase loyalty. Think of it this way. When you're also providing the customer with the card they pay with, the current account they manage their money from, or other everyday financial services, your brand is front of mind even when the customer is transacting with other brands: at the local supermarket or their favorite coffee shop, for instance.

Over time, the customer will come to rely on you and your embedded financial services products to help them ensure their financial well-being. But only if you win their trust.

Building trust through communication

So how do you get to a point where customers see you as a trusted financial partner, even though you're not a traditional bank or financial services firm?

The short answer is: by providing smart and secure products, designed around the individual's needs.

A reputable embedded finance provider can handle significant parts of this, taking care of regulatory compliance, and providing the infrastructure and technical know-how needed to deliver the product.

But, at the end of the day, whether your product has a compelling enough proposition to succeed rests on two key pillars you can't outsource to third-parties:

• The quality of the data you gather from your customers
• Whether customers feel comfortable enough to give you access to that data in the first place

Approaching client communications the right way — with honesty and transparency — is fundamental to hitting both these requirements.

According to our studies on attitudes to embedded finance in the mobility sector and the travel industry, consumers are more likely to be open to trying an embedded finance product from brands they already know and trust. This stands to reason. If you already have a track record of positive interactions with the customer, trying a new product won't feel like such a big risk to them.

But while familiarity can tip the scales in favor of the customer trying your embedded finance offering, it doesn't guarantee they'll stick around. For the relationship to become a long-term partnership, the customer must get something out of your embedded finance product that they won't get anywhere else.

Hyper-personalization: embedded finance's USP

A study we conducted in conjunction with Roland Berger found that one of the main reasons European consumers use embedded financial services is that they're easier to access than traditional products from a bank or financial institution.

This ease isn't only because embedded financial products are — as their name suggests — embedded into a familiar user journey, such as the checkout page on the customer's favorite ecommerce store's website. Just as significantly, it's because embedded finance is tailor-made to the individual.

Hyper-targeted relevance is only possible because of the unique knowledge the non-financial business possesses about the customer (and how they use it).

Tech-rental firm Grover, for instance, awards its customers cashback and discounts they can use to cover their Grover rentals whenever they use their Grover-branded payment card. The system creates a closed-loop while reinforcing a core Grover value — shopping more sustainably.

More significantly, the proposition is so compelling to the typical Grover target customer that it has been a strong driver of new business. Grover cardholders were not only more likely to rent tech, and for longer, than non-cardholders, but around 60% also subscribed to Grover within 90 days.

Similarly, American Express can make its BNPL product available to cardholders near-instantly because it uses their payment data to make more accurate risk assessments.

The bottom line is that communication is not a once-and-done deal. As a non-financial business, you need to have a continuous dialogue with the customer.

It's only through a deep understanding of their needs, behaviors, and preferences and by actively listening to feedback that you can make your value proposition as compelling as possible and gain an edge.

Embedded finance is a marathon, not a sprint

If you operate in a saturated market such as travel or ecommerce, being able to win customers' trust is a superpower. When customers feel connected to your brand, they're harder to sway and much less likely to walk into a competitor's arms.

More to the point, loyal customers make larger purchases more frequently, and are more likely to recommend you. Which is why brands with high net promoter scores consistently outperform their peers.

Embedded finance is an unmissable opportunity to build on and expand the loyalty you've already earned. But in order to make the most of it, you can't treat it as an extension of the typical consumer-merchant transactional relationship.

So how do you get there?

First and foremost, it's best to take things slow rather than jump in at the deep end.

Payment cards are ideal as a first step, because they're a relatively accessible, low-stakes product.

Once a consumer has a card, opening an account feels like a natural next step. This will enable you to better understand consumers' behavior and preferences and give you a bigger data-set you can use to tailor future products. It's also an opportunity for you to experiment and learn, trialing different use cases and even pricing models to see what works best.

Second, and more important, to reap the benefits of embedded finance, you must embrace its responsibilities. Trust and loyalty don't come free. To gain — and maintain — a competitive advantage, you have to nurture your customer relationships on an ongoing basis.