What is a fair amount to pay for a good customer experience?
It can take a slew of failed efforts to find the sweet spot between customer delight and financial sustainability. However, an optimal CX journey economics model is the ever-elusive white whale that platforms fascinated with delighting are obsessed with.
This conundrum is being turned on its head by FinTech. You may now improve your customer experience while simultaneously generating additional revenue.
Consider some of the amazing CX tales from recent years: in-app purchases for Uber rides, Starbucks payments through mobile phone, Amazon buy-now, pay later, Tesla auto insurance, or Shopify banking for shops.
All of these are examples of embedded finance at work. Customers were not only thrilled, but the platforms also generated a new revenue source for themselves. Platforms can provide financial services — whether it’s lending, insurance, cards, or bank accounts.
- Enhance the client experience by financing at the point of demand generation.
- Supplement their primary revenue with a secondary source.
What is Embedded Banking?
Embedded banking is not only a buzzword that has been bandied about recently. Embedded banking is the process of integrating banking systems into a third-party platform through the use of APIs.
These applications do so to better serve clients while also adding a new revenue stream. Such platforms, by definition, do not require a financial background.
Embedded finance sounds similar to embedded fintech. While the former is concerned with integrating a closely integrated lending solution into an existing product, embedded fintech is concerned with assisting banking institutions in upgrading their services and offerings with the most recent financial technology.
By 2030, embedded finance companies, including those that pivot into this trend, will have a global market valuation of $7.2 trillion. Embedded banking allows the end-user, whether an individual or a business, to access a desired financial service from within their preferred app or platform.
The Key Advantages of Embedded Banking
Embedded banking provides numerous advantages in a variety of domains. What exactly are they? Let’s get into the depth!
Creating a New Revenue Stream
Embedded banking allows you to monetize the spending of your customers, partners, or vendors. Adding a layer of fintech allows businesses to generate more revenue. Offering credit cards, for example, can enable businesses to earn a small annual charge from each consumer.
Enter New Markets and Verticals
A continuation of what we observed earlier. Companies can enter new markets and test the waters by adding financial services. It gets easier with their established customer base, and the scope of risk is significantly reduced.
Increasing Convenience Significantly
The level of convenience that embedded banking provides for your consumers is absolutely amazing. Customers can use embedded banking to obtain the needed financial service without ever leaving your platform!
BNPL and Lending
By developing your own Buy Now Pay Later solution in a couple of weeks, you may increase transaction amounts while decreasing payment abandonment incidents. Connect to our lending stack to simplify collections and disbursements.
UPI and Payments
Don’t keep your customers, partners, or lenders waiting; instead, use our payments module and virtual accounts to make rapid payments and settlements. Payment options include RTGS, IMPS, NEFT, QR code-based, and UPI. Establish your brand identification right away by white-labelling UPI IDs with your company name and sharing it with the rest of the globe.
The Use Of Embedded Finance Boosts Revenue Per Customer
Embedded finance allows platforms to boost revenue from existing clients while also gaining a new user base. It reduces client acquisition expenses while increasing lifetime value and profitability.
Costs Of Acquisition And Lifetime Value
By monetizing financial services, digital platforms can reduce customer acquisition costs (CAC) while improving lifetime value (LTV). It creates a new revenue stream and frees up sales budgets to attract new consumers who would otherwise be costly to acquire. It may also help platforms to cut the price of their primary offering and get access to a user base that would otherwise be hesitant.
Margin Expansion
Embedded financial services increase product stickiness by providing a consistent experience. The platform data can be utilised to underwrite and extend in-context products, increasing financial product margins and contributing to increased revenues.
Revenue-sharing Arrangements
Prior to embedded finance, platforms collaborated with financial institutions by suggesting customers for loans, insurance, and other services. Such referrals are not part of the user experience and occur outside of the consumer journey. For bringing business to the bank, the digital platform often charges a referral fee.
Depending on a company’s core offering, maturity, or technological capabilities, it now has many cooperation alternatives with financial service providers. Here are two common bank-fintech-platform collaboration approaches that might help increase revenue:
Pass-Through Services
The digital platform enables the bank to integrate its branded financial services into workflows wherever they are applicable. This is accomplished by using APIs to connect the bank, FinTech, and other parties to the platform. The platform charges the bank for consumer access through their app or website.
White Labelling
The platform in this strategy provides a financial solution with its own branding. The product, which is firmly embedded in the platform’s workflows, is frequently co-created with the bank as a solution to specific pain points for platform clients. A collaborative customised solution like this allows the platform to charge a fee or enter into a revenue-sharing agreement.
Case Studies
Such collaborations can be used to boost revenue opportunities across a variety of financial services. Here’s how platforms might monetize their experiences by including multiple funding services —
Insurance And Lending
Platforms house proprietary data repositories, allowing partner institutions to better underwrite their customers. They not only expose banks to a new population of customers but also the data required to appropriately assess their creditworthiness. They are usually involved in the underwriting process and bear some of the risks. They can be compensated for their value creation in the form of a percentage of the loan amount by engaging in a profit-sharing agreement with a bank.
Similarly, in exchange for a share of the premiums sold, platforms might offer embedded insurance products that use their data for underwriting.
Bank Accounts And Payments
Digital platforms with a high frequency of payments and collections can provide an in-app bank account for continuous transactions that do not require bank transfers. Platform data can be utilised to improve underwriting. Platforms can increase their revenue by charging a monthly charge or partnering on an interest-sharing basis.
If their operations are extremely dispersed and require frequent transactions, platforms can also provide white labelled virtual or real cards. The platform can generate revenue by charging an interchange fee as a percentage of each transaction.
CONCLUSION
FinTechs are constructing the infrastructure required to connect banks with digital platforms in revenue-sharing relationships. Plug-and-play embedded finance architecture is assisting platforms in maximising their revenue by using the value they bring – in-context, precise data underwriting, and exposure to new markets.
We at Ignosis have developed a new-age tech stack for the digital lending ecosystem. Our mission is to democratise digital lending and make it efficient and accessible across the entire digital ecosystem.
