Developing Meaningful Embedded Finance Partnerships in Today’s Marketplace
The market for embedded finance solutions is slated for explosive growth with some forecasts predicting its value will aggressively reach $7.2 trillion by 2030. Such unprecedented expansion presents a wealth of opportunities for banks and credit unions to unlock new revenue streams and expand customer and client bases.
For fintechs and other vendors, seeking licensing and regulatory compliance is both complex and even prohibitively expensive. Given this, traditional financial institutions are uniquely positioned to propose embedded finance partnerships by leveraging their existing licensing and compliance frameworks. These third-party collaborations will expand banks and credit unions’ reach into new markets, broaden their offerings, and deliver integrated experiences for customers without shouldering the full burden of technology development. As this trend continues, there are certain considerations that financial institutions should explore when developing these valuable partnerships.
Identify Niche Areas
The traditional one-size-fits-all approach by banks and credit unions to products and services is no longer sustainable for long-term growth, so it is essential to identify niche opportunities in the embedded finance space. Financial institutions should always start by focusing on solutions that directly align with the needs and habits of their customers. Banks and credit unions have the advantage of regional knowledge and rich customer data, giving them the ability to identify opportunities in their own communities. A core decision when rolling out a new product or solution is whether the financial institution can create something far better (e.g., 10x better) than what is already available from another fintech or vendor. For example, smaller retail banks that lack wealth management services can benefit by partnering with fintech wealth platforms to extend to their customers direct access to integrated investment and wealth advisory services.
Focus on Brand and User Experience
Fintechs are showing real strength with innovative designs and user experiences (UX) while banks continue to ensure customer trust and reliability as well as compliance and risk management. Co-branded solutions often work well within this loyalty-driven ecosystem. White labeling is also an effective approach for banks and credit unions to participate in embedded finance. Banking-as-a-Service (BaaS) enables fintechs and other vendors to embed financial products without becoming banks themselves. Meanwhile, joint innovation hubs can be used to foster rapid prototyping of products and solutions and share learnings quickly on how the UX is impacted. Many strong examples of partnership have emerged in a short period of time ranging from payments, lending, deposits, cards, investment management, and insurance solutions.
Develop Partnerships at the Regional Level
When it comes to embedded finance, an institution’s scale plays a defining role in shaping its partnerships. However, while large institutions will form partnerships at the national level, they along with smaller financial organizations may find greater success in cultivating regional and local partnerships to best serve customers. Customer benefits can range from cash back at local businesses to new investment vehicles.
Bottom line, to keep a competitive pace as embedded finance continues to grow, banks and credit unions must prioritize partnerships that best meet their customers' needs.
About Chris McGee
Chris McGee leads AArete’s Global Financial Services (FS) Consulting Practice.
AArete partners with financial institutions to drive growth and boost competitiveness by optimizing digital and technology products, risk management and cybersecurity solutions, strategic profitability initiatives, regulatory compliance, and M&A strategies.
Chris brings 20 years of experience across industry sectors (e.g., retail, commercial, corporate, and investment banking, capital markets, securities, investment and wealth management, insurance, and fintech). He is passionate about helping organizations and their people realize their potential, achieve their business goals, and deliver operational excellence. He has a strong track record of partnering with executive leaders driving strategic change across global financial businesses to solve complex operating model challenges and enable sustainable results.