Embedded finance is a hot topic, but it’s a blanket term which is often being used incorrectly. Used as a term to cover all the innovations in financial solutions delivered in streamlined customer experiences, embedded finance is important, and there should be a higher bar attached to its definition.
At a glance, embedded finance refers to “non-financial companies offering financial products and services.” However, the actual detailed definition is more nuanced than that. The more you dive into the industry and ask day-to-day practitioners about their understanding of the category, the more you realize the inherent confusion.
When I speak of a higher bar for the definition of embedded finance, I refer to the difference between integrated and embedded experiences. Does the industry fully understand the difference and how it affects the end-user experience? Secondarily, is the industry aligned on the longer lasting implications of the discussion as it pertains to the concept of super apps?
In my eyes, these are intimately intertwined topics because they both revolve around the experiences for the end-user. Business is moving towards more customer-centric approaches for providing services, and embedded finance powers the future of super apps, which creates more efficiency in the daily customer experience. To learn more, I reached out to a handful of large companies across banking, finance and entertainment to gauge their understanding of these topics.
To begin, I wanted to set the stage with how are people looking at embedded finance from a business perspective. My first question: “What is your understanding of the difference between integrated vs. embedded experiences in your platform?”
Company A: “My basic understanding is that an embedded experience is a surface-level connection to a functionality (e.g. a link to another website), while an integrated experience builds the functionality natively into the app.”
Company B: “Integrated would be the bank integrating all of a client’s payment needs within the bank and client systems. Embedded would be that client then leveraging the bank infrastructure to sell to their own downstream partners/clients.”
Company C: “Honestly, I do not know what the difference is.”
Integrated solutions are defined by one level of connectivity and experience, whereas embedded solutions are deeper and more respectful of the kind of experience that creates a stronger strategy of being customer-centric. In the three examples above, the understanding was mixed, and one was reverse of the industry-accepted definition.
Many of the embedded finance experiences you see these days are not truly embedded – they’re integrated. Integrated experiences are convenient, but not disruptive. Embedded experiences come off as seamless to the end-user and all take place in the native UI of the application where the end-user is engaged, leveraging the data available through that platform in a way that generates unique insights into your business/needs set. An integrated solution is communicating and exchanging between two applications in an experience that is connected but remains visible (Plaid/Yodelee, many instances of PayPal). Integrated solutions may open additional windows, or port you into a browser and route you back once the solution is presented and finalized.
A great example of integrated payments is when an application asks you to pay, but opens another window to execute the transaction, then offers you the chance to click back into your initial experience to proceed. This enables the experience, but it is not a seamless one. That experience is exposed to the end-user. Integrated experiences, and especially integrated financial experiences, expose the partners and offer the end-user convenience at a cost. That cost may be time or efficiency. Integrated experiences can feel clumsy at worst, disruptive at best, but they do get the job done.
Embedded finance experiences occur directly within the application or on-site where the end-user or customer is engaged. They are seamless, and they rely on technology that operates in the background, processing the communication and exchange of data invisibly to the end-user.
In the case of embedded payments, a credit card can be used to process a transaction all in the original UI and without disruption to the end-user. The commonly referred to example of this occurs in ride-sharing apps or food delivery apps, where the payment is executed directly in the home application due to a stored card or integrated wallet, so that the payment experience is so seamless as to appear almost invisible. These experiences are more efficient, they delight the customer/end-user, operate with more speed and they are seamless to the end-user. These embedded financial experiences are what the industry is most interested in, and their implications are strong as they foster the growth of super apps.
My hypothesis is that embedded finance leads to the development of super apps, which can enable a company of any size to be woven into a customer’s daily experience. I asked the same three people their point of view on super apps, and they responded as follows:
Company A: “A one-stop shop for a variety of services, beyond banking, so aggregating things like banking, travel, shopping, dining, etc. together. Typically think that there is a payments component to those services.”
Company B: “An app that can provide many different services in one.”
Company C: “Generally an app that provides multiple disparate services, usually both social/messaging type of functionality and also commerce and payment functionality.”
Supercharging opportunity and scale by embracing many aspects of personal and commercial life including payment and financial transaction processing, super apps are the always-open front door to many-in-one mobile or web app experiences.
Based on the three responses I noted above, the concept of super apps is actually more well understood than embedded finance, but you can’t have a super app without embedded finance. A super app is the ultimate customer-centric development, and it depends on trust. You have to trust the brand hosting the applications and that they will deliver what you need in such a way as to consider your privacy and security while delivering the experience.
In other words, a super app is an app that offers a more fully comprehensive experience for the end-user because it satisfies multiple needs through the course of their day. Super apps are expanding in popularity as a result of embedded technology. The most common super apps that come to mind in industry conversations would be China’s WeChat or Alibaba. In the U.S., Google comes to mind as well, offering many solutions for a customer’s daily needs including payments and other services.
What I also find interesting is whether people understand the strategy of whether or not they can or should become a super app. The way the industry views a super app is actually confining because it makes people think that an offering can’t be more widely augmented than it is. I like to think differently, and I think enterprise companies should as well. Companies need to expand their horizons to better understand that they can indeed become more integrated, and therefore more essential, to the daily lives of their core customers.
I asked those same three people: “Does the concept [of a super app] potentially apply to your business? If so, how?”
Company A: “Potentially could see us expanding the services we provide but would likely require a lot of investment in non-core services.”
Company B: “Yes. The [current] app is [our] one-stop shop for the fan experience. You can buy tickets, order food, access loyalty points and more, all in one app.”
Company C: “Currently, no. The bank’s technology is largely confined to transaction processing and account information and not expanded into other non-bank services.”
I am a marketer, and I would argue a trusted brand can be leveraged to expand the role that brand plays in the daily life of their customer. In the three examples above you see responses that are once again covering the entire gamut of expectations. One response says they can see the value, but implies they are hesitant because of the investment of time and resources required. One says that they already have a super app, while one says they don’t see the value.
Banks are a no-brainer for me in that they can offer lots of experiences beyond just financial solutions. Banks can offer health and wellness solutions, trying to help the mental health of their customers, especially given how much anxiety tends to revolve around finances. Banks can also offer embedded experiences for financial planning, insurance and more. Banks should be one of the most trusted relationships in your life and if they are trusted, why can’t they extend into other aspects of that life?
The answer lies in the fact that banks are not always trusted or appreciated (which is one reason millennials don’t look at banks in the same way). Banks have been digging out of brand challenges in recent years, and some have been more successful than others. But are banks any more or less trusted than internet providers, search engines or entertainment companies? A sports team can offer a credit card, so why can’t it offer other solutions? If Google can offer email, web hosting, document hosting, photo hosting, payment solutions and more, why can’t a trusted brand from some other aspect of your life do the same?
Super apps are the end-goal for some companies, but admittedly not all of them. Being a super app in name or strategic direction is the evolution of the standard business model of leveraging trust to create deeper customer loyalty. You expand your area of focus, work your way deeper into the lives of your customers and become essential. Every great brand wants to become essential. All brands want loyal customers. Loyalty programs have been around for a long time and have exploded in recent years as a means of gauging and exploring customer trust. Super apps are simply the next stage of that conversation.
Super apps may be the furthest thing from your strategic plan right now, but embedded experiences that create deeper loyalty and establish you as an essential piece of your customer’s day are probably in every strategic playbook in the Fortune 500 and beyond. That means you need to know more about the differences between integrated vs. embedded experiences, and you need to be thinking how to take advantage of those seamless, fully embedded types of solutions to create that deeper bond with your customer. Whether you are a B2B or B2C company, deeper customer loyalty is paramount.