In the past few weeks, I have spoken to a few people who are contemplating finding their first job in Embedded Finance. It’s a great position to be in, as you can pick from many different opportunities. But it can also be pretty confusing. There are many things to take into consideration when making such a step.
I shared the following bullet points with one person as a way to guide them through the five main financial products of Embedded Finance and he used it as a starting point to go deeper. I thought I would share them with you as well and wanted to ask you, where would you start if you were looking for your very first role in Embedded Finance?
Payment
- When companies make payments an integral part of the user journey instead of handing them over to third party providers
- These companies can monetize payments and often turn them into their own business units
- Companies like Shopify started with payments before adding other fintech features
- In Germany, Otto and Zalando are other great examples of companies that have own subsidiaries fully focused on payments
- The final step is making payments an experience. Think about Uber’s invisible payment, Amazon Go stores or in-car payment solutions
Banking
- Companies can offer their customers branded bank accounts and/or cards
- Banking is a very sticky product and if brands can onboard users to their own banking products, they tend to stay longer
- Brands need to aim for 1+1=3. The result of adding banking to their existing product should be greater than the sum of its parts (also important since banking is hard to monetise but it gets much easier this way)
- There are already hundreds of brands out there offering such products, which is good for users but harder for brands. Embedded Banking for the sake of it won’t fly.
- Infra providers offer very different models: bank vs. e-money license; very international vs. localised; card or account only vs. all in one; debit vs. credit card and so much more.
- It's hard to navigate but if you understand the market, you have a competitive advantage
Lending
- Applying for a lending product at a traditional bank or even a stand-alone Fintech provider can often be clunky and time consuming
But often brands know already that you might want a loan, because you are
- Buying an (expensive) product from them
- Using their software to manage your business (invoicing; payment; etc)
- Most of the embedded lending products are focused on businesses: Usually, merchant cash advances or short-term financing
- Consumer solutions are often BNPL in an e-commerce transaction (even though technically not always a loan) or niche lending solutions like financing solar-panels
Insurance
- Embedded Insurance is likely one of the most spread ‘embedded’ areas, and you have definitely seen cases already
Most popular use cases are
- during an e-commerce / travel booking / rental transaction (e.g. buy a laptop and get the right insurance with it)
- for landlords / asset owners, when they offer their property / asset to rent on a marketplace
- But think about all the other places where you could/should be offered dental / health / pet / … insurance
Investment
- Likely the one where we have seen the least development yet
- Thanks to rise of new infrastructure provider, it has been become much easier to build and offer digital investment products
- Most of the customers of these infrastructure providers tend to be financial companies and there are not many non-financial brands
- Personally, I believe it’s normal that those financial companies will be the first customers (same for BaaS) and I expect non-financial companies to follow, but it is likely more niche solutions around retirement planning, cash-back solutions, etc.
- It is often challenging to convince a user to open a new bank account, but convincing somebody to open a new investment account is likely much harder
Do you agree? What would you consider important points for an industry outsider to understand about the different Embedded Finance areas?
