Embedded finance has been around for some time. Embedded finance providers have enabled companies to bridge the gap between themselves and their customers by removing the need for third-party involvement, providing a host of efficiency and speed-to-market benefits.
For example, embedded lending providers, Afterpay, allow consumers to bypass the traditional model of applying for a credit card or a loan. From the company's point-of-view (POV), not only does this accelerate the purchasing process, but it also helps them provide a financial service that improves the shopping experience for the customer.
Tipped to be one of the most significant disruptions in recent decades, embedded wealth management is gaining traction globally by opening up new markets and revenue streams for non-traditional wealth providers. With the technology readily available, it might not be too long before you're able to buy your favourite stocks and shares while filling up your car with gas - all from the same mobile app.
What is embedded wealth management?
It’s essentially an extension of embedded finance. Through the use of APIs, traditional wealth providers can give non-traditional wealth providers the ability to offer wealth management services to their clients. Leveraging APIs makes it more cost-effective for wealth providers to extend their market reach and tap into segments that aren’t currently supported through traditional channels.
While this may initially be viewed as a threat to traditional incumbents, wealth providers should view this as an exciting opportunity to make their offerings more accessible to a wider, mass-market client base. With the learnings gathered from embedded finance tools and the improved customer journies, we can use this as a blueprint to enable even more savings or investments for both established and first-time investors.
Particularly for first-time investors, brand trust is a major consideration when choosing investment providers. For many consumers, their sense of loyalty and trust is higher for brands outside of the financial services industry. A study done by Solaris in Germany indicates that 61% of consumers would consider using integrated financial services from either Ikea (furniture retailer), Otto (online e-commerce group) or MediaMarkt (electronics retailer).
And how does this benefit non-traditional wealth providers? Embedded wealth management and associated financial products help to increase the number of customer touchpoints and strengthen brand loyalty while providing new revenue streams. The key to ensuring successful customer adoption is a frictionless user experience driven by seamless technical backend integration.
Adding stocks to your shopping list.
The most exciting thing about embedded wealth management is that essentially any business could become a wealth provider of sorts. Hardware stores, clothing retailers, coffee shop chains and petrol stations… the scope of it could completely shift the boundaries of the wealth management industry.
For example, your next portfolio could be with your favourite supermarket. As you’re about to pay for your week’s worth of groceries, the cashier could ask you whether you’d like to add an additional $10 to your bill and they will invest it for you into predetermined funds or stocks. You simply agree, scan your loyalty card or mobile app (which has all your investment preferences saved) and settle your bill, of which the $10 will automatically be allocated.
This could already be in the pipeline for some forward-thinking retailers. Last year, Walmart-backed fintech, ONE, announced its multiple fintech acquisitions to achieve Walmart’s strategic vision of offering affordable and accessible financial products to clients and employees. With over 100 million weekly shoppers and a total employee base of approximately 1.6 million, they could be a major player in the financial services industry in the near future.
While Walmart has the financial resources to launch its own financial offering, other retailers might prefer to partner with established wealth providers or fintechs to bring wealth and investment products through to their clients. Herein lies an opportunity for incumbents to ready their digital architecture in anticipation for the demand for embedded wealth management products.
Fintech has been an integral catalyst for opening up new areas and opportunities for investors to create wealth while driving new innovations for traditional and non-traditional providers alike. Embedded wealth management is here to stay, and it will be interesting to see the extent of its influence over a multitude of industries.
Is this a strategy that you’ll be pursuing this year? Feel free to reach out to me directly to discuss how Invsta can assist in expanding your market reach through digital channels. My email is rachel@invsta.com.
Our range of white-label customer engagement and automation tools, portals and back-end integrations combined with our in-house development team gives us the flexibility to make your digital strategies a reality.
