As customer engagement becomes irreversibly embedded with traditional financial transactions, banks are beginning to recognize the importance of connecting across sectors. Participation in these embedded channels for transactions and financial products requires a radical shift from the traditional paradigm of banks as stand-alone institutions that offer customers a one-stop-shop list of products. Rather, banks and other financial players must come to terms with the reality that they are now increasingly pushed to the background of the customer experience. Products such as finance options becoming a part of the purchase pathway for customers rather than an independent activity. Margaret Franco, CMO at Finastra, illustrates this shift through the following example:
“…a holiday is a big-ticket item for anyone. Imagine that during the checkout experience, at the click of a button, the customer is offered a range of options for a loan or payment plan directly through the holiday provider. Imagine too, that these offers are more competitive than financing the transaction on their credit card, and inside the monthly amount that they can afford individually. Then after purchase, they also receive an offer for holiday insurance. Suddenly, the process of financing the holiday becomes much more straightforward and joined up.”
Success for banks and other institutions in this new world of embedded finance necessitates innovation and the ability to effectively deploy available data. By having access to customer purchasing behavior and financial backgrounds, banks are well-positioned to partner with third-party entities to offer customizable, customer-centric products that move beyond standard banking products and target larger market segments. By embracing open banking APIs (as 78% of banks in the U.S. have started to do), banks can leverage their financial infrastructure, brand-recognition, and operating expertise to effectively partner with Fintech and Big Tech entities and create a space for themselves in the customer journey.
“Consumer-facing brands know that confused customers sit on the sidelines. What’s needed is to provide simplicity, clarity, and information to the consumer so they can make a simple decision. Financial service providers, therefore, need to be able to show that they are part of this solution.”
Overview by Shreyas Shaktikumar, Research Analyst at Mercator Advisory Group