In 1994 Bill Gates said, “Banking is necessary, but banks are not”, and 27 years later his words ring true, playing out globally as banks journey to digital and increasingly adopt customer-led approaches that aim to meet the client at their point of need.
A global move to embedded solutions and platforms
Digital banking is a term associated with the digitisation of banking operations, understood on a spectrum: entailing a digital offering that serves a niche within the banking ecosystem; a complete full-scale digital banking offering; or something in between.
As banks globally undertake digital banking transformations, embedded finance is a fast-growing trend that many companies have begun implementing within their own strategies. Embedded finance, which is facilitated by a platform, is the integration of financial services or technology within traditionally non-financial services, products or technology. In this way, banks are able to offer services, such a making payments or lending money, built into other services (think about payment gateways on your favourite apps for instance, or eCommerce sites that offer credit, allowing you to seamlessly repay what you purchase over a 3-month period).
Much of this is done on a platform which acts as the key to enabling the orchestration of the client journey with various products and services that extend beyond your own business boundaries. Utilising this model and owning and investing in a platform can be a differentiator; opening up new revenue streams and reinventing the type of services available to customers.
Is embedded finance right for you?
To Gates’ point above – in today’s world, demand is growing for finance and banking that meets the customer at their convenience and point of need. There are already keen competitors promising all-in-one experiences. Take for instance the rise of Asia’s Super Apps, which are some of the best embedded finance examples in action: single, easy to use and functional applications that focus on their client’s primary need for a service (to purchase goods, transfer money, request transport and so on), and facilitate that need with payments, insurance, lending and deposits embedded into the client journey.
With one-stop-shop apps and experiences like this available and growing in popularity, utilising an embedded finance strategy when embarking on a digital banking journey is becoming vital. This strategy is most effective when it finds the balance between being on trend with global developments but meeting local needs and understanding what the current incumbents are doing while challenging the model through slight differentiation.
In addition, this strategy can be valuable for a number of reasons. For one, it allows a value proposition that is clear and integrated across the full product set rather than being just another standalone bank. When done right, it has a value proposition that is commercially viable from the start, keeping costs down and incrementally adding value to both customers and stakeholders all while being able to feed itself.
For existing entities wishing to leverage this strategy, it offers a proposition that builds upon the existing brand and broad reach of products, skills and expertise. New entrants to the banking sector are also able to leverage the model just as easily, as it allows an entity to cut through the intimidating clutter of the financial sector by creating embedded finance within a wide range of existing offerings.
BBD’s lessons learnt
As an international software development company delivering services into the financial space amongst others, we are proud to have partnered with various banks, insurers, and governmental bodies on digital transformation programmes, all of which have provided invaluable insights in applying our engineering execution methodology. We have learned many lessons on this journey, earned some scars, and created solutions that we’d like to share.
Below outlines some of the key takeaways and deep learnings from these projects, as well as our recommendations for delivering successful digital programmes especially when considering the embedded finance approach:
- The client is the most important partner in this journey: All too often companies design around existing business structures and operations, many of which are built around being efficient in their specific task and not seeing the big picture. “In an embedded finance proposition, we seek to meet the client where their need arises. To do this we need to understand their needs, how they can best be met and ensure that the technology solution serves to meet the need at the point of optimal client delight” explains Matthew Barnard, a BBD UK director.
BBD recommendation: A great digital channel is not a stand-in for great client service, client service is bigger than the channel and should aim to be pre-emptive, especially when it comes to resolving client problems. A solution that does what the client expects is not enough, but a solution that is designed around the client, and can pre-emptively react to resolve problems and exceptions will both delight and make clients feel special. Spending time with the end client is the first step in the journey.
- Digital transformation is a long journey, not a project, so being sustainable from the beginning is important: Successful digital projects need buy-in and commitment across the organisation, and in particular from the leadership team, who need to be willing and able to support teams as they execute on the project, as well as able to accept, review and pivot if something goes wrong.
BBD recommendation: An organisation’s leadership team needs to be fully committed and united in the desire to make this happen and understand that this is a long journey. Keep things moving by incentivising your teams to commit and stick around until the end. It is vital to align the team especially on the value add that your embedded finance journey seeks to achieve from a client, business and technical perspective.
- Digital businesses are complicated beasts for traditional businesses: Trying to move-for-move emulate other digital business models and their practices can be dangerous for new contenders, especially if those models are crafted for specific geographies.
BBD recommendation: The best approach for undertaking a new digital transformation project is understanding what the current incumbents are doing and challenging their model by putting a unique spin on things in a way that is still on trend with global developments, while considering and meeting local needs. Platform design and architecture are essential elements required to create a simplified and scalable technical roll out. “In order to reap the benefits of technical solutions already available,” says Barnard “an Agile architecture which can scale and adapt to changing client requirements is essential.”
- The devil is ALWAYS in the detail: Product offerings always look tantalising, and many companies, processes and products promise to have the silver bullet. But no one solution can be guaranteed for success if it doesn’t take into account the fine details of implementation, the complexities of current and future data, and the regulations related to the specific geography that the solution is intended for.
BBD recommendation: Design, implementation and client feedback are the most valuable indicator of real progress. Keep the initial team as small as possible and iterate the client offering frequently by getting into the detail early as possible. Aim to rather do a small release excellently than a big one that is delayed or doesn’t ever get released. Many projects fail at the point of integration, it is essential to commit as much planning and design time to this element of your roll out as to the others.
Like every other industry, the financial sector is increasingly being disrupted by evolving technologies and customer needs. Barnard makes it clear that when it comes to digital transformation, BBD doesn’t promise a one-size-fits-all silver bullet solution, in which Liesl Bebb-McKay, BBD Netherlands director adds: “Our approach favours a longer-term view, that is less disruptive, more pragmatic and tailored to the scale of your vision, your customers’ needs, the timescale you are willing to commit to and the budget you have to invest.” Both Barnard and Bebb-McKay agree that further to this, BBD recommends that no matter your scale, considering the pragmatic path of the provision of embedded finance using a platform approach will allow for delivery that is on trend and scalable.
“Our embedded finance solutions aim to align the needs of our clients and their customers with an on-trend and scalable technical solution” says Barnard. We are able to leverage decades-worth of accumulated learnings working with major players in the industry, along with a team of talented experts to build transformative digital solutions tailored to your unique business case and need, regardless of where you are on the digital banking spectrum or where you intend to be.