The pandemic has forced many businesses to change the way they serve their customers. At the same time, customer expectations have also grown, and these positive transformations will last for some time. In 2022, they will be joined by an upending of the way businesses help their customers with money. Thanks to what is known as “embedded finance”, 2022 will be the year that any organisation can become a financial-services company.
To achieve this, firms will seek to provide their customers with banking and financial capabilities, including the typical bank offerings such as online payments, investment products, bank accounts, insurance and loans. We know of the big technology companies’ moves into this area, but in 2022, that capability will be extended to all sectors.
Big breakthroughs will take place in Europe, an area that has long been a hotspot for API-based innovation in the financial services. This is mainly due to its multi-currency banking, cross-border trade regulations and open-banking policy. Neobanks have already altered what people expect from finance-related products and services, and the infrastructure and behaviours for those fully fledged embedded-finance offerings to succeed are now in place.
One German study published this year by Solarisbank showed that 61 per cent of respondents signalled their willingness to use financial products from brands such as Lidl and IKEA. This readiness will now extend to other providers and platforms with which customers – both consumers and businesses – have built a trusted relationship. Small- and medium-sized businesses (SMBs), which represent more than 50 per cent of Europe’s GDP and have been traditionally underserved, will benefit the most. Not only do SMBs have the opportunity to become financial-services providers, but embedded-finance offerings will enable them to gain access to more financial services themselves.
Embedded finance is an elegant way to enhance the customer experience, strengthen loyalty, increase conversion and drive up margins. Everyday financial services, such as a short-term loan, a debit/credit card or an insurance product – previously seen as the domain of regulated financial-services providers – are now at many brands’ fingertips via APIs. There is also a huge opportunity for further growth – according to Juniper Research, the value of the embedded-finance market will exceed $138 billion (£100 billion) by 2026, up from just $43 billion in 2021.
With embedded finance, everything is available in one place and customers receive a frictionless purchasing experience. We are already familiar with embedded payments thanks to apps such as Uber, as well as “buy now, pay later” programmes run by companies such as Klarna. These will be more broadly adopted by brands in the near future. We will also see a rise of other offerings, such as embedded insurance, which has already been rolled out by companies such as Tesla. The company is now able to offer the owners of its vehicles savings of up to 30 per cent on car insurance because of the wealth of data it has about them, which can be used for more efficient pricing and underwriting decisions.
There will also be an impact on the world of B2B commerce, where the complexity around escrow, invoice financing, payments and foreign exchange create significant barriers to online adoption. With most of these offerings now available via APIs, companies – whether marketplaces or SaaS platforms – are offering increasing functionality to their customers, who are keen to have a simple and comprehensive solution to their financial needs.
The opportunity is clear. In 2022, financial services will no longer be the exclusive domain of the banks.
Get more expert predictions for the year ahead. The WIRED World in 2022 features intelligence and need-to-know insights sourced from the smartest minds in the WIRED network. Available now on newsstands, as a digital download, or you can order your copy online.
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This article was originally published by WIRED UK
