Although they cannot predict future results, these prior performances will help them in some way. This is even more the case in the field of payments and commerce where the industrial landscape has changed due to technology and shifts in the demands of the consumers. Against this backdrop, Brian Scott, Chief Growth Officer at Velera, provides insights into the current state and prospects of embedded finance and payments innovation in the series “What’s Next In Payments: There are many ways this blog can be subtitled, but for today the most fitting name would be ‘July Halftime Report.’
Scott highlights a key dichotomy in the market: the tactics that small and large organizations of the financial sector apply. Durbin-exempt financial institutions are those firms with asset sizes of less than $10 billion and those institutions major on niche markets targeting certain consumer groups. This is mainly because are smaller in size in a way that they can easily be able to build a close-knit relationship with their customers. In Scott’s view, “What we are witnessing is a lot of attention being paid to consumer need segments where Durbin-exempt financial institutions could establish themselves to concentrate on specific elements of that need extremely well, they are leveraging their place in a market, in a community, in an employer group.
However, to achieve sustainable development, institutions that have more than $10bn in assets focus on market advancement. These institutions are subject to more controls and have their interchange fees regulated thereby being forced to go for extensive market penetration. Scott goes further to explain that embedded finance means that it has become a major point of competitive selling for the Durbin-exempt institutions in a bid to counter their larger rivals.
Optimizing the Experience of the Users with the Integration of Payments
It is plausible to say that the most significant and rapidly advancing trend regarding the further evolution of payments and commerce is the concept of embedded finance. Embedded finance is one innovation that many industries can consider a great advancement by offering financial services more as part of the platform, improving customers’ satisfaction, and finding new ways to generate revenues for companies. According to Scott, the new forms of payments, which became integrated into various companies and services, such as Uber and Starbucks, can be viewed as the key representatives of the new type of interaction with financial services. One of the most convincing advantages of such solutions is a lack of the need to pull out a different payment device, as a consumer is already in the app, which forms an excellent experience, as stated by Roberts.
This continuity cuts back the number of hurdles in transactions that affect both the retail client and business-to-business (B2B) dealings. Thus, embedded payments’ value for financial institutions is primarily “stickiness. ” Once clients start using a particular payment device, – let it be a credit card – it stays in the digital wallet. As Scott demonstrates, saying that the payment device that is linked to the consumption system is incredibly valuable and sticky Also, once the payment method is established, it is easy to ‘lock and load,’ meaning that it is very difficult to get someone out of it … By the same token, it has 98% retention rate of those that are already linked into the consumption system therefore to maintain top-of-wallet’ position is critical for financial institutions that offer the
The part played by Sophisticated Technology in the Innovations of tomorrow
Looking to the future, the development of embedded finance is inextricably connected with the increasing use of such technologies as blockchain and artificial intelligence (AI). Scott also stresses that these technologies are helping in solving unmet customer needs. For example, applying blockchain helps in performing person-to-person money transfers, especially for those countries that face poor banking infrastructure. AI, at the same time, offers a vast number of opportunities for compliance. Once some of these players are incorporated into the organizations more deeply through embedded finance, then the situation changes and regulations become more elaborate. AI can effectively reduce, simplify, and speed up the process and mechanism of managing new, altered, and existing rules and regulations to be conformed to.
The next core issue of embedded finance is the fight against fraud. Since the process of combining different kinds of financial services continues to evolve, it becomes even more risky in terms of exposure to fraud for the users’ data. According to Scott, managers need to engage in the management of data sharing to minimize instances of fraud. Through such an approach of having multiple data points, the user identities are verified, and the occurrence of fraud cases is lessened. This is especially important given the exponentially increasing connectedness of various systems and the expansion of embedded finance.
Thus, the decision to develop a focus strategy based on Niche Markets and Bundling Services.
One of the most effective tactics for financial and business companies currently using embedded finance is the use of specific niches. In Scott’s view, a rising number of organizations aim at particular segments and include the connected appropriate finance arrangements. Sometimes, this is achieved through purchase or strategic alliance with firms providing such specialized services, which will go a long way in improving the value delivery to their clients.
Another strategy that is just beginning to surface is bundling. Unlike before when there was a tendency for business organizations to come up with separate charges for any new services that may be introduced in the market, there is a paradigm shift where businesses is introducing a subscription-based model where the customer pays a fixed monthly price for the services offered and they are bundled. Consumers find this model easy when it comes to paying charges, and this model ensures that companies have a constant cash flow. By offering new services in addition to the current ones being offered in the bundle, the businesses can improve the quality and increase customer loyalty.
Thus, as the milieu develops, there are countless opportunities and continual advancements in the concept of embedded finance that will alter how people engage with financial services. Consumers are offered easier payment and transaction processes, more specialization and narrow-ranging services, and finally, the technology-driven services become integrated with the consumers’ lives.