The recent study carried out by additiv showed that the concept of embedded finance is highly relevant - to the point where it can now become real and enter our day-to-day to increase access to the financial product that consumers actually want.
“The best tech is invisibly embedded into other people’s services where it is relevant for consumers at their point of need. We believe they are ready for embedded financial services; the technology is ready, and an orchestrated finance model provides the glue to bring together the regulated service providers - via a Banking-as-a-Service (BaaS) - with brand platforms. It is finally bringing the needs of the consumers to the forefront, and regulation via PSD2 supports this,” said Michael Stemmle, Founder and CEO at additiv.
But he warned that with opportunity, and moves towards open banking, banks would face some competition. “APIs enable companies of all types to offer (and embed) any type of products directly, without the need to have a direct relationship with the provider. For the finance industry, this is an opportunity to offer BaaS. It is now possible to offer financial services through an orchestrated finance model - giving companies access to an open ecosystem of services and capabilities all onto one platform and ultimately rearranging the finance value chain,” Stemmle said.
He added: “Embedded finance has a huge potential for value creation. Finally, consumers can get the financial experiences that they really need, when they need them from any brand, seamlessly.”
Christine Schmid, Head of Strategy at additiv, goes into more depth regarding the survey. It reached out to 3,500 people globally to see how they viewed their financial services and understand the gaps, particularly from a savings and investment perspective.
“70% were happy with their financial service provider, but close to 60% would switch if they saw a more innovative or alternatively better service. The loyalty is not there, and this is a particular problem in Asia. Consequently, banks in Asia need to be on their toes with service. The market is driven by consumption and the need to retain clients,” said Schmid.
She pointed out that the younger the client, the more likely they are to switch. Again this is a problem that Asian wealth managers, in particular, those with a younger demographic, will need to think about.
She also referenced the great wealth transfer and said that the older the receiving generation, the more loyal they are, as a rule.
The difference lies in the way that the next generation might prefer to conduct their affairs.
But interestingly, there was openness to accessing financial services via a non-financial channel – the embedded wealth model - if the context and the timing are right.
“So, for example, a pensions or savings plan via an HR system would work, or products related to ESG, financial wellness and related needs might also be attractive. Using a relevant channel caters better to a particular need rather than going via a banking channel, especially if it is presented at the right time.” Schmid said.
Pensions, in particular, lend themselves well to an embedded model. “Inflation, the savings gap for women, an ageing population, a growing population. Pension provision is a massive area where embedded finance can step in and guide people to meet their retirement goals. Wealth managers can be embedded into HR, and incentivisation systems to help, educate and offer guidance; this is a huge opportunity everywhere,” Schmid said.
In terms of interaction levels with digital channels, the survey found that levels are not as high as they could be.
“38% of consumers interact daily with digital channels and 23% weekly. They expect the channel to give them ideas that are tailored and in line with their interaction frequency,” said Schmid. “In particular, the younger the investor, the more likely it is that they received digital advice. 67% of under 35s have had digital advice, for example,” she said.
So how should wealth managers position themselves? “As an industry, we need to meet the needs of the consumers and be at the forefront to retain loyalty. We need to tailor our offerings to the right group and look into non-financial channels to meet them where they are at the right time and in the right form.”
The survey also helped to identify which tools and products are of most interest to encourage good saving and investment practices. “For example, certain cashback, rewards and bundled services proved to be very attractive to a high proportion of respondents with reference to saving and investing,” said Schmid.
To respond to these needs, business model transformation and serving the consumer right is the way forward. It is crucial to provide the service to the clients where they need it and at the time of need,” Schmid concluded.
This article is a write-up from The Wealth Mosaic’s Swiss WealthTech Live Event 2022 to launch the Swiss WealthTech Landscape Report 2022. You can access the full report here.
