Embedded Finance: The 2023 FinTech Trend That Promises Increased Customer Satisfaction

In our 2023 Industry Horoscopes, we revealed one of the biggest Fintech trends of the year, embedded finance. But we barely scratched the surface of what that prediction means. It signals something much larger in the banking and financial services industry (BFSI). Fintech’s meteoric rise has only just begun. Finance will not only be embedded into our everyday technology, like in the case of online banking apps, but will also permeate every aspect of our lives, from how we shop online to how we buy stocks or insurance. In a way, technology is democratizing finance, allowing almost any company to become a financial services provider. But how will that affect the delivery of the new “financial” customer experience? Let’s explore… 

It Began with Banking Apps 

Digital payment systems are not new, but they are the most widely known form of embedded finance. If you’ve used a digital wallet to pay for an online purchase or paid for a meal using a food delivery app, that is in fact a financial product or service embedded into an existing platform.  

But that’s only the beginning. Financial transactions were already on their way to complete end-to-end digitization, as users started preferring the convenience of financial services embedded in day-to-day software. What spurred mass adoption, though, was the global pandemic in 2020, which led to lengthy lockdowns and store closures, and a 43% increase in eCommerce, making digital payments a necessity. 

Though it’s now become commonplace, people using their Apple Pay rarely think about the complex interplay behind the technology, and what that signals – a revolutionary partnership between technology providers, banks, and nonfinancial platforms. The birth of FinTech. Yet, what they were witnessing was a major disruption in BFSI. Individuals, and even businesses, no longer had to visit a bank to open an account, get financial advice, apply for loans, credit or debit cards. They can now do this virtually, without ever interacting with a conventional bank.  

In 2021, embedded finance accounted for $2.6 trillion, or nearly 5% of total U.S. financial transactions. By 2026, that number is expected to more than double. Nonfinancial platforms, like Amazon, now offer their own financial products, while large retailers such as Target and Walmart offer credit products and installment loans through partnerships with Fintech providers.  

Where is Embedded Finance Heading? 

Embedded finance is more than a fad. Its scope will only increase and so will its value to companies. Just look at digital banking. Once thought of as strange and only for “techies”, today, over 77% of Americans use digital banking. Younger consumers are already digital natives and will likely embrace receiving all their financial services through digital platforms. And thanks to the digitization of commerce and business, finance can now be embedded into even nonfinancial customer experiences.  

For instance, look at point-of-service (POS) lending, which can be found on retailer websites such as Sephora (via Klarna) and even Etsy. A customer may visit an eCommerce platform to purchase an item, and at checkout can opt to finance it with a Buy Now, Pay Later line of credit, which is then paid in installments via a linked debit card. Even insurance products can be embedded into the point of sale. With just one click, consumers can add insurance onto a purchase without going through a broker or insurance agent. 

Financial services can be embedded into investment applications, so users can buy, sell, or trade stocks without leaving the app, or in some cases, they can even connect with their brick-and-mortar banks within the app, to make sure they invest in a way that aligns with their current financial situation and spending habits. 

This is the fundamental shift that makes Fintech such a disruptive force and why embedded finance is something to watch in 2023. Technology now allows almost any company, even non-financial ones, to offer Banking-as-a-Service (BaaS), without being subjected to the same regulatory duties as financial institutions.

How does this affect the Financial Customer Experience? 

Embedded finance could be a game changer for businesses. By streamlining the financial process, it makes customers more likely to complete purchases, and provides consumers with a new level of convenience, which is one of the main drivers of customer satisfaction and loyalty.

As more sophisticated AI is integrated into platforms, there will also be a greater degree of security and diagnostic capabilities that can detect hidden patterns, questionable transactions, and anomalies, making online financial transactions even safer.  More than that, by embedding financial services into nonfinancial platforms, there is a hidden opportunity to better understand customer habits and behaviors. All sorts of financial data can be gathered which can be used to drive further business development.

But what does this mean for customer experience (CX) delivery? How will it change as more businesses offer integrated experiences where customers can access everything in one platform? There is a lot of value to be derived from offering your customers a one-stop-shopping experience. But to reap the rewards, it may require a whole new level of customer support. 

Users of embedded financial services will likely reach out primarily through digital channels, so you may need to expand channels, such as live chat and email, to meet increased demand. But don’t forget the possibility of contacting a Voice agent when needed. 75% of consumers prefer to speak with a live agent for complex issues, and financing questions may very well fall into that category.  

You will likely need a combination of both digital and human touchpoints. Our in-house Data Science & Innovation team can help you map out that process and can recommend ways to integrate these new financial offerings into existing interactive voice response systems (IVRs), online resource libraries, and apps. They can even design AI-assisted chatbots that can field basic questions, to promote self-service and alleviate call/chat/email volumes.

Our data experts can help you take a deep dive into the numbers, turning newly acquired customer data about financial transaction uses and preferences into powerful business insights that help you develop better financial products and services for your customers. While our qualified agents, trained in financial services, collections, and back-end admin functions, have the necessary skills to offer world-class digital customer experiences.  

It's all about offering the most seamless, convenient experience, which is the very purpose of Fintech and embedded finance. It makes every company its own store, bank, and even insurer, as lines between industries begin to blur. 

Hungry for more Industry Insights beyond FinTech? Make sure you download our free 2023 Industry Forecast & CX Horoscopes, where we delve into 11 other industries and what they can expect in 2023.