Data and analytics have been buzzwords for years in the financial services industry, but only recently have banks started using data analytics to meaningfully drive revenue and improve the customer experience. Today, banks on the leading edge are using advanced analytics to inform and prioritize among marketing campaigns, and then automate those campaigns so that dozens, if not hundreds, can be run simultaneously by financial institutions of any size.
Growing revenue in a responsible way has always been a challenge for banks, but it’s not the growing part that’s hard. A bank can grow revenue by simply easing underwriting standards and boosting loan volumes. But this increases credit risk, leading to higher charge-offs in the future. Thus, this is not an ideal growth strategy for long-term success. The challenge is to grow revenue responsibly, ideally in a way that doesn’t require regular infusions of capital.
Embedded Finance: Delivering Value at the Point of Decision
Embedded finance is poised to be the primary channel for financial services, which means urgent adaptation is crucial for banks.
Exceptional customer experiences via embedded finance build lasting relationships, particularly at the point of sale. As banks adapt, reimagining the customer experience with embedded finance will be crucial.
Financial institutions must prioritize digital integration with open APIs to stay competitive and offer diverse services.
Embedded finance is positioned to become the number one distribution channel for financial services within the next 10-20 years, which means the time to start preparing for the revolution is now.
Today’s customers want seamless, digitally-enabled buying and lending experiences. Embedded finance has emerged as a convenient solution to meet these needs. With its buy-now-pay-later (BNPL) method of financing that eliminates the customer’s trip to the bank, embedded finance has quickly grown in popularity as a way for customers to finance items at the time of purchase.
“Banks must find a way to deliver an exceptional customer experience, and establish lasting, loyal relationships, without relying on their branches and face-to-face interaction.” – Nathan Snell, Co-founder and former Director of Product Management at nCino
Reimagining the Customer Experience
To stay competitive in the financial services industry, financial institutions must find ways to differentiate themselves in the space. Reimagining the customer experience through embedded finance is one way that financial institutions can gain an edge in the ever-changing industry. By embarking on the buying journey alongside the customer, financial institutions can add a layer of protection and offer advice tailored to their unique situation. This means an instantaneous lending experience could translate to a long-term relationship—especially if it’s with a financial institution that can offer services and products beyond the moment they click “buy.”
“Embedded finance delivers the experience consumers desire and need, right at the point of sale,” says Snell.
Adopting a Digital-First Mindset
Today’s customers demand the option of a digitally-enabled banking experience with minimal face-to-face interaction. With embedded finance becoming a norm, consumers are moving away from financing through traditional routes with their own financial institution. Instead, they are opting for the BNPL option at checkout offered on many retail platforms today.
Financial institutions have an opportunity to scale this digital, frictionless experience for more complicated loans and customer journeys, while still maintaining compliance, trust and high credit quality. To create seamless experiences, financial institutions need to first implement a flexible, configurable, cloud-based platform that supports a diverse array of integration options.
For financial institutions seeking a process in which buying, and lending happen simultaneously, an open API architecture and trusted technology partners are key. This allows financial institutions to safely and securely integrate with numerous third-party providers across channels and lines of business, including commercial, small business and retail. Without this technology in place, banks are limited in what they can offer their customers and how they can work with other businesses.