Few people, if any, would describe Lyft, Upwork, or even Playstation as financial service companies. And why would they? The core services of these companies are, respectively, ride-hailing, a freelance marketplace, and video console manufacturing. But a focus on core services in one area does not stop them from offering services in another. And embedding financial products into their operations opens new realms of customer engagement and revenue.
There are many ways that embedded finance can take businesses to a new level, so taking that first step isn't always obvious. However, as more organizations move to offer financial products to their customers and partners, the path becomes clearer. If you’re not already looking into how embedded finance can revolutionize your business, your competition certainly is.
Embedding financial products can drive new revenue and deepen customer loyalty.
Moving to include embedded finance as a customer-centric strategy is not as intimidating as you might think.
So, would embedded finance fit your business model?
The embedded finance business model
As digital transformation continues across all facets of enterprises, the chasm between fintech and traditional banks continues to grow. Services that used to be solely under the purview of old-school financial institutions with brick-and-mortar locations are now available to any online service or product provider.
The fintech revolution that began during the 2008 financial crisis gave rise to a wave of neobanks like Monzo, Chime, N26, and Revolut. These neobanks succeeded in revolutionizing the consumer banking experience by providing customers with convenient mobile banking and financing via application programming interfaces (APIs) and a digital platform.
But where this business model failed was in reconciling the lifetime value of a customer with the cost of acquiring that customer. Why? Because neobanks still depend on the big banks.
That’s where embedded finance comes in. Embedded finance offers FDIC-insured financial services via pass-through with partner banks, and abides by the latest regulatory and security protocols. As such, financial institutions are no longer required for enterprises who want to deliver payment services, virtual accounts, financing, and overseas payments.
This shift to banking services via embedded finance is not a short-term, profit-driven movement. Rather, it’s a logical next step with a consumer-centric approach to maximize customer lifetime value (CLV).
Prioritizing customer lifetime value (CLV) over one-time purchase value
Successful, established companies are winning the trust and support of millions of consumers every day by adding bespoke, well–crafted banking and financial services to their platforms and ecosystems. Retailers, telcos, fashion, and car manufacturers offer checking and/or savings accounts, branded credit cards, loyalty or gift cards, buy-now-pay-later (BNPL) loans, payments by installments, digital payments services, and remittance.
As a result, the companies benefit from new revenue streams (for example, interchange fees on each credit card swipe), long-term customer relationships from brand affiliation, and enhanced insights into their customer base through exponential touchpoints in the customer journey.
So, what’s the catch? The catch seems to be that while consumers are fully onboard with the banking-as-a-service (BaaS) trend — case in point, McKinsey & Company reported in July 2021 that 60 percent of consumers said they are likely to use point-of-sale financing over the next six to 12 months — some companies are hesitant to dive into this new market. A recent study found that close to 30 percent of enterprises surveyed did not wish to offer financial services due to the perceived time it takes to adopt, and 25 percent were wary of potential fraud risk.
However, what these slow adopters are missing is that offering financial products doesn’t have to be complex or risky. Still, you might be wondering if all of these financial services really come prepackaged with a revenue-share business model and all the risk, compliance, and regulatory licenses handled?
In a word: Yes.
Just ask Lyft, Upwork, Instacart, or major e-commerce sites like Amazon because they saw through the complexity long ago.
Why Lyft, Upwork, and Instacart are embedded finance graduates
Gig startups were quick to embrace embedded finance technology and see the benefits from both the customer and company perspectives.
Specifically, these platforms linked workers’ bank accounts to in-app embedded payment processor. Lyft, Upwork, and Instacart all allow workers to embed their bank accounts so that they have one central place to receive payment without having to connect to a third-party bank. This makes payments more convenient and streamlined, gives the account holder faster access to their cash, and offers lower rates compared to traditional banks.
But these companies could do more. Gig workers without a strong credit history might have problems getting financing. Lyft, Upwork, and Instacart are examples of platforms that could add revenue streams by offering credit card or financing options to their workforce.
Lyft has already gone a step further with embedded finance. In an effort to compete with Uber in the labor market, Lyft gives its drivers a free checking account and a debit card with rewards. Drivers get 4 percent cash back at restaurants, 2 percent on gasoline, and 1 percent on groceries.
From Lyft’s perspective, the advantages are plentiful: the company retains current workers, attracts new workers, gains additional revenue streams, and obtains valuable consumer insights from transactions. Enabling bank accounts also unlocks a whole world of other financial products like debit cards, instant payments, and embedded investment in stocks and cryptocurrency.
How can companies like Playstation and Blizzard Gaming use embedded finance?
By offering embedded finance services on gaming platforms, players can store money for in-game purchases and upgrades. Purchases are made seamlessly without disrupting the gaming experience, and prepaid gift cards allow gamers to spend on their favorite site.
For adult players, gaming companies can offer branded cards that deliver bespoke, customized cashback rewards. These rewards can be put toward new gaming gear and in-game purchases, as well as special deals on brand collaborations and partnerships.
By offering such a robust user experience, the gaming company benefits from higher customer engagement. For instance, companies can turn interchange fees (aka “swipe fees”) into interchange revenue from each transaction, all the while unlocking first-party consumer spending data.
Alviere offers a single API integration to access a world of possibilities
Alviere is an embedded finance technology provider that offers a robust set of financial solutions combined with world-class, security and compliance protocols. Alviere’s proprietary ledger tracks transactions and gains clear insight into how and where customers spend money while adhering to all privacy requirements.
With all options available on a single platform, your program can offer any or all embedded finance products — accounts and wallets, payments, global money transfers including remittances, debit, and gift cards.
Would embedded finance fit your business model? Whether you’re a B2B, B2C, or P2P business, if you have a dedicated, passionate consumer base, high transaction rates, or both, embedded finance should be part of your strategy to deliver more value to your customers and to increase the business' CLV.
Offering embedded financial services directly to customers extends your core business in new ways ways that add value to your customers.
You don’t have to become a fintech company to embrace embedded finance. Let Alviere take care of the heavy lifting while you focus on what you do best.
