What’s The Big Deal About Embedded Finance?
‘Embedded’ literally means existing or firmly attached within something or under a surface.
Finance is everything to do with money. Saving it, investing, buying insurance for protection of an asset, paying for things in your everyday life, etc.
Easy and well-known Embedded finance examples are:
Booking an Uber ride. Payment is automatic
Shopping online and paying with PayPal. Payment is automatic
Earning income from a job and accessing payments within a group benefits app
Using Apple and Google apps, signing up for other app subscriptions. Payment from your account is automatic
Sending invoices to clients through Quickbooks. Payment is automatic through the invoice directly deposited to your bank
A personal example of embedded finance I can share is becoming a Clearestate client. My parents recently have gone through life threatening illnesses, and it made me realize that I don't want my children to worry about my end of life wishes like I was facing with my parents.
I want everything organized, done, and paid for so they don't have to worry. I found Clearestate – a new FinTech with a Value Proposition of “helping you build an estate plan that protects your family and ensures an efficient transfer of your assets to your loved ones.”
Fast forward to now. I am signed up and have embedded all my financial accounts into the Clearestate platform:
Investment accounts
Bank accounts
Insurance accounts
Wills
Other key documents
Clearestate now knows more about me than all of my individual firm relationships. It's a relationship that has tons of value to me. I just started working with a new financial advisor who is also adding tons of value in a different way, but at this point I would be extremely reluctant to move from Clearestate unless someone can offer better or more value.
This could be the beginning of major disintermediation of my individual financial relationships (maybe). What if Clearestate can offer more to me? Will I add those to my business with them? Likely.
I brought up Clearestate as an example because I wanted you to consider the following:
What are the high-value embedded experiences that could threaten to take over your direct client relationship?
Who will become the top banking app not provided by banks? And for insurance? Wealth? Payments?
Where are you creating reasons for your customers to Google search an easier way to do things?
Healthcare at a crossroads
Another personal example I wanted to highlight is within healthcare – Felix, offering “doctor-backed personalized care, prescribed online and delivered right to your door”.
I just moved to Vancouver Island. There are X amount of doctors and Y amount of people, meaning I will not have access to a family doctor for probably 3 years. That leaves me with the option of walk-in clinics, emergency departments at a hospital, or virtual health platforms.
For a simple prescription allergy medication I Googled “where else can I get xyz medication” and in about 5 seconds I found Felix. The process was simple:
You enter your personal information, answer a number of medical questions, and upload your ID so your identity can be verified. A nurse practitioner is then assigned. They review your profile, ask questions if needed, and the final outcome is a supply of medication by prescription. Filled at a pharmacy and delivered to your door.
Is this embedded finance? You bet. The traditional pharmacy just lost my business and the private care I was contemplating paying for is now completely redundant.
How do these new companies monetize these opportunities? They make money off of the sale of financial products, the payment transactions flowing through their platforms, other fees charged for the platform, etc.
The job to be done is not what you think it is
The job I needed done in regard to my estate was ensuring my children have peace of mind, and that no one person is tasked with the pain and expense of my end of life (aka no sibling relationship damage). These are real issues that Clearestate provided real solutions for. Peace of mind is the job to be done, not having an estate plan.
The job I needed done in regard to healthcare was getting relief from allergies, and preserving my time to spend on more important things (by finding a way to avoid waiting 8 hours in the rain for a walk-in clinic). Felix gave me the real solution.
Embedded Finance is a big deal. So what’s the (big) takeaway?
Simply put, your customer relationships are at risk of not being managed by you and being taken over by another player in a value chain where they get more value. Inevitably this player will also take your fees, profits, and may even switch to becoming your competitor.
There are 2 questions that are critical to, at the very least, start considering:
Will you have the time or ability to prevent your customers from leaving you for an embedded experience?
What are the products or customer touchpoints that create the friction that will result in someone like me looking elsewhere?
Yours truly,
Sue
Chief Change Catalyst | Firefly Growth