Open banking guide:
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Paying for your Uber ride directly from the Uber app. Adding a side-order of travel insurance to your flight booking without leaving the airline’s website. Arranging a monthly payment plan for that new phone you’re buying online from your mobile provider. These are typical instances of embedded banking, embedded insurance and embedded finance. Prime examples of seamless integration between the worlds of finance and commerce.
Enabled by functional APIs and made possible by regulatory initiatives such as PSD2 and the upcoming FIDA, this trend is only going to grow. PSD2 mandates banks to provide third parties with access to account data and payment initiation functionality. The scope of this access is currently somewhat limited but will extend as PSD2 evolves into PSD3/PSR.
THE IMPACT OF EMBEDDED BANKING ON THE CUSTOMER RELATIONSHIP
“The future of banking is frictionless.” The frictionless experience created by embedding financial services into customer journeys offers clear advantages for both buyers and sellers. Being able to initiate transactions that involve financial services, without customers having to switch between different platforms or apps, makes everyone’s day run more smoothly.
Embedded banking allows parties who sell goods and services to take control of the customer experience. This delivers higher (sales) conversion rates and increased convenience. However, it also means that the banks, whose financial services bind it all together, are pushed into the background, which is not so welcomed by the banks themselves.
WHY BANKS ARE STARTING TO EMBRACE EMBEDDED BANKING AS AN EXCITING NEW CHANNEL
Nevertheless, banks are starting to appreciate embedded banking as part of their strategy as it potentially opens up an effective and lucrative new sales channel, providing them with an easy way to acquire new customers. Something that is particularly interesting when selling parties are operating within demographics where banks typically are not.This is for example showcased by Uber partnering with Branch, an American financial company. The Uber Pro Card is a debit Mastercard, powered by Branch, that Uber drivers and couriers can use to pay anywhere Mastercard is accepted. As such, the partnership with Uber allows Branch to enter the transport market segment.
As an Open Banking platform, Ponto plays an important role here. Thanks to Ponto, customers can securely access their banking services directly in their preferred applications, such as, for example, their bookkeeping and accounting software. Via this integrated experience, banks can offer their financial services through alternative channels and to new markets and customer segments that were previously difficult to access. This can lead to growth in the customer base of the respective bank.
The embedding trend for banking, insurance, finance and many other things is only going to grow, both in the B2C and the B2B world. And it must be remembered that the battle for consumers’ attention is nothing new. Fifty years ago, banking was done in branches, in person, manually. As the world has evolved over time, so has banking. Banking channels come and go. We have seen the demise of branches, the phasing out of cheques and other paper-based channels, and telephone banking is hardly used these days.
On the flip side, we have seen the rapid rise of internet and mobile banking as channels-of-preference. Thanks to the convenience and choice consumers enjoy through embedded banking, this will simply become another fact-of-life in a multi-banking channel strategy.
Banks should, of course, care about offering their customers the best channels and user experience. And with this, embedded banking is nothing to be afraid of. Banking will continue to evolve, and the banks that adapt best will be the ones that win, whether they are in charge of the customer interface or not.