The rise of buy-now-pay-later unicorns such as Klarna and the dominance of payment solutions in the fintech agenda hint on the overarching embedded finance trend, the practice of incorporating financial services into other businesses in relevant contexts. Although the economic downturn poses significant challenges to the fintech industry, it is likely that we shall see more solutions within the embedded finance space. Today we focus on embedded wealth, another subsector of this industry. A recent report by additiv suggests that embedded wealth solutions have a potential to reach the size of 100 billion USD in fees. In today’s blog we explore several use cases within the embedded wealth bracket and highlight wealthtech that could be instrumental in bringing these solutions to market as quickly and efficiently as possible.
Embedded wealth solutions incorporate wealth management and personal finance services into various industries in relevant contexts. As is often the case with embedding financial solutions, the instrumental element of these models is about building a win-win partnership between the provider of goods or a service and the financial services player. At Kidbrooke®, we identified at least three areas embedded wealth services which could add value to customer journeys.
The first and most obvious use case deals with integrating personal finance management elements into shopping and subscription management experiences. While the buy-now-pay-later solutions play on the feelings of urgency and encourage impulse purchases, integration of personal finance management elements could genuinely benefit the user by helping them control their spending. There is also a win from the merchant’s perspective, as the embedded wealthtech solutions could help them justify the price of their goods by visualizing the durability, quality and sustainability of the product and showing the customer that they could, in fact, save money by investing in it. Similarly, personal finance management elements could encourage the customers to choose the subscription models that are appropriate for them depending on their use – which could grant the merchant an opportunity to have more stable cash flows from period to period.
Another interesting area for embedded wealth solutions concerns pensions and pension planning as part of the employment experience. We have talked about this use case in depth in our previous blog. Embedding pension planning toolkits into firms’ intranet can help the employees plan their retirement proactively and efficiently, improve the employer’s brand and, potentially the efficiency of pension accounting for the treasury. Modern interactive pension planning wealthtech can efficiently help to walk the employee through the intricacies of the retirement savings options and help them select the alternative that suits their personal situation best. Although the accounting departments usually make arrangements regarding the employees’ retirement, raising awareness about pensions is rarely considered a means of improving employee satisfaction levels. Still, high-quality pension counselling could be a turning point for your employees planning their lifestyle at retirement and for being able to take timely action to adjust the pension scheme for themselves.
The third area concerns helping small businesses manage their funds seamlessly. While large firms can afford to have qualified teams of accountants on payroll, smaller firms may struggle with liquidity management in their day-to-day operations. For example, integrating corporate credit and payments can ensure the swift and intuitive repayment of the interest and loans for small businesses. The idea is to direct a fraction of the sales funds into repaying the loan immediately. For instance, if a pizzeria purchases a new stove for 10,000 Euros, they can ensure that 10% of every pizza sold would go towards repaying the credit. Embedded wealthtech solutions in this case could help entrepreneurs ensure the solvency of their businesses by making the loans easier to understand and the repayment scheme more tangible and intuitive to follow.
Very few short-term credit policies benefit the customer even though they claim that they do. In this regard, focusing on wealth management components of the financial experiences could help you truly be on the customers’ side. Embedded finance implies seamless, frictionless experiences driven by automation. Therefore, the underlying technology powering the decision-making is likely to play a critical role in delivery of these models. OutRank®, our financial simulation engine, is a use-case agnostic, API-only software designed to support financial planning and embedded wealth decision-making on a balance sheet level. Integrating OutRank® can help you focus on your business and your customers, assuring that the underlying analytics of your offering is on point.
Embedded wealthtech components can be used by merchants to visualise and educate the customers on the durability and sustainability of their products while considering their financial well-being. They can also help firms design more responsible workplaces by educating employees about their financial situation at retirement. Business owners can benefit from embedded wealth solutions managing their balance sheets and improving their solvency on the go. There are many potential ideas for the emerging embedded wealth sector and we are sure to see more in the coming few years. Automated by design, this sector will likely rely on financial decision-making software, which needs to be flexible enough to support a multitude of use cases. You can read more on how we achieve this flexibility with OutRank® here.