Will embedded wealth help clients stick with their firms?

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his can be done either by having full integration of the financial proposition alongside the distributer’s own brand such as with tied car finance, or it can be done loosely where the financial offering sits as one of many alongside the digital distributer’s own offering such as a choice of loan providers when you buy a holiday or a phone.

Indeed the combination of multiple functions like ride-hailing, e-commerce and food delivery with financial services, provides multiple cross-selling and upselling opportunities. The whole idea is to offer a bundled service to make life easier for the consumer and to increase loyalty by being able to meet the customer’s entire needs in a way that suits the customer and is easy for them to use. The distributer and the finance provider both win.

The concepts sits on an end-to-end embedding regulated banking services called Banking-as-a-Service (BaaS).

The same concept applies to wealth – if distributers can provider wealth and related services then the wealth manager and the distributer both win.

Speaking to PBI, Karthik Sethuraman, chief operating officer at nexus, says: “Embedded wealth is an extension of embedded finance where wealth management services, products and tools are integrated into non-financial eco-system. It offers ease of access to investment products and services; cuts down costs on physical operations while increasing the reach to wider customer base.”

This is a huge opportunity. Embedded finance is thought to potentially represent $7trn and embedded wealth is thought to represent a $100bn market opportunity according to Aperture.

Louisa Murray, COO at Railsbank, tells PBI: “Everyone wants to get more traction with their customers so it is either about being able to offer them related products and services with wealth management as one of those or the wealth manager embedded additional products and services as a means to enhance their own offering.”

Although some wealth managers are concerned that distributing their products through partners threatens their client relationships, the good news is that enabling partners to distribute banking products can be a low-margin, high-volume business for banks because they can start the conversation with potential clients lower down the wealth scale and then accompany them on their wealth journey.

Eric Andersson, general manager Europe at additiv, comments: “Banks need to look to the future to try and capture people at the beginning of their wealth management journey and meet them there. Potential clients, probably younger, tend towards digital and mobile so the bank has to have an offering that is full and seamless and easy to use over those channels. To do this they need to break down the value that they are adding and rebuild it into the format and the places where clients are found. This means getting into ecosystems and infrastructures and this is essentially what embedded finance is all about.”

Murray adds: “Engaging with potential future wealth customers as they come up the wealth scale and meeting them where they are now at mass affluent or affluent is doable. Digital finance allows this reach on a cost effective basis and embedded finance allows the footprint and visibility of the wealth manager to travel much further and opens up access points”

Of course this works the other way too with wealth managers having an opportunity to add other related and concierge type services into their own proposition.

In this way wealth managers can use the concept of embedded finance to service existing customers by providing or embedding other products and services into their own offering. The aim of the game is to grow assets under management and increase their share of wallet and that can be done by bringing in and partnering with related and relevant services that combine to offer something more holistic to the client base and promoting themselves as a ‘go to’ wealth partner.

Andersson says: “Embedded finance will mean a compete change in the sourcing model. Banks need to realise that the need is to be out there and meet existing and potential clients where they are and that is not in branch it is on a mobile at a related point of need such as the need for pensions or credit or tax planning where they start to have a need and then build on that.”

Although not very well established within the wealth management industry at present embedded finance as a concept is gaining traction and by extension, embedded wealth is starting to follow.

Sethuraman comments: “Embedded finance is a logical extension of open banking and the concept of ecosystems. At its base this revolves round sharing account data and being able to initiate payments and at its fullest extension it can be around issuing cards and accounts, currency conversion, multiple payment schemes and collecting money. Embedded finance transfers these functions to a plethora of products and services- once the functionality is in place then the extension is a conceptual one.”

The best place to see embedded wealth is within the APAC region. This has emerged already in a generalist finance sense as a young affluent population have taken strongly to everything digital including super apps that offer related products and services- including finance. Merchants want to keep their customers and to do so know that they need to become something of a one stop shop. The same concept is extending up the wealth scale.

One example of this is nexus, Standard Chartered’s Banking-as-a-Service solution. It allows large digital ecosystem players to embed banking products onto their platforms with the use of its banking license.

“This forms an ecosystem between the bank and the digital partner where we share data and infrastructure to lower acquisition costs and leverage the changing consumer trends. For example, our partnership with Bukalapak, an Indonesia e-commerce platform with more than 100 million registered users enables their customers (especially those that are under / un-banked) the ease of access to our banking and investment products. The significantly lower customer acquisition and servicing costs are huge drivers for BaaS, as increasing acquisition and operational costs are a big load to banks that need to carry the infrastructure to support this,” says Sethuraman.

And Andersson comments: “APAC is now home to a rapidly growing mass-affluent market, characterised by higher levels of disposable income. Historically this segment did not have easy access to wealth products and did not actively seek them out. However, this is now changing as digital wealth services are increasingly being offered using mobile apps.”

In Europe meanwhile a broad move to self-determination when it comes to pensions and a related interest in self-directed investment offers up opportunities.

Andersson continues: “In Europe, by and large people are taking a more active role in their finances and so people need the help to be able to define their goals and invest accordingly and there is a real opportunity for wealth managers to step in and provide that service.”

To illustrate the issue, according to Citi, the 20 largest OECD countries alone have a $78trn funding pay-as-you-go and defined benefit public pension shortfall – there is clearly a lot of money needing to be invested and therefore the opportunity to guide that and become a trusted provider and partner is clear.

Thus embedded finance makes sense for both bank and customer. But how best to do this?

For banks that are sat on old infrastructures then the need is very much around connectivity and being able to share data and processes with other platforms in order to embed themselves smoothly with others and to have others do the same with them.

Andresson says: “There are lots of banks that are sat on old infrastructures but in the end they need to get out there and provide the customer with something at the point on need so they need to need to have some sort of platform and ecosystem capability.

Smaller banks, or those not offering a full range of services and products, meanwhile need to find partners in the larger wealth managers in order to give clients a better offering.

“There are lots of smaller banks who are looking to partner so that they can offer wealth and investment services to their affluent client base. They are ready to partner over a platform and technology is the enabler to all of this,” says Andersson.

That means partnerships. Unsurprisingly, fintechs are taking the lead on this by offering powerful platforms that can support complex embedded offerings and facilitate the processes and data flows that are needed.

These Banking-as-a-Service platforms sit as a top layer within the tech stack and provide all the connectivity required to offer consumers and businesses something that fulfils requirements and works quietly and efficiently in the background.

Sethuraman comments: “Our technology, with hyper-scalable architecture, supports millions of customers, and is able to easily integrate with our partners’ ecosystems. This also means we can co-create the products with our partners’ customer base and market in mind to offer a unique and customised proposition. Combined with the CX that ensures a seamless experience right from onboarding through the customer’s life-cycle, including the various self-service and call-centre options, all without compromising on the Bank’s compliance requirements.”

Atwal adds: “Larger wealth managers know they cannot easily change and are acquiring WealthTech companies that could innovate for them and do the job of getting out to more people and acquiring more AUM. The objective is to use the technology as means to get into a space that is experiencing disruption and benefit from the opportunity.”

Acquiring the tech know is just part of the deal though. There is little point having the connectivity if the user experience is not good and so the experience during the customer acquisition process and beyond needs to be flawless too.

Sukhy Atwal, senior relationship manager at ClearBank, comments: “To do this effectively the wealth manager has to become a user experience champion. There is little point in appealing to other related areas if the onboarding process and the customer journey is not flawless and frictionless.”

Murray summarises: “Embedded wealth is all about the reach; networking via technological ecosystems. Then once you have a touchpoint with someone being able to back that up with a positive experience, good service levels and something that is relevant and appeals to the customer wherever they are on their journey – evolving with them.”

She says that we will see this extend from something that is largely conceptual to come into the everyday relatively soon. “There is definitely an education piece around it but the technology exists and the case to do this is compelling,” she says,

And Andersson adds: “Enabling customer choice via open APIs makes sense for all. It means that products and services are not sat in silos and instead brought to the customer at the point of need – wherever that might be. It’ something that has already started to happen and will be much more visible within the next 12 to 18 months as traditional wealth managers and banks partner with the Fin and WealthTechs able to make this a reality.”

“Thus in the medium to long term, as embedded finance becomes a necessary strategy in business models, it should bring about a radical change in the way financial services are consumed, and there will be recognition from all players – the technology companies, banks and intermediaries – that everyone can benefit from this with greater digitisation of banking and financial services (digital transformation will happen at a more rapid pace), and traditional banks will have a very different role to play in providing these services. “With increasing competition, customers will demand more, with factors like quicker turnaround time, pricing, custom product offering becoming key drivers for the success of the service providers,” concludes Sethuraman.