Opening access to customer data and functionality in banks platforms has given way to an avalanche of innovation as fintechs find new opportunities to create value for financial organizations and their customers.
Innovators in this space are only just starting to uncover the huge potential that lies in the access, analysis and transfer of data, revealing patterns that anticipate customer needs and enable, highly personalized, immediate and convenient services.
Embedded finance is an evolution of Open banking, the colloquial name given to a concept brought about by an EU directive requiring banks to create digital interfaces to data and functionality in their banking platforms. The aim was simple, make data a shareable asset by enabling it to travel securely between a customer’s bank account and any authorized third party. Yet, the whole concept of openness was a significant departure from a culture of confidentiality, self-sufficiency and tight regulation that has always permeated financial services.
“If you can offer more value to the customer by adding, not only the payment part, but lending, insurance, and other financial services into the customer experience you can increase business and create a loyalty component in the experience”
Fredrik Neumann
Country Manager Nordics, Worldpay Solutions
Today open banking is a reality on which many companies are building new services, business models and exciting ways of serving customers. With the rails in place, a spike in innovation has led to businesses like retailers, airlines, utilities, and other financial institutions, to integrate financial services like payments, insurance, and even investment into their customer experiences.
“It is about increasing business and getting more loyal customers” says Fredrik Neumann, Nordics Country Manager for Worldpay. “If you can offer more value to the customer by adding, not only the payment part, but lending, insurance, and other financial services into the customer experience you can increase business and create a loyalty component in the experience”, adds Neumann.
Embedded finance is a lifestyle
The idea of embedding financial services in unlikely places has been a reality for several years in other markets. In Asia where embedded finance has become a lifestyle, users of mobile Super apps can access an entire service ecosystem with a common financial layer that enables them to transact with one another.
Back in the Nordics, where no clear Supper app has yet emerged, the trend is developing in a multipronged way. Frontrunners are leveraging the new digital interface infrastructure to develop narrower customer value propositions along several financial services.
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Embedded Payments
The idea behind embedded payments is that it makes little sense to ask customers to repeat a payment protocol every time they want to make an online or mobile purchase. Instead, by embedding the payment process into the purchasing process the whole experience becomes seamless. Through embedded payments, customers need to complete a one time only step, that links their bank account to the merchant. After that, the customer is free to transact with that company without friction.
Nordic users are familiar with this form of embedded payments from companies like Wolt, Lime, or Share Now. Once an account is setup and linked to the user’s bank, they can eat, ride or drive and technology takes care of the payment in the background.
“The level of digitalisation
Kim Ulf Rehfeld Thoden
in the Nordics is sky high, and so is the need for seamless, elegant and flexible embedded solutions. We estimate the potential B2B embedded finance market in the Nordics to reach 30 billion a month, a whopping 360 billion euros a year!”
CEO and Founder, Moneyflow
Embedded level: “Stealth Mode”
A more extreme example that made its debut in the US back in 2018 with Amazon Go stores, but that is now available in the Nordics through walk in, walk out stores in Sweden and Finland, lets customers take items from the shelves and just walk out of the stores. A clever system of sensors and cameras tracks exactly what the customer takes, and the store’s app makes an automated and invisible payment as soon as the customer leaves the store. A less sophisticated, but still convenient system is already in operation in Denmark through supermarket chain Netto’s Scan and Go app. The app enables customers to self scan their purchases, bag them as they go along and self checkout through their phones when they are done.
Embedded Lending
In the past, purchases of larger items, like a fridge or a TV would require credit through a card or an unsecured personal loan. Embedded lending and specifically buy now pay Later (BNPL) give buyers immediate access to short term interest-free credit at the point of sale, with as little effort as using an app to checkout and pay for goods.
A very Nordic example comes from Swedish BNPL company Klarna which lets customers split a purchase into several smaller monthly payments or postpone payment by 30 days. Similarly, Danish neobank Lunar offers customers the option to postpone payment of purchases or bills through a retroactive credit solution that deposits money back into the customer’s account for a fixed price.
Recommended for you: Get your copy of the Nordic Fintech Magazine Spring Edition 2022
A multibillion Euro opportunity
Embedded lending can also benefit small and medium businesses. An innovative solution brought to market by Danish embedded lending frontrunner Moneyflow, helps businesses liquidity by making immediate advancements on the payment of their invoices.
Moneyflow CEO and Founder Kim Ulf Rehfeld Thoden sees huge potential in the space of embedded services in the Nordics. “The level of digitalisation in the Nordics is sky high, and so is the need for seamless, elegant and flexible embedded solutions. We estimate the potential B2B embedded finance market in the Nordics to reach 30 billion a month, a whopping 360 billion euros a year!” says Rehfeld Thoden.
With the various emerging modalities of embedded finance and its yet untapped opportunity for services like insurance, pensions and wealth management, the Nordics are moving one step closer into making financial services ubiquitous, available when needed and invisible when not, but always present.
