Building Trust Between Partners in Embedded Finance
Trust is an essential part of any business partnership. Both parties must be fully aligned on their vision and goals for the partnership. Our latest blog explores some pillars that help build the foundation for a positive, all-inclusive partnership.Return to blog posts
Bill Gates knows a thing or two about technology. The co-founder of Microsoft once said: “The advance of technology is based on making it fit in so that you don’t really even notice it, so it’s part of everyday life.” This seamless digital experience is a cornerstone of embedded finance: the integration of traditional financial services or tools within a non-financial business’s infrastructure – from payments to lending to accounts.
Bill’s experience has also taught him the value of another fundamental element of this finance revolution: partnerships. According to the seventh richest person in the world: “Our success has really been based on partnerships from the very beginning.” In the context of embedded finance, this refers to the level of collaboration between the non-financial business and the third-party technology provider.
The foundation of a successful embedded finance partnership is trust. This will allow both parties to forge a symbiotic relationship that benefits everyone involved. So, what’s important when it comes to building trust between partners in embedded finance?
Embedded finance has the power to democratise financial services – but its reliance on sensitive customer data means it comes at a risk. Cybercriminals are opportunists. Their determination to exploit new financial services by developing innovative attacks designed to compromise data exposes the burgeoning embedded finance industry to cyberattacks. For example, the attack surface within the embedded payments space is rapidly expanding: market research firm IDC forecasts that 74% of online consumer payments globally will be conducted via platforms owned by nonfinancial institutions by 2030.
Embedded finance technology providers must, therefore, instil trust by safeguarding data through the application of appropriate security layers relative to consumer activity in that ecosystem – from implementing two-factor authentication to complying with GDPR to developing internal policies that protect data to achieving ISO accreditations.
Take ISO 27001 for example: the international standard for information security, which sets out the specification for an information security management system (ISMS). This framework helps organisations protect their information systematically and cost-effectively, through the adoption of an ISMS.
Best in Class
The power of embedded finance to make financial services ubiquitous in today’s market is driven by established third-party technology providers. While it’s possible to build a solution in-house, the challenges soon escalate – including:
- Costs: when building in-house, you bear all the costs – from legal and resource build to ongoing software updates.
- Time to market: building an embedded finance solution in-house typically takes significantly longer – from developing risk models to building a technology platform to support customer onboarding.
- Regulations: financial services are traditionally highly regulated and often require specific licenses and registration from regulators and authorities.
- Opportunity cost: time and experience are scarce business resources – particularly for SMEs. Choosing to build in-house can deprive other projects of vital resources.
While it can be daunting for non-financial organisations to rely on a third-party technology provider, their knowledge and experience of integrating creative financial services into their partners’ end experiences offers compelling benefits – from expediting the time to market to absorbing regulatory requirements to reduced costs to ongoing development and support.
Quality of integrations
Let’s take the buy or build debate a step further by exploring the technical element of partnering with a technology provider to create an embedded finance ecosystem. This brings application programming interfaces (API) into sharp focus.
Once developed, API integrations enable faster, cost-effective, and more secure service enhancements. However, any new capability requires substantial programming resources, takes months to develop and deliver, and demands intense governance, risk, and compliance (GRC) analysis.
Working with a tech-led embedded finance partner that specialises in developing sophisticated APIs that allow rapid deployment won’t just save you time and money; you can also easily add new features when necessary. The best partners will provide technical resources to assist you during the integration process and troubleshoot any issues once live.
This intersection of technology and financial services will drift off course unless both parties are on the same page. Any potential technology partner must be aligned with your business’s objectives, committed to delivering the product accordingly, and flexible enough to allow you to change your view during the partnership. For example, if your main objective is to gain a new revenue stream, you must communicate this and work together to achieve it – otherwise, the integration could end up being a costly mistake.
Failure to cooperate and achieve strategic synergy could result in your business wasting time and money by implementing embedded finance technology for the sake of it – leaving it rudderless and unable to fulfil your objectives. Moreover, the new offering will not match the quality of your core product and the customer journey will experience more, not less, friction.
An established technology provider with a strong track record can demonstrate how their seamless embedded finance integrations have delivered two key benefits for existing partners: value creation and increased revenue.
These case studies should form part of the vendor selection process. They will show how businesses like yours that have embedded financial services into their nonfinancial offering are improving the customer experience and opening new revenue streams to complement their current model. You can even contact these companies directly to confirm that the technology provider has provided a better value proposition for the end user that encourages them to spend more money.
Vendor Selection Process
Embedded finance is typically a leap into the unknown for a non-financial organisation. The benefits of augmenting their offering with financial products are well documented and enticing, but success is not guaranteed in this alien environment. This brings the vendor selection process into sharp focus for businesses seeking to harness the power of embedded finance to enhance the user experience. If you’re planning on joining the embedded finance revolution, you must trust the provider you partner with from a security, technical, reputational, and strategic perspective.
To ensure they align with your objectives and have the necessary credentials to help you achieve them, carefully consider the options available before making an informed decision. After all, this is a long-term investment in a meaningful partnership, not an off-the-shelf product.
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