Embedded finance is often defined as financial services on the consumers’ terms. This amalgamation of traditional financial services with non-financial companies creates seamless experiences for customers by streamlining their access to services like payments, loans, and accounts – but it isn’t the only type of embedded system making a wave out there.

The battle for customer loyalty and retention online has also prompted a demand for value-added services to be embedded into their experiences – such as fraud management, know-your-customer, compliance, insurance, and loyalty rewards. By plugging non-traditional offerings into their platforms using APIs and harnessing the “better together” proposition, businesses can enhance the customer journey by creating new value for them.

The rise of value-added services

Not so long ago the high street was king when it came to shopping. Businesses could peddle their wares in physical stores without worrying much about creating new value for their customers – for whom choice was limited compared to today. The exponential growth of the internet this century has not only sounded the death knell for the high street following a shift online; it has reshaped the battlefield for customer loyalty and retention amid an explosion in competition and changing demands.

For a business to appeal to new and existing customers and remain competitive in a crowded online marketplace, it must think beyond its core offering and add value to the relationship. One way to achieve this is to offer auxiliary services that customers will find valuable and will complement their core services.

Take banks for example, which have traditionally had a myopic view of service provision. Having spent decades building their products and services and offering one-stop banking for small businesses and personal customers, they have become hampered by a siloed approach that’s no longer viable. The modern consumer wants a relationship with their bank that extends beyond standard transactions and balance checking to the integration of complementary services – and the fintech disruptor banks are showing the legacy players the way.

Embedded value-added service

As businesses are required to work increasingly hard to compete online, they must think outside the box and consider value-added services – or risk losing customers. A value-added service is a feature that can be embedded into a core product to enhance the user experience or a service that can function as a standalone product or feature – and they’ve become fundamental to customer loyalty and retention in the highly competitive online business world.

The fintechs that are driving the growth of embedded value-added services excel at understanding the customer and creating offerings specific to their requirements. This valuable insight is reimagining the scope of the businesses they support. With their blinkers removed, these businesses don’t have to rely on generic one-size-fits-all bolt-ons; they can embrace additional services that are complementary and add value to their customer’s experience.

Examples of embedded value-added services that are helping to complement businesses’ core offering include:

• Square: The payments company has expanded its appeal by adding a range of add-ons like email marketing and payroll support.
• Starbucks: The world’s largest coffeehouse chain adds value to its customer experience through its customer loyalty points programme. To earn loyalty points – or, in Starbucks’ case, loyalty stars – customers must order or pay using the Starbucks app. They can redeem those stars to get free drinks, food, and even merchandise.
• STET: This automated clearing house offers fraud scoring as a value-added service for all payment types it processes.

By focusing on their customer needs and embedding value-added services, businesses can strengthen existing relationships and build new ones – and the benefits are compelling: customer loyalty, customer retention, competitive advantage, stimulates demand for core products and services and can generate additional revenue.

The future of embedded value-added services

The value-added proposition is not a rigid selection of services that businesses are forced to choose from; it’s a dynamic process that can be tailored to meet their customer’s unique requirements. This fluid landscape means existing value-added services are constantly being enhanced and new services are being developed and embedded into the native customer journey.

Embedded loyalty programmes that offer consumers rewards and incentives such as discounts, vouchers, cashback, and reward points are a prime example of how this constant evolution is driving growth: the number of loyalty programme memberships is forecast to grow by 33% from 24 billion worldwide in 2022 to more than 32 billion in 2026. It’s a similar story in the mobile embedded value-added services market – services offered by telecom providers to customers beyond core services like SMS, voice, and data – which was valued at $655 billion in 2021 and is expected to reach a value of $1133.85 billion by 2029.