Embedded wealth as a concept is not new, but despite being around for the better half of a decade, it is yet to become a widespread adoption. While there are multiple reasons behind this, one of the most significant is the unwillingness among financial institutions to up their game and leverage their infrastructure to ease the investment experience for the end customer. In today’s blog, we will thus discuss what is hindering the expansion of embedded wealth and what changes key stakeholders can make to address and overcome these challenges.
The Challenges
1. Lack of Awareness
The factors hindering the full-fledged expansion of embedded wealth are multi-fold. For starters, there is a lack of knowledge among patrons. Although other embedded finance offerings like payments and lending have been around for some time, embedded wealth is still fighting for its place on the podium, mainly because of the lack of awareness among consumers.
Although it is certain that embedded wealth will sooner or later become a mainstream offering, the speed of this uptake depends on the willingness of traditional financial institutions and wealth managers. The reason behind this simply being – similar to other embedded finance offerings, embedded wealth too has three main stakeholders in its value chain – the financial institution, the fintech and the end consumer.
As of date, fintechs have already started pioneering the required technological infrastructure to facilitate a connected experience for customers, but the lack of awareness among financial institutions translates to a slow uptake among them. For instance, most traditional financial institutions shy away from hiring a full-time CTO (Chief Technological Officer) and instead delegate decisions to Heads of IT who are yet to view embedded wealth as a strategic advantage.
Simply put, the core problem lies in key stakeholders still viewing embedded wealth as merely an additional infrastructure cost and not a growth facilitator which can empower them to further new delight customers and make their investment experience better. The result – most traditional institutions are losing out on the opportunity to become early adopters and market leaders of this rapidly evolving opportunity.
2. Moving with Haste
The second challenge withholding the rapid uptake of embedded finance is that a few big players planned on riding the embedded wealth wave with haste and failed at doing so successfully.
In these cases, the stakeholders commissioned full platform deployments without first taking into account the amount of time each step will need for completion. For instance, instead of planning for the beta run of a single functionality, the decision was taken to develop and deploy multiple high-end functionalities such as hybrid advisory, stock trading integration and robo-investing. Although each of these features is necessary to facilitate an embedded wealth experience, the decision to implement all these features at once without reviewing the true market needs contributed to less desirable outcomes, although the intent was well-versed.
The Solutions
Although embedded wealth is entrenched in challenges at the moment, there are a few fundamental changes key stakeholders can make to realize an immediate positive impact.
The first solution is aimed at providers of embedded wealth. As I highlighted earlier, although embedded finance is not a new offering, there is still a lack of awareness among key stakeholders. The ideal solution to address this challenge is for embedded finance providers to invest heavily in educating their target market about the proposition and potential of this technology.
Starting from topics like how embedded finance works to how embedded finance arrives with the potential of changing the face of global banking, providers need to build detailed knowledge banks and share them widely among their networks to increase overall awareness. Although this is a slow process, consistently investing resources in this effort will ensure that the provider becomes a market leader in the long run. The reason behind this simply being – we do business only with those we trust and sharing knowledge builds trust.
The second solution is for financial institutions to vet and choose the right execution partner for their embedded finance goals. Instead of choosing to develop the entire platform internally, a more efficient solution would be to partner with a fintech which has already pioneered this technology.
The reason why outsourcing this technological requirement might prove to be more beneficial is simple – developing a new platform internally is highly resource intensive. Starting from hiring fresh talent to investing countless manhours and millions of dollars into developing a prototype, the list of prerequisites is wide and yet the result of a fully functioning and efficient platform is not guaranteed.
On the other hand, if traditional financial institutions partner with a fintech that has already pioneered this technology, the former can seamlessly achieve a faster time to market at half the cost and time. Along with this, since most fintechs these days offer bespoke customization, the integration can be tailored to your exact requirements making the onboarding and investing journey of your customers easier and hassle-free.
The Takeaway
Embedded wealth is on its way to becoming a necessity rather than a luxury, and this change will happen sooner than expected. The true winners in this scenario will not be decided by who integrates this solution but by who does it the fastest and in the most efficient manner.
If you are looking to offer your B2B customers a seamless embedded finance experience, reach out to us at CrediLinq today. At CrediLinq, we are pioneering embedded finance for Asia and beyond – get in touch with us today to know more.
