One of the greatest things about the Fintech industry is its continuous innovation and findings of new approaches that universally aim for greater efficiency and productivity. Included in this evolution is a back and forth and reshaping of existing models (there’s plenty of humility in the sector), which has been most recently shown by the unbundling-embedded-rebundling-embed more pattern we’re seeing. Within the FX sector, particularly for SMEs, this is a game changer to help better manage cash flow, budgets and international invoices as the current period becomes more challenging.
The advent of unbundling services within financial services came after the 2008 financial crisis, when banks and financial institutions wanted (and needed) to get back to their core services and therefore moved away from the add-ons they offered. With the banks’ legacy systems and their change in focus, alongside the entry of PSD2 and open banking technology, a significant gap opened up.
A short while prior to this, finance and technology were already coming together bringing forth new, agile and efficient digital platforms and services to consumers and SMEs that focused on a better user experience and greater results within specific parts of the banking value chain.
With so much in sync, it was now perfect timing for these Fintech companies to fill in the spaces that the banks previously occupied in areas like lending, payments and FX.
Fintech companies had the advantage of flexibility and adaptability; they adopted and leveraged new technologies like cloud and started on Big Data to continue their product development, which heightened competition against the traditional banks. Customer service changed as 24/7 support and access became available, and processes shifted and additional app features were added to fit with wider tech changes and user expectations.
To make the situation even more beneficial for users - but less so for traditional banks and financial institutions - the services offered by Fintechs cost a fraction of their traditional counterparts. Services were now officially unbundled, and the end users were far better off.
Source: S&P Global; McKinsey Retail Banking Survey
Being locked into one institution for all financial services and products has proved to be expensive and inefficient as users realised that the ‘jack of all trades’ notion really did mean ‘master of none’. However, while it’s not uncommon for businesses to use over 10 different financial apps, companies and banks, there is a demand for more frictionless experiences between the various services and a high preference for a single platform now as pressures and competition mounts.
This brought on our current era of rebundling, which sees a cohesion between financial institutions and disruptive fintechs working together to provide an entirely new and slick ecosystem of services.
Both internal processes and customer service is optimised while complimentary products to core services can continually innovate at a fast pace without compromise to the offering itself.
Rebundling solutions within financial services is a symbiotic relationship between the incumbents and the challengers too. For the former, they are able to access and offer new products on their platform with the knowledge that they’re relative to and wanted by their customers, and they’re competitive from technological and market value standpoints. For the challengers, understanding that being a ‘one trick pony’ will keep their value small, their partnering with banks enables a wider portfolio of related products, enhances customer trust, and increases their value as an entity. In addition, for both parties, rebundling solutions into a single platform helps customer stickiness, which is always the main goal for businesses.
A key aspect of successful rebundling is the single platform, which by default requires embedding solutions for a streamlined user journey. It’s through this that customer trust and satisfaction grows with the brand encouraging more products to be adopted and word of mouth recommendations to spread.
An embedded solution doesn’t require additional tabs to open, a manual switch between platforms or re-entering critical data several times; the use of a single flow process reduces the time to complete a task as well as any risk with client data and credentials. In addition, with today's technological advances, this means that all components are still firmly in place so there is no degradation in service.
Ultimately, it’s far more convenient and importantly, transforms services into dynamic experiences that are easier and more enjoyable for the end user.
“In a future-proof business model, the customer, not the product, is the focus.” - McKinsey Retail Banking Survey
Embedding solutions today require an almost invisible quality, so that users hardly notice the change. This could be a whitelabelled product that works within the existing workflow or an additional quick step that is hyper relevant to those before and after and contributes towards a better outcome.
In addition, when embedding solutions, banks and fintechs should use data to their advantage. It not only provides customers with personalised insights, which increases engagement but the data collected from a partnership that includes embedded solutions allows a far superior understanding of their customer from all angles and contact points along the user journey that would previously have been separate.
Despite more features being piled onto existing cross-border payment platforms, there is still a space that needs to be filled that will simplify and improve the payment journey for SMEs. With more global trade and market volatility than ever before, SMEs are still lacking an embedded payment service or rebundled solution that gives them access to payment savings and cash flow security.
Ideally to counter this challenge, SMEs owners would be given insight into the cost of their international invoices in real time and have the AI to help them achieve realistic and low-risk invoice savings. If this can’t be achieved because buying foreign currency isn’t a possibility due to initial cash flow challenges, the option to view different rates on invoice payment would be helpful so their default rates from credit cards and incumbent banks or financial institutions aren’t applied each time.
The various ways to embed such services could be through accounting systems, invoice management software, supplier portals (such as paying for USD freight costs within a supply chain ecosystem) or even something as simple as an embedded QR code on a bill that gives the payer access to live costs.
Ebury, a fintech specialising in international transactions for SMEs, acquired Brazilian fintech, Bex, to include FX and payments into its ecosystem. It was relevant to their existing product, widened their reach and enhanced the overall offering to their customers. Here, they’ve embedded the new solutions into their existing workflow.
While unbundling cross-border payments initially gave visibility, embedding and rebundling into the international invoice journey adds certainty and efficiency. Together, SMEs are in a better position to manage their cross-border invoice costs and their bottom line.
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