EP995: Developments in tech in financial services risk overlooking the customer!

Dan Scholey, Chief Product Officer, Moneyhub

Financial services platforms have been guilty of differentiating more on technical specifications, or look and feel, than their ability to impact the real lives of consumers. Dan Scholey, Chief Product Officer at UK FinTech Moneyhub believes many consumers suffer with high levels of financial anxiety, low confidence in managing money, and a lack of basic financial literacy. As Open Banking evolves into Open Finance, real-time client data is becoming readily accessible, and it is incumbent on banks and advisers to take advantage of these developments to help customers make more from their money and bring greater long-term value for the customers they serve.

Transcript

SPEAKER_00 0:00

I'm Robin Amler of IBS Intelligence. You're listening to the IBS IViews podcast. With me is Chris Newman, head of corporates at ClearBank. Clearbank produced some research with the projection that embedded finance is going to grow to 15 and three quarter billion by 2029. That's more than doubling from the size of the market in 2024. I assume from numbers like that, Chris, that people in finance aren't as concerned as perhaps they used to be about disintermediation.

SPEAKER_01 0:35

No, that's right. And great to be with you, Robin. Thanks for the opportunity to speak. Now we're we're seeing uh a huge amount of interest from both financial services companies looking to broaden their solution and also corporates, the area that uh that I'm uh responsible for at Clearbank, in launching and spinning up new financial services products that they wouldn't necessarily be their core business, right? So a non-financial services company, but looking to engage their customers and diversify their revenues through a financial services solution.

SPEAKER_00 1:08

But they're not doing this by themselves. They are going to a financial services provider and taking a white label.

SPEAKER_01 1:16

A number of concerns that were showed by corporates were uh you know, the barrier to entry is kind of things like technical expertise and obviously you know good old licenses and regulatory uh permissions. So what they're looking, they're looking to the both the fintech community and the bank community to see how they can leverage uh the expertise, how can they leverage regulatory permissions to deliver a financial services uh solution on a white label basis that's safe, secure, uh compliant, and uh and obviously scalable?

SPEAKER_00 1:47

All right. Well, let's take this, since this is your area of expertise, let's take this from the corporate point of view. Nearly half of businesses see embedded finance as a way to launch new revenue generating services, and a further 28% believe that embedded finance could help drive double-digit revenue growth. How does offering financial services deliver revenue growth?

SPEAKER_01 2:09

So there's uh opportunities for revenue growth uh in in many areas. When you embed a financial services uh product into your solution, particularly for a corporate who's that who obviously that's not their core business, they naturally diversify revenue. We look at uh embedded finance through an embedded banking lens, which basically focuses on um embedding a bank account and a payment solution uh into their ecosystem. Um that has a number of aspects that drive revenue. So obviously, interest, generative uh income, uh payment fees and services. Uh it's been a huge growth area for uh for the fintech community. That's how the fintech community and a number of banks uh make their money. And this is about sharing that ability, sharing that opportunity uh with a non-financial services corporate company.

SPEAKER_00 2:59

So who's showing the most interest in doing this? Uh there are obvious candidates, I guess, particularly in retail, but it extends beyond retail, doesn't it?

SPEAKER_01 3:10

It certainly does. I think I think the most uh the most natural opportunity, actually, and the one we're certainly we're seeing the most uh the most interest is anyone that that looks and feels like a technology platform, right? If you've got a platform that's trying to link two or more parties together, if you include a bank account and a payment solution within that ecosystem, what that does is it drives visibility, that drives certainty and trust between two parties or more that may not have been connected previously. So we're seeing a lot of opportunity in that space. Uh a brief example of that, we went live with our first um corporate embedded banking customer late last year. They're a tech-driven payroll provider. And the uh the kind of the neat uh uh proposition that we developed with them in partnership was the ability for their corporate customers to offer uh an embedded savings account to their end employees so that they can offer a salary sacrifice service into a fully compliant, fully regulated, fully protected uh interest generative savings account. Um, not only was that kind of driving uh financial inclusion and financial well-being, but the uh the payroll provider is using it as a lever to go out and win new business, right? It's a differentiator compared to their um uh to their peers. Uh so yeah, just just a brief example of the platform play there.

SPEAKER_00 4:35

Okay, that sounds great, but only 19% of the companies you surveyed have actually launched embedded finance services. You're expecting explosive growth in the next few years. How do we get from the fact that only a fifth of companies have launched a service to the kind of growth you're talking about?

SPEAKER_01 4:57

So the main barrier for uh that we're seeing uh for launching a solution like this is concerns around integration, regulatory compliance, and and and technical expertise. So it's really um the joint responsibility, I guess, of the corporate and of their chosen partner to try and work through those uh those uh challenges together. Um now, when you work with somebody like Clearbank, we're bringing not only that infrastructure and technology to the table, but also the kind of the risk compliance and technical expertise as well. So it's definitely a partnership uh requirement for both the corporate and their chosen partner to work through together. Uh, and that's what we believe that we bring to the table.

SPEAKER_00 5:41

I would have thought the most important part of that is the regulatory compliance because financial services, by the nature of the beast, is a heavily regulated industry. I don't, as a corporate, want to be a bank. I may want to offer banking services, but I don't want to take on the responsibility of worrying about regulatory compliance. That's your job.

SPEAKER_01 6:03

Absolutely right. That's what we're here for. We're protecting our clients from that. And obviously, those regulatory conditions don't stay still, as you as you rightly know, Robin. Um, so there's more regular regulations are tightening, there's more coming down the track, and that's our job to foresee those and react to those and put compliance solutions in place uh for our customers. I also think there's a broader, there's a broader piece here. So something we spend a lot of time on with our customers is defining the proposition scope and the kind of, I guess, and getting an alignment on the values of that product, right? So there has to be a cultural fit between the banking provider or the fintech that's providing the embedded banking solution and the corporate themselves. And that's something that we spend most of our time working on before anything goes live, before any project uh kicks off in earnest.

SPEAKER_00 6:51

All right, let's talk about the benefits and the motivations for doing this. We've touched on this already. There's a financial benefit, or if there isn't a financial benefit, why on earth am I doing it? But there's a financial benefit. What else do we get out of this?

SPEAKER_01 7:08

Yeah, so a lot of brands are talking to us uh about this type of solution, yes, from a yes, from a financial perspective, but actually more about boosting uh customer engagement and I guess leveraging off brand loyalty, right? So there on the customer engagement piece, um if when you embed a financial services proposition, um it drives people naturally into your platform on a very, very regular basis. So you get that touch point, you get that engagement uh with a customer coming onto your platform, coming into your ecosystem, pretty much on a daily or certainly a weekly basis, which may not be the case uh for a data for a corporate that hasn't launched a financial services solution. The second opportunity, I think, is around data and better understanding of your customer. So the insights that you get from somebody utilizing a bank account, for example, can drive a lot of decision making. It can drive insight into customer behavior, it can identify at-risk customers, it could uh help inform your marketing strategy, for example. So I think yes, you've got the financial benefits, but you've got that kind of whole whole uh insight and um uh customer engagement piece to consider as well.

SPEAKER_00 8:22

Which can lead to the development of newer products, better products, different products, and not just financial services products that I'm taking a percentage of, thank you very much, but also products that are specific to my industry, whether that be retail, whether that be wholesale, whether that be financial.

SPEAKER_01 8:44

Absolutely right. I we um when we've got when we've developed solutions with customers, it's very rarely that it stays still, right? So the solution that we put in place on day one, there's very there's iterations of it that come later because our partner, the uh our customer, they gain the insights on what are on what their customers want to use them for, how they want to engage with them, and then and then as I say, we iterate thereafter. So there's always a broadening both of the financial services aspect of it, but uh but uh from a from a broader corporate angle as well.

SPEAKER_00 9:16

Chris Newman, head of corporates at Clearbank, thank you very much. Thanks, Raven, great to talk about.