Embedded finance to be the next big thing in disruptive tech

Future banking apps should be more customer-centric, much like Grab and Netflix.

The banking industry has been enveloped by the rapid demands of its users: adapting to the latest technology, going digital, and being able to serve customers practically anytime and anywhere. 

This past year, another development has been seen rising in the industry. Embedded finance and embedded insurance have started to pick up as effective tools to deliver banking needs more instantly to a wider number of users –and this time not just in banking apps.

To delve deeper into what embedded finance is, Singapore Business Review spoke with Peter Miller, CEO of Fermion, to know how different it is from banking-as-a-service (BaaS) models.

“Embedded finance revolves around integrating access to financial services and solutions, whilst banking-as-a-service (BaaS) centres on providing a technological foundation that banks rely on to offer those financial services and solutions,” Miller said.

Expounding on the concept, Miller explained that embedded insurance stands as a subset or part of embedded finance or BaaS model.

The idea is to add embedded finance as an interconnected set of complimentary services. A good example of embedded insurance is when purchasing an airplane ticket, travel insurance or further extensions such as telemedicine or emergency money are made available to the customer.

However, the main goal of embedded finance is to provide for the customer’s needs—at the exact moment, they may need it without having to redirect or jump to another platform or site.

“Thus, what banks need to consider always is how can they best serve customers with banking and insurance products wherever and whenever customers need banking and insurance products and how they can best leverage their considerable assets to ensure they are always offering a differentiated proposition,” Miller said.

Fermion helps banks and non-bank affinity partners to on-sell insurance. It also offers insurers ready access to over 230 banks and numerous financial institutions. This enables insurers to connect and seamlessly embed insurance into customer-centric sites.

Including pension funds, Fermion’s savings & protection ecosystem connects 500,000 corporations and financial services providers, reaching over 11 million members.

When asked what common challenges are faced by institutions in adopting insurance ecosystems for embedded finance, Miller said that the problems are generally the same ones faced by the banking industry.

“Not many vendors really understand both banking systems and insurance systems; there is the complexity of distribution of banking systems and data, and there are misaligned interests between the parties,” he said.

With Fermion’s deep domain expertise, of having worked with over 150 insurance companies, Fermion helps banks embed insurance products into their customers’ journeys by analysing data and turning these into assets. Key touch points that can maximise revenue at a minimal cost are determined in the customer journey.

“The challenge for banks is to build trust with a human element to the digital purchase experience. Banks need to put customer expectations and needs front and centre and leverage considerable data and know-how to offer a superior value proposition,” Miller opined.

A personal and transformative shift in digital banking

Speaking next to Andrew Tan, Silverlake Axis’ Group Managing Director, one new trend that he saw in the digital banking scene is that there is now a shift to having cloud-based platforms.

“From an IT spending perspective, cloud spending represents a very robust area of growth. Some 65% of Asia Pacific banks surveyed either plan to move or have already moved their workloads to private and/or public cloud environments. Cloud-based platforms are the cornerstone to building new capabilities and deploying cost-effective transformative solutions,” Tan shared.

He said that the past years have seen a rise in digital lending, thus uploading banking services to digital is no longer an option.

To stay competitive in the APAC financial services market, banks are required to leverage modern, digital-first and component-driven transformation technology to effectively scale their digital capabilities.

One key idea that Tan highlighted is how disruptive technology can benefit the financial services industry. Considering the needs of today’s consumers, banking would need to be similar to customer-centric digital apps Grab and Netflix. By adapting to this, there shall be longer retention of customers and in effect, improvement in business growth.

“Disruptive technology inadvertently transforms the banking platform into a larger consultative approach. This automatically shifts the relationship from functional and transactional to experiential and personal. From a consumer point of view, the expectation of banks in a digital world would be similar to Amazon, Alibaba or Paywise,” Tan said.

“Experience is often positively or negatively impacted by the speed of task completion. Everything from opening the mobile app to making a deposit, transferring funds, updating account information, or establishing a new relationship needs to be tracked. The more intuitive and fast the process is, the less the abandonment rate,” he expounded.

Disruptive technology not only transformed banks into customer-centric institutions, but also revamped their business model to become modern, secure, and stable. Disruptive technology has transformed into a reliable system with real-time problem-resolution capability.

Silverlake Axis has a strong 100% successful track record and continues to provide solutions for both digitally mature and traditional players. It offers MÖBIUS, a composable out-of-the-box digital cloud for banks seeking to transform to a cloud-native solution, whilst it has the SIBS for banks that do not require a rip and replace in order to innovate and modernise.

Tan said that Silverlake Axis remains to make its banking partners successful as it provides experience, expertise, and execution to help banks navigate through digital transformation swiftly.

“Banking transformations are generally risky and fail more often than not due to people issues rather than technical ones. Most solution providers focus purely on technical issues. This is why experience, expertise and execution matter,” Tan said.

“Silverlake Axis has helped many banks transform over the years. We have been there when the ATM was first introduced in the 80s, then banks started to invest much later in internet banking…Technology will always evolve but having a Stable Core with an experienced partner to help integrate all these platforms transact seamlessly and successfully [is key].”

Get to know Fermion and Silverlake more with both companies exhibiting at the Singapore Fintech Festival, Hall 4 from 2 to 4 November 2022.