‘It’s all about embedding financial solutions at a customer’s point of need’: Plaid and Accenture on the future of embedded finance

You guys are out with some new research that you collaborated on together. Can you talk about the research and what prompted it?

Eric Sager, Plaid: Absolutely. One of the things we were seeing was more and more non-financial companies reaching out to us looking to embed digital financial solutions. And as we saw that increasing interest from what you would think of as traditional non-financial players -- so not fintechs, not financial institutions -- we felt like partnering with Accenture would be a fantastic opportunity to help those players understand the space a bit better, help them understand their respective strategies in light of digital finance and crucially, leverage Accenture's fantastic expertise to help implement our strategy solutions as well.

Ben, was this a topic you guys were familiar with?

Ben Brown, Accenture: Absolutely. This opportunity really dovetailed into a lot of activities that we're seeing in the market, both across our internal research and thought leadership, as well as our client conversations. This embedded finance topic is really an evolution of the financial partnership space that we've worked on for many years. Accenture has worked on financial partnerships for 20 plus years -- that means co-brand cards and enabling fintech startups. We've seen that increase recently. And it's actually been part of our own thought leadership as well. One of our 2021 commercial banking top trends was that every business can be or is a fintech business. And so we were thrilled to work together with Plaid on this research.

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It's worth defining what embedded finance is, or at least how you guys define it for the research.

Ben Brown, Accenture: I think there are two ways to think about what is embedded finance. One school of thought is that embedded finance is the distribution or offering of financial services by traditionally non-financial companies. But I think an even broader definition that makes sense is that it's the contextual distribution of financial services, whether that is by a non-financial company, or a bank, or an insurance company, tying together financial services with the life moments that they're meant to enable, and offering these seamless experiences to enable some of those life moments. That's how we really think about embedded finance.

I think the second definition is more inclusive, really, because the first definition says embedded finance is something that only non-financial companies can offer. But actually, I think this is a trend that both financial institutions and non-financial companies can participate in, either through partnerships or through a more intimate understanding of their consumer, their intent and needs, and presenting the right offers to them at the right time, and operating when and where they're already spending their time, which was actually a subheading for the paper: Financial Services whenever and wherever customers need them.

How does Plaid think about embedded finance and why do you think it's important?

Eric Sager, Plaid: Ben makes a couple of fantastic points there. It's all about embedding financial solutions at the point in time of need for a customer. That's relevant for financial institutions: you could find yourself in a flow as a customer, you're giving somebody traditional personal financial management advice. But now you're making that advice even more actionable by seamlessly blending those things together and embedding all the other solutions that are necessary, as opposed to just giving them the advice and then letting the customer figure out over time what action to take. 

But it's also relevant for players who traditionally haven't been involved in financial services directly, because they offer other products and services. And at that specific point in time, at that specific point of need, customers naturally also have a need for financial services. There are companies in the buy now, pay later space who continue to pioneer this. You're trying to buy something, right when you're trying to buy it is actually the point of need for a consumer to decide whether or not they want to fund it by paying with a credit card or by doing buy now, pay later. 

Where do you think we are in this evolution?

Eric Sager, Plaid: I'm going to use an American analogy: we're still in the early innings. There's still a lot of room to grow and develop the solutions. That relies on the data underlying this. But as a consumer, the best experience actually is I go into something, and I'm not just presented with the hypothetical option, I'm presented with a certainty that if I click A versus B versus C, I can actually go down that path. And so data is what makes that possible. Traditionally, let's say you wanted to apply for a credit card, or you wanted to apply for a loan, you didn't actually know for sure that you were going to get approved. And so as a customer, you're being forced down a flow that still has an uncertain outcome. The better the data gets, the better the kind of connectivity, the more likely it is that developers can actually provide you certainty as a customer at the very beginning. So before you ever have to take any action or spend any time or create any friction for yourself, you're already certain of the outcome by going through it because you've made that data available. That's a fantastic outcome for consumers, because it gives them certainty before they ever have to go invest their precious time in going down one of those paths.

I've been there myself. You go through the application. You fill it all out and then at the end, you're told no, or you're told that the rate that was advertised actually doesn't apply to you. It's now a much higher rate. We can take a lot of those things out of the flow and help our partners and customers take a lot of those things out by just having the data available at the beginning and with a much higher degree of certainty, give customers really great options.

Where are we in the rollout of embedded finance?

Ben Brown, Accenture: I'd love to build on what Eric said there by using an example from a couple players in the market. One of the things that was part of Credit Karma’s vision, for example, was that you could go from having this credit score that was kind of a proxy for what kind of products you qualified for, to really seeing that if a financial product is presented to you through their interface, you have a very high degree of confidence, or even almost certainty, that you're going to be able to access that product. I think embedded finance is an evolution of that, that has risk benefits for the financial institutions involved, as well as customer experience benefits.

If we roll back the clock 10 years, I think personal loans were pretty popular, and people could use them for all kinds of use cases, financial institutions didn't really know that you were using the funds for a particular purpose. By connecting the lending experience into the commerce experience, as Eric talked about, with buy now, pay later companies, now you can see exactly what is being purchased. That's a big benefit and the data that enables that can feed right into the rest of the systems, which can improve both the presentation of offers to the circumstances when they're relevant and when people are likely to be approved for them. But it also helps the financial institutions understand what's being purchased, and what those funds are being used for. Embedded finance has benefits not only from a customer experience perspective, which is hugely important, of course, but it also has benefits from a risk management perspective, that democratizes access to financial services more than they are today.

Who wins in embedded finance and how do you define winning in this environment?

Ben Brown, Accenture: Winning is driven by meeting customer needs well, and if you can meet customer needs well, then that's going to drive growth -- ideally, high-quality growth with quality revenues that are profitable and are efficient to service customers that have low loss rates. Embedded finance enables broader access to financial services. I think that is going to be a benefit for everyone in the ecosystem, but primarily consumers who were off-limits from some of these financial services offerings, either because they didn't qualify or because they're just complicated. 

That's the point that we make in the paper: financial services are complicated. They're complicated to understand as a consumer, they're complicated to offer as a company, they're complicated to manage once you've put money out into the market or issued a bank account or a credit card. And hopefully, the partnerships and collaboration that embedded finance relies upon help to make that a little bit less complicated across the spectrum, a little bit easier for consumers to understand these products, a little bit easier for nontraditional players to enter the ecosystem to help make it better, and a little bit easier for financial institutions to provide access to those products, to serve customers and to understand who their customers are and what they're doing. 

So overall, when we talk about who's winning with embedded finance, consumers are definitely going to win. And then I think there's a potential for everyone in the ecosystem to win by expanding the pie. We really think of it that way. This is not necessarily an event where you have a fixed size market and it's going to shift between incumbents and newcomers. We really think that both banks and non-financial companies can win by growing their businesses and improving the quality of revenues if they lean into this trend. At the same time, companies that stick with playing by the old rules could experience negative headwinds.

Eric Sager, Plaid: It definitely isn't a zero-sum game. Ben makes a very important point. On the consumer side, consumers are absolutely going to win in this. Consumers suddenly have options that they really didn't have before in terms of a lot of innovative solutions that are presented to them at the point of need. They already have and will continue to have more choices than ever before. And then, as we already spoke about, they have more certainty and less friction in being able to take advantage of those solutions. And all those things are really, really positive for consumers. 

And then for everybody else building these solutions, there's a lot of upsides, as well. For businesses that are traditionally more in the financial services space, they continue to be able to improve their solutions. They continue to be able to provide a larger surface area of solutions to the customer relationships that they already have. 

And for folks who traditionally haven't been as involved in providing financial solutions, they benefit by improving their entire experience. Think about Uber -- one of the big companies that has pioneered embedding financial services at the point of need -- it makes the Uber experience better. Or for Starbucks, that makes the Starbucks experience better. That will continue to be true, where you're actually making other non-financial experiences better by more closely embedding and marrying financial solutions with them. There's also the added benefit of new ways to monetize. Suddenly, your customer relationship through embedding these financial solutions in a way that is very standard, very well accepted, it makes your business more profitable and allows you to invest more in your other experiences. As such, it creates an even better consumer experience. And that's a very virtuous cycle. 

The only folks that I see losing at the end of the day are those players that are slow to explore and adopt some of these solutions. If you don't have the capability to partner in this space and find new and innovative ways to embed financial solutions into your flow, but your competitors do, even in areas that are non-financial, it's very easy to see how they will get a leg up on you because they're both creating a better end-to-end customer experience and they're able to monetize those relationships in a more effective way, which in turn puts them in a stronger position.

I'm curious about the mechanism around how companies make a decision to start participating and offering embedded financial services. What does that look like? How are some companies making that decision?

Eric Sager, Plaid: Generally, the first step is they identify a particular point of need. They have a flow and recognize that there is a financial component to it that would enhance this customer experience. The second step is, okay, how do you provide a best-in-class solution? In some cases, that means building it themselves. And so they will approach us and work with someone like Plaid and partner with an existing player, whether that's a fintech or a financial solutions provider. And then the third step is you outsource that development to a third party. Generally, we've seen players have the most success with the first two options in terms of building their own first-party solutions. But also, if you see the relationship that Apple, for example, has both with Goldman and others, other players really like partnering with established players in the financial services ecosystem to be able to bring these solutions to market.

What's the optimal way to actually start approaching, creating and rolling out an embedded finance strategy?

Ben Brown, Accenture: I think that's a great question. In the paper, we outline a number of different keys to success to make sure that you have successful embedded finance strategies, and that your exploration or investments in this space are going to be directed in the right direction. There are actually six or seven different keys to success and questions for both financial institutions and non-financial companies to ask themselves, both before they embark on committing to invest in embedded finance and then as they go about the journey, I'll highlight a couple of them. 

It starts with the customer. And companies have to look at the prospect of investing in embedded finance and say, is this going to create value for my customers and solve pain points for them? And to understand why you're approaching this space and being honest about that. Is it to solve customer pain points? Is it to create new revenue streams? Is it to deepen or improve your core business, because that can provide a Northstar for the way that you think about which products to offer? How am I going to offer them? How much am I going to invest in them? All of those kinds of things. 

We talked in the paper about the need to really understand the embedded finance ecosystem, including some of the players like Plaid, and how they help to simplify the offering of financial products, but it's still a very complicated space. I think that companies that are looking to enter it really have to get smart on how these products work, know what some of the pros and cons and risks are, even if they're not going to take all that on themselves in-house. It’s important to understand why partners might make certain decisions and go about things a certain way. 

Then finally, if you decide to follow a partnership path to enable embedded finance, you’ve got to pick those partners carefully, because in many ways, it can be like a marriage. You're getting into it for the long term. These partnerships are not six-month or one-year deals -- often they're 3 or 5 or 7 plus year deals. And sometimes out in the industry, we see these things last for 10 or 20 plus years when partners are on the same wavelength and work well together.

What does the future of finance and banking look like, as embedded finance enables more players to compete?

Eric Sager, Plaid: The short answer is I think the future is bright for consumers -- it will mean better experiences, more choice, and also better terms. Sometimes folks forget just the benefits that have accrued to consumers on that front. For example, on the investing side, you had players that came in with zero-cost trading. And now the entire industry is essentially adopting that as a standard. The beauty of that is that as a consumer, you don't even have to switch providers to benefit from a lot of it. You can actually just stick with whoever you're working with -- it might take a little bit longer, but eventually, all these benefits actually accrue to you. You don't even have to do anything. 

The bottom line is consumers are really in a position to win big coming out of all this. But at the same time, those players that are able to successfully embed these solutions into their flows are also going to win if they were traditional financial players, or they're going to win if they traditionally haven't played in that space, because again, they're able to enhance their existing experience -- it actually just makes their existing product experience better. And they're able to find an additional source of revenue, and then invest that back in the business as well. Those are all really, really positive. 

I don't think that comes without challenges. We're really focused on providing the infrastructure and everything else necessary for these types of solutions to not only exist in the first place, but crucially, to stay out where they can really benefit millions, tens of millions, hundreds of hundreds of millions of people. When you put those things together, we're looking at a very bright and exciting future in the space.