There is no shortage of analysis of the various use cases where payments, loans and other offers can be delivered outside the realm of traditional financial services. But perhaps more conversation is needed about how it should all be delivered — and what gets in the way of the user experience.
Thredd CEO Jim McCarthy said Karen Webster, as part of What’s Next in Payments series about embedded finance, that in many cases the embedded options presented to consumers are still clunky. They miss the mark, they’re not personalized — and in fact, they can feel more like spam flooding someone’s inbox than a truly useful financial tool that meets a consumer’s time of need.
“Context is important,” he said, “and how you fit into the context that you are [as a firm] serving is very important.”
Partnerships have been successful, he said—witness the tie-up between Affirm and Peloton, where the former’s pay-over-time financing options introduced at the time of purchase made the latter’s expensive exercise bikes more affordable.
But what goes wrong is when there are too many stuttering steps in the process — friction, credit checks, data the consumer has to enter manually… where the opportunity to close the sale ends up being passed up or, at best, another payment method is chosen.
Sounding cautious about the current state of embedded finance, McCarthy said: “In some ways, unfortunately, we’re moving backwards – because of risk, fraud and regulation.” Different regulatory regimes and mandates (such as the UK’s four-day waiting period for some transactions to examine authorized push payments, short-circuiting the “instant” nature of those payments); KYC and KYB checks, while well-intentioned, slow things down and make it harder to deliver built-in experiences. McCarthy himself shared that since he lives in Europe, his bank will call him in the middle of a 3DS-related e-commerce transaction to confirm it.
“The security of payment has become the uncertainty of payment,” he told Webster, “and even knowing who’s at risk [and bears liability for fraud] is uncertain … payments are about risk management and counterparties … and it seems that with embedded finance, without understanding the risks, we’re taking those steps backwards.”
It’s not a stretch to think that, in an age of data breaches and stolen credentials, consumers are wary of sharing their credentials… unless it’s with merchant ecosystems they trust. Uber is a perennial example here, and so is Lyft, with access to earned wages, invisible payments, and other interactions well woven into the background.
Ecosystem advantage
McCarthy said embedded finance is best suited to thrive within those defined ecosystems, where payments are at the heart of commerce and where data flowing within these ecosystems between lenders, consumers, banks and others can help inform sound risk management and underwriting decisions.
Players who get it right? Well, they go back. And in some cases the distant past, more than a decade ago. While not necessarily a built-in financial player, Apple’s Apple Pay proves instructive here, launched a decade ago as a way to “break out of line and take the Apple Pay tag and throw it next to any item on an e-commerce site … making it into a one-click experience,” he said.
The good news is that the technology – tubes, digital wraps and rails – is all there to deliver the magical experience that built-in finance promises.
More recently, McCarthy said, “Ecosystem participants — like Square and others” are using their end-to-end visibility into their own platforms to create and cross-sell embedded offers.
Square sellers can, within the walls of the company’s ecosystem, receive a loan based on their sales volume and payment history of those (and past) loans made by the platform. “They get paid and all of a sudden this turns into a loan, magically,” and instantly, said McCarthy, who added, “because Square is behind the scenes and provides the payment streams … it’s all there because of money coming in and money going out.”
At a high level, he told Webster, as long as the ecosystem can serve the right product—at the right time, with the right message, underwritten by robust risk management models—reuse is more likely than not to happen.
“Ecosystems have the ability to create these wonderful experiences,” he told Webster, “because they have all the ‘pieces’ to wrap them up properly and serve them up at the right time, with the right assurance.” And they do it all very well.”
