Saving via stealth: how embedded finance can encourage better habits

28 MAR 2023

Innovation is changing the face of financial services. Online consumption has boomed over the past 2 years, allowing for unprecedented growth. It also created innovation in digital financial solutions. Billions of dollars are already invested in embedded finance and BaaS. From 2020 to 2021, VC investments in embedded finance startups more than doubled in Europe and North America, totalling $6.7 billion (source: Stripe/Finch Capital). So far, most attention here has focused on embedding payments, lending, or insurance. Savings and wealth are another significant area for innovation, albeit in its infancy. 

Let’s take Europe: the current economic crisis and high inflation rates mean consumers are rethinking their finances, spendings and savings. 
Now is the moment for embedded savings to be rolled out to the masses.

It’s not only about economic conditions. Many stumbled into shopping when scrolling social media - Instagram Shop, TikTok Shopping and with more examples ‘social commerce’ is growing. Emails, pop-ups, instant notifications on smartphones about the ‘hottest’ deals. Embedded payments have made it possible to make purchases seamless and speedy. Easy.

Now, it’s time to make savings seamless. Simple behavioural nudges can make a huge difference. Automatically rounding up card spending to the nearest euro or pound to move spare change into savings is a widespread example of ‘seamless savings’. Offering a ‘jam-jar’ account: a bank account where clients can split money into several ‘jars’ without having to set up lots of other accounts is one method to make this effortless. Easy. 

Another case could be price matching based on shopping and transactions data. Let’s say you are paying EUR 50 for Wi-Fi each month. What if your eCommerce company checks your transaction data (upon your approval), offers you an alternative provider with lower prices and let’s you put the difference into a savings account created on that retailer’s platform? Sounds like a good deal. Easy.

Or, take a typical situation when one gets a pay raise, expenses increase accordingly. Banks can offer to save the difference between past and new salary or at least part of it. No hustle, the user just gets a notification, one click and done – the difference will go into a savings account each month. Easy.

Embedded finance coupled with gamification could be the next big thing for many businesses targeting young people. For example, linking user and behavioural data with payment data to make action-based/ behaviour-driven savings: every time a user completes some predefined actions or reaches a saving milestone, a predefined amount is automatically transferred to the savings account. Easy.

Tech and data are at our fingertips, the opportunities are enormous. Now, how do we enable the public to take advantage of these offerings? For this, the market players and regulators must see the relevance and immense profitability of such new business model solutions. This is happening now, at pace, and the result could be endless possibilities.

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