Banks face significant growth potential when they address the needs of underserved customers. Embedded finance is an opportunity to prioritize inclusion while growing their customer base—but most of today’s players are getting it wrong.
A changing landscape
Financial services companies have a unique opportunity to address societal issues by serving new markets. They are in a position to impact almost every corner of the economy and proactively rebuild trust with those who have been historically underserved. Embedded finance is a significant and growing market opportunity, and it’s opening new avenues for firms to increase their footprint and expand into underrepresented markets.
Embedding financial services at the point of sale, in the moment they are needed, is disrupting long-established distribution channels and may also result in the creation of an entirely new set of alliances between customers, financial institutions, and nonfinancial services partners.
Embedded finance capabilities and solutions include:
An increasingly popular choice
The US embedded finance market is estimated to reach $236B by 2029, a growth of 4X over the next five years. Firms that provide embedded finance offerings tailored to underserved segments have the potential to win this market, but they will need a deep understanding of the needs and behaviors of the underserved segments to be successful.
Below are three principles financial services firms can embrace to win underserved customers.
Principle 1
Elevate financial access
Underserved and underrepresented populations have likely faced rejection or exclusion from financial services in the past, and hope for access to services that are better designed, welcoming, and take into account their circumstances. Examples of features that can resonate include low to no fees, flexibility with non-traditional employment situations, and not requiring unnecessarily lengthy applications. By integrating these features into their products, financial services organizations can increase financial access and discovery points for more customers. Potential concepts could include reassuring clients in real-time about their eligibility for financial services, integrating financial literacy and education into financial service products, and providing financial products with lower barriers to entry.
Principle 2
Embed education and support
Services that help enable long-term goals, stability, and financial wellness are differentiating for underrepresented groups. These services include extended hours, comprehensive digital services, relevant financial education, personalized up-scaling of products, and support to help them balance their long- and short-term needs. Potential concepts could include curated, personalized financial customer journeys that combine financial services with education and engaging content.
Principle 3
Design intentional experiences
Underserved groups are looking to be met where they are. New solutions that clearly communicate how and when fees are charged, balance flexibility with mutual accountability, and reward good financial habits can go a long way in establishing trust. Financial services organizations can also establish an easily navigable marketplace to improve connection and announce new services. Potential concepts could include providing flexibility within credit limits, expanding credit-building opportunities, and connecting benefits throughout the entire customer journey to provide a seamless experience.
Focusing on the right customers
Banks today have the opportunity to connect with more underserved and underrepresented customers through easy-to-understand, seamlessly embedded financial offerings—but often customers respond to new offerings with reasonable skepticism. To build trust, banks can strive toward a deeper understanding of these customers, their habits, and their needs.
Three major customer segments that use embedded finance products are:
Does not have an active checking or savings account with an FDIC-insured institution or bank, but may have had one in the past. This segment is likely to have been taken advantage of, locked out of accounts, or has been the victim of fraudulent charges with little help to resolve. Due to these negative experiences, this group is distrustful of banks and fine print.
Has a checking account, but not a savings account, with an FDIC-insured institution or bank. This segment is looking for faster access to cash for daily expenses, bills, and paying off debt, but is likely to have been rejected from access to credit lines.
Fully banked, but still faces socioeconomic disadvantages. This segment typically worries about educational debt, and has difficulty finding proper financial advice that resonates. This segment is the most open to new digital services and tools to drive financial security.
Building brand trust and loyalty among the underserved groups outlined above—through consistent, positive experiences—is vital. By following the three principles of elevating their financial access, embedding education and support, and intentionally designing products and experiences to meet their needs, these customers can feel more comfortable choosing the financial services that work for them. Most importantly, these efforts help close the inclusion gap in banking and help ensure that everyone feels welcome, represented, and truly listened to by today’s financial services organizations.
About the authors
Nick Cowell is a partner in Deloitte’s US Strategy Consulting practice with a focus on digital banking. He has experience delivering new value propositions and business models for incumbent and new digital challenger banks.
Ménès Etingue Kum is a senior manager in Deloitte Applied Design helping financial services and fintech clients define innovation strategies, stand up innovation capabilities, and design new offerings such as Buy Now Pay Later (BNPL) and embedded finance solutions.
Sara Ciaramella is a senior consultant in Deloitte Applied Design specializing in design research, experience design, and CX strategy to help clients in the financial services industry create new and compelling digital experiences.
Olivia Mikkelsen is a senior consultant in Deloitte Applied Design who leverages comprehensive user research and iterative co-creation to drive forward impactful digital experiences for financial services clients.