If your business is not banking, you might want to think carefully about whether you want to be hiring a Money Laundering Officer, for instance. Some BaaS providers manage all of the compliance obligations, while others do not.
If we continue with the H&M example, the buyer does not have to change channels. It transforms banking because it adds it as part of an existing user or buying journey. Why? Because it presents what the customer needs, where the customer is and when the customer needs it – removing the friction and cost of discovery that result in massive under-provisioning of financial services. As a result, customer LifeTime Value (LTV) suffers.īut embedded banking goes much further than just improving the economics of banking – it also grows the market for banking services. This makes up-selling and cross-selling difficult for both fintechs and banks, because it reduces the surface area, the touchpoints, for providing the right offers. There isn’t anything to hold our attention and keep up using the app. We open up an app to make a payment or check our balance and then we close it. The bigger problem both banks and fintechs have, however, is low engagement.
This might be lower for a fintech with an innovative product (Nutmeg, now acquired by JP Morgan, had a CAC of c.$680 for example), but fintechs tend to have narrower product sets with which to cross-sell customers, contributing to low revenue per customer (Nutmeg generated c.$200 per customer in 2019). This costs a lot of money. According to ARK Invest, the average Cost of Customer Acquisition (CAC) for a bank in the US in $1,500. B2C financial services companies, both incumbents as well as fintechs, need to reach time-poor and attention-poor consumers. The distribution challenge manifests itself in high CAC and low LTV.