The author of this article argues that by introducing embedded wealth management in new and existing channels, clients gain the ability to control their investment and retirement needs. Get ready for the world of "embedded finance".

Among the many terms thrown around in this industry, one to grasp is “embedded finance.” What does it mean, why should wealth managers understand it and how important is it and will it be? To answer those questions from the Asia-Pacific angle – but with relevance to the global sector – is Kanv Pandit, group managing director, Asia-Pacific, banking solutions, for FIS, the fintech group. 

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Embedded finance has now entered the mainstream. What began with payments quickly extended into deposits, lending, insurance, and other financial services. Consumers value the convenience of embedded finance, which reduces friction by integrating financial products into the customer journey, exactly where and when they're needed. But what about investments? The case for embedded wealth management services is worth a discussion.

As noted in a recent McKinsey publication, the evolution of embedded finance has been enabled by fundamental changes in commerce, merchant behaviour, consumer behaviour, and technology. As much as 33 per cent of global card spending now takes place online (1). In addition, with “digital natives” coming of age, the pool of consumers and businesses open to receiving financial services via digital platforms has expanded. 

As of 2023, embedded finance has grown into a $108.59 billion industry in Singapore, with an expected compound annual growth rate of 24.4 per cent from 2023 to 2029. By 2029, forecasts show that the embedded finance industry in Asia will likely exceed $350 billion (2). Although the two major catalysts for this exponential growth have been payments and lending, demand is now coming from new areas –including deposits, insurance, and more recently, wealth management.

In the past, most individuals would have to rely primarily on traditional financial institutions to access financial services. However, today, from paying for goods within an e-commerce app, or getting a loan at checkout (e.g., through “buy now pay later” options), embedded finance puts tools that once required a trip to the bank within a single tap or click. Beyond offering a digital version of traditional services, embedded finance has transformative potential for how financial products are manufactured, marketed, and consumed. 

The case for embedded wealth management services 
The benefits of integrating payment or credit into a customer journey are straightforward, but the case for embedded wealth management is more nuanced. In practice, the objectives and technology are similar – to effortlessly incorporate investment products or services into another platform – usually using application programme interfaces (APIs). However, one of the major differentiators of embedded wealth management services is the focus on encouraging people to save and invest rather than spend more. While specific use cases vary, the universal drive is apparent among:

-- Digital banks and challenger banks have made great progress in the areas of checking and deposit accounts but seek to build lifetime customer relationships and loyalty. Few have the expertise to build wealth management services from scratch, but they can easily embed third-party investment and wealth management services to enrich their service portfolios.  

-- Health insurance providers who are playing a bigger role in almost all economies. Millions of people already pay regular insurance premiums and subscriptions online, so embedded investment is a natural extension of existing services. 

-- Financial health platforms that businesses use to help employees build knowledge on a range of financial matters throughout their career, with tools to help them make smarter decisions. Most have already added or plan to add savings accounts, so embedded investment is a natural next step. 

-- Super apps that aim to offer individuals a one-stop shop for all things digital. Most include peer-to-peer payments and other basic financial services. Once again, investment is a natural extension of what’s already offered.  

Data as a key driver
Effective investment and wealth management requires a high degree of customer personalisation which requires data. Financial institutions possess a wealth of data that can help customers adopt a holistic approach to wealth management and retirement planning and choose services that match their precise needs. 

Embedded wealth management has the potential to open a much bigger market for investment services by unbundling services from the distribution channel. Leveraging data facilitates highly customised services, ultimately steering the industry away from the conventional product-centred approach towards tailored, needs-based offerings. 

Additionally, there are still many people across generations who have a limited understanding of investing and meet with challenges when planning their retirement needs. Embedded wealth management equips providers with the means to proactively eliminate barriers and address these challenges effectively.

Closing the retirement savings gap
The global gap between retirement savings and retirement income needs is projected to reach $400 trillion in three decades (3). It is critical for people to think more about retirement, understand what options are available, and participate sooner rather than later. There is no doubt that technology like embedded wealth management will play a pivotal role in encouraging people to think earlier about their retirement, as well as make it more convenient and seamless for them to invest.

Today’s retirement products tend to be limited in scope, and few lend themselves to mass customisation. By introducing embedded wealth management in new and existing channels, consumers will become more empowered to take control of their investment and retirement needs. By beginning with the customer and building from there, embedded wealth management will likely have greater appeal for most people than choosing a prescribed financial product. This is one disruption consumers will surely embrace.

Footnotes

1, McKinsey Global Payments Map 2022
2,  Research and Markets Asia Pacific Embedded Finance Business and Investment Opportunities Q1 2023 Update
3,  https://www.weforum.org/agenda/2019/12/solving-the-global-pension-crisis/

About the author

Kanv Pandit is group executive and senior vice president at FIS, the the fintech. He is banking and payments sales leader for Asia-Pacific and based in Singapore. Pandit has worked at FIS for 12 years.

Prior to FIS, Pandit was with ACI Worldwide, a global provider of payments solutions, where his last role was leading the wholesale banking business solutions group for the region. Prior to which he was with VWS Inc, a firm in electronic banking, where he held various roles during his time there including in product development, product management and program delivery. Kanv holds a master’s in international business and a graduate degree in commerce.