Build, Buy, Partner: Collaboration within Embedded Finance
17th January 2022
Build vs. Buy is no longer a dichotomy; let’s introduce Partner to the race.
Every day, financial services release new products for their customers. Gone are the days of having just one great product; it seems additional services are often the best way to stay competitive. But what is the best way to acquire new services in order to best serve your customers?
The most common methods of adding new products are to buy, build or partner. Build is traditional but companies may struggle to find the time, money, expertise or regulatory requirements to launch new services. Buying or subscribing to add-on services can enable companies to deploy services faster through whitelabelled solutions, often with a larger upfront cost that other methods. In contrast, the process of partnering moves beyond the acquisition of capabilities through a simple transaction, creating a mutually beneficial relationship between companies which work together to achieve common goals. The build vs. buy debate has been covered extensively, so this blog brings another option to the table.
Let’s have a look at the different methods and what they mean for the embedded finance space.
Building new digital product in-house has often been the best way to ensure solutions are tailored for the company. Additional resources will be required so the new service does not detract from existing offerings, so forecasting the return on investment is important to calculate if building is a viable option. It is also important to remember that building internally is not a single commitment, but there is continued responsibility for upkeep of the product, in the face of competing future initiatives that might arise.
Building your own product can be particularly important if there is something unique about your solution that is unavailable elsewhere. Building also allows you to maintain intellectual property and customisation options over the solution. For functionalities that are important for the business but you do not have to own, building may be a higher cost than necessary.
When looking at embedded finance, most providers have not built their own payment software as there are plenty of payment providers with software available to buy. Companies such as Square and Klarna are market leaders within the payment and credit spaces, having spent a great deal of time and finance creating their industry leading products. However, some financial verticals are much less competitive, possibly giving innovators a space to create a new, much-needed embedded finance product with a similar opportunity for market disruption and dominance.
To buy has been the chosen alternative to build for a long time. Buying a product or service allows companies to deploy new offerings in a matter of months rather than potentially years of building from scratch. This method sees companies benefit from the existing offerings, provided there are enough funds for the purchase and upkeep of the product.
By its nature, embedded finance is best left to the experts. Embedding capabilities means that digital services to enhance users’ financial lives can be placed anywhere so companies do not need the technical or financial expertise to make use of the financial product. This has been particularly important for non-financial companies making use of embedded payment and credit capabilities, as buying has allowed them to rapidly improve the user experience.
As we’ve mentioned before, collaboration has become a core component of fintech. While the industry may have once, or still partly, focused on disruption and competition, it seems financial services is united in one common goal – to improve financial services for users. This has seen the number of partnerships with financial services providers increase greatly over the last few years.
It is important for businesses to recognise their position within a user’s financial life; an insurance provider is unlikely to be someone’s most used app yet still performs a valuable role. Therefore, an insurance company is unlikely to spend the resources building or buying additional services when they perform well within their niche. The company might benefit from partnering with an AI software company that reduces users’ premiums with added precautions, for example, rather than building or buying services in a field they are unfamiliar with.
Embedded finance is all about creating partnerships that improve the user experience. Rather than the one-directional transaction of buying a product, partnerships improve the ecosystem for all parties through common objectives and processes. The brand equity of partners is valuable for embedded finance, as users are more willing to try a new product from a reputable brand. The brand of a partner also brings PR opportunities to generate interest in the partnership and offering. Partnerships enable companies to create a network of connected brands to support future innovation and collaboration.
The build vs. buy debate is no longer relevant now partnerships are available and booming for embedded finance. Companies need to add additional, relevant products now without spending years building it from scratch. A large benefit of embedded finance is that businesses don’t need the technical or financial know-how for their users to benefit from financial products, added support that is offered through partnerships rather than a single transaction.
Get in touch here to find out how to partner with leading providers.
Author: Phoebe Singer, Marketing & Communications Analyst, mmob