When Uber announced it was launching a bank in 2019, the tech and finance worlds got very excited.
Uber Money, which gave drivers and couriers access to their earnings in real-time and an Uber Visa debit and credit card, was hailed as an opportunity for the highly regulated world of finance.
But Uber was far from the first — or last — tech firm to move into financial services. ‘Embedded finance’, as it’s known, is a hot topic for investors and fintechs alike.
The idea is that many tech companies — think ride-sharing apps, social media platforms or online retailers — could start to offer financial services alongside their usual offering, whether that’s payments, lending or insurance. When customers buy sofas online, they could be offered a loan to cover the cost; when they purchase an e-bike, they might also be able to get insurance.
Another embedded financial service that might make a whole lot of sense to offer is wealth management. We spoke to Johan Hellman, chief executive officer of ETFmatic, a robo-advisor with an embedded wealth management offering, and Kim Van Esbroeck, country head at Aion Bank Belgium, a digital bank, to find out why.
What is it — and why are challenger banks excited?
Challenger banks are already showing plenty of interest in wealth management. In practice, that means giving their users the option to invest their money in exchange-traded funds (ETFs) like SPDR S&P 500 (SPY) and Invesco QQQ (QQQ). Basically, this means that if you have a resting balance in an online app, you’ll be able to invest it in an ETF of your choice and grow your wealth.
It’s natural for the next step to be in wealth management.
“Challenger banks have led the way in offering customers both simplicity and savings. These alternative ways of getting your daily banking needs met have gained wide adoption, so it’s natural for the next step to be in wealth management,” ETFmatic’s Hellman told Sifted.
“There’s now a need to engage with clients in a way that generates value for them beyond a fancy looking prepaid debit card, while at the same time also generating value for the challenger bank.”
ETFmatic started out as an online investment platform for European countries in 2014. In the past year, the company has made its tech separately available as an embedded wealth management solution.
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In the past, companies that wanted to add investment features to their products had to overcome various technical, security, legal and regulatory barriers. These challenges limited wealth management to large financial institutions, but new embedded solutions like ETFmatic make wealth management available to a much wider range of companies.
“Anything to do with investments is surrounded with complexity on all fronts — regulatory, compliance, operational,” Hellman says. “We tackle those challenges heads-on for our clients so they can focus on their client proposition.”
User retention and revenue growth
Wealth management has direct benefits for both fintechs and their users. Users can grow their wealth by easily investing the money they hold in their current accounts, and this provides fintechs with a new way to engage with their customers.
“Our experience is that embedded investments provide a more stable, and generally, growing income to our partners, while also providing a compelling reason to communicate and engage with clients,” Hellman says. “It builds on top of the current relationship, and extends it to also talk about what clients want to achieve in the future.”
One company that uses ETFmatic’s technology is Aion, a Belgium-based challenger bank. Aion integrated ETFmatic’s application programming interface (API) into its banking app and added a step-by-step guide to help users choose their investment preferences. To the user, the experience happens in a single application. Behind the scenes, ETFmatic builds and maintains a portfolio to match the user’s profile.
Embedded investment has helped Aion Bank extend its product offering and improve its user retention.
“We are a subscription-based bank, so new products and services like ETFs make our package more appealing and 'sticky' for members,” Van Esbroeck told Sifted. “Additionally, investing in ETFs is a long-term activity, so this both brings value to our members and makes our relationship with them long-term as well.”
Spanish microsavings fintechs Goin and Arbor have also integrated ETFmatic’s solution into their apps.
Banking and beyond
“We’ve seen very good results across multiple geographies and demographics, which points to this being something that’s of broad interest to many segments of the population,” Hellman says.
We’re seeing strong growth and interest across all of the traditional fintech segments
“I think the outlook is very promising. We’re seeing strong growth and interest across all of the traditional fintech segments, and we predict more consumers will want user-friendly access to investments.”
Currently, wealth management mainly concerns companies whose core offering is banking and finance, but as the market matures, embedded finance can expand to other sectors.
For instance, platforms like Airbnb, Upwork and Etsy can use embedded investments to enable their gig workers to grow their earnings through investment opportunities. Hellman believes any company that wants to improve customer retention and revenue can benefit from embedded investment.
“Clients are searching for automated, easy-to-use and easy-to-understand investment solutions for a reasonable price,” Van Esbroeck says. “ETF-based wealth management meets these expectations very well, and we believe that as economies improve in the quarters to come, people — both experienced and novice investors — will be looking to ETFs to invest the savings that they accumulated.”
Discover how ETFmatic works with partners here.