Embedded Wealth Management Is Coming

Embedded wealth functionality is set to provide traditional wealth management with its most significant disruption in decades. Here’s why the time to respond is now

Photo of an arrow pointing leftwards towards money, depicting wealth management - selling real estate to increase liquidity

Among the more extraordinary aspects of modern financial technology is the rate at which it is adopted without consumers ever realising what it is they’re using. There can be few technologies this applies to more fittingly than embedded finance. 

For example, “What’s embedded finance?” is a question you might hear someone ask as they book an Uber from their smartphone or order a kebab from JustEat. 

By embedding finance into their apps and websites, today’s businesses instantly allow customers to pay for products or services without needing to rummage around for their credit or debit cards. The ease with which non-financial firms can now integrate seamless payment services into their customer journeys is such that the embedded finance market is prompting conservative predictions of a $100BN+ valuation by 2030. 

However, as well as growing upwards, embedded finance is growing outwards, and one of the branches bearing the most enticing fruit is that of embedded wealth management.  

The power of embedded wealth

Using APIs, embedded wealth technology allows wealth management firms to enable non-wealth enterprises to provide regulated wealth management services. In doing so, they open up the world of investing and trading to their customers and the ability to explore other wealth facilities beyond payments and lending.

Though wealth management services have traditionally been the preserve of HNWIs, embedded wealth technology is opening up investment products to the mass affluent. It is also helping to onboard customers reticent towards investing with unfamiliar financial institutions but more amenable to the possibility of doing so with a brand they know and trust. 

Disruption is coming for wealth managers and banks 

The rate at which embedded wealth propositions emerge globally should be a wake-up call to existing wealth managers more than anyone. Whereas non-wealth businesses can explore the potential of adding embedded wealth into their propositions with less urgency, wealth managers do not have this luxury. 

A key reason is that the wealth manager/wealth owner dynamic is changing. In a trend accelerated by the pandemic, face-to-face meetings are becoming rarer, especially when older wealth owners have passed away and younger, more digitally savvy beneficiaries have inherited their assets. 

These newly monied, younger generations are as open to the possibilities of investing and trading as their older counterparts but are less likely to engage with traditional wealth management services. However, by embedding wealth services into other channels, such as popular retail apps, the opportunity for traditional wealth management providers to reach this emerging mass affluent is enormous. 

Accordingly, if wealth managers are serious about maintaining their Assets Under Management and providing modern, optimised customer experiences, embedded wealth must feature in the three-year plans being formulated now. 

For banks, the pressure to implement embedded wealth into their broader propositions comes less from an existential threat to their survival and more from the opportunity presented to establish new revenue streams quickly and easily.

As it stands, retail banks already manage multiple channel partnerships for their retail propositions, such as loans and credit cards. Adding embedded wealth into that mix is simply adding another channel capable of empowering customers and strengthening brand recognition.

Embedded wealth is the future

Although it can be said at most points in time, the world will be a different place five years from now. Reacting to the oncoming disruption of embedded wealth by doing nothing is an option few are likely to take and exposes those that do to the risk of creeping irrelevance.

And yet, preparing for embedded wealth need not be onerous, and deploying it via the right provider is far easier and cheaper than deploying whole, new core banking platforms. Moreover, businesses can expect to go to market with a fully functional embedded wealth proposition in a matter of months. 

Once live, an embedded wealth offering creates fertile ground for bolstered customer relationships. Rather than view the providing business as merely a supplier of their preferred products, customers will come to recognise it as a place to invest and grow their money.

This transformation will be especially true for consumers undergoing significant life changes, such as purchasing property or planning for retirement with a familiar and trusted brand. For that brand to then present them with embedded wealth management offerings will give powerful reassurance that such avenues are safe to explore. 

As customers become more accustomed to using different financial products through familiar brands, the opportunity to broaden access to investing through embedded wealth only grows. 

The groundwork must begin today, but the rewards to be harvested tomorrow are compelling, to say the least.

About the Author: Matt Cockayne is the CRO at Nucoro.