Such has been the stratospheric growth of embedded finance over the last 10 years, it was perhaps always inevitable that it would sprout new limbs and infiltrate other areas of money management from lending to insurance.
Among these newer extremities is one that promises to transform how people use their wealth forever – embedded wealth management.
As the tectonic plates of consumer expectation continue to shift and as demographic flux sees wealth transferred to younger, more tech-savvy generations, traditional, face-to-face wealth manager/investor relationships are under threat.
However, this is not the doomsday scenario it first appears. Indeed, through the early and intelligent integration of embedded wealth management functionality, it represents a phenomenal opportunity. An opportunity to fling open the gates of investment to the mass affluent and excavate new and deep revenue channels for banks and wealth managers alike.
With such promise beckoning, many banks and wealth managers have already begun the process of adopting embedded wealth technology. In most cases, they are doing this in one of three ways.
In this piece, we look explore this trinity of methodologies and why one in particular is gaining notable traction.
The purchase of B2C embedded wealth propositions
When any business wishes to quickly diversify its portfolio of services, acquiring an existing company that already provides those services is a preferred option. At least among those with deep enough pockets.
Once complete, acquisitions provide ready-made inhouse experience, brand reputation, and market share. However, acquisitions are expensive processes, complex and laden with risk. In few sectors is this more true than in finance.
With large volumes of capital belonging to multiple parties at stake, complexity and risk is compounded where the acquired company offers a niche service. With embedded wealth falling very much into this category, not only are existing providers difficult to acquire, they’re difficult to find.
We might look at JP Morgan Chase as an example with their recent acquisition of Nutmeg. JP Morgan Chase occupies a status few Financial Institutions can match and by bringing Nutmeg into the fold, one of the rare digital retail wealth managers with brand reputation and market share, is no longer for sale.
The self-build of embedded wealth technology
In the absence of a suitable embedded wealth provider to acquire, banks and wealth managers might instead choose to develop the technology themselves. It is a huge gamble and an area in which neither has an impressive track record.
Developing brand-new technology from scratch is a notoriously lengthy process, requiring multi-million dollar engagements to bring to completion and demanding constant maintenance and upgrades throughout its lifecycle.
As the digitisation of banking and money management continues to escalate at speed, it is perhaps the length of time required to self-build embedded wealth technology that is most problematic.
Not only does time inflate costs but once the technology is ready to go live, competitors who have taken quicker, more modern approaches to digital wealth enablement are already consuming market share.
Partnering with an existing platform provider
For banks and wealth managers wanting to become early adopters of embedded wealth and radically improve their chances of becoming market leaders, the opportunity to do so seems vanishingly small when neither of the above options are feasible. Until, that is, they learn about the third option of partnering with an existing platform provider.
By integrating an API-native wealth platform which simply plugs into existing ecosystems, banks and wealth managers can significantly enrich their existing datasets with data from both internal systems and external sources, becoming an embedded wealth provider themselves in an agile and cost-effective manner.
Through this data connectivity with third parties, it is possible to complete multiple tasks at speed and at scale. These can range from client onboarding and running KYC processes to providing tailored proposals that match customers’ capital and risk appetite for maximum returns potential.
Apart from being markedly more cost-effective compared with acquisitions or self-build, API-powered platforms allow for the creation and implementation of high-automation embedded wealth propositions in as little as six months.
A unique opportunity
It is often the case that banks and wealth managers adopt new, high-potential propositions once they have been proven in the field, by which time they must play catch up with those who recognised the opportunity before them.
We only need to look at the staggering success of more established embedded finance propositions to see that embedded wealth management is likely to follow a similar trajectory. Moreover, that those set to be market leaders tomorrow are the ones making plans to become embedded wealth management providers today.