MANTL: Addressing the Threat of Embedded Finance – How Community Banks Can Leverage Data to Compete

The rise of embedded finance represents a massive new opportunity – an addressable market opportunity estimated to be worth over $7trillion in the next decade, twice the combined value of the world’s top 30 banks today. This opportunity is not restricted to incumbent banks however, challengers and startups can get involved and capitalise on this through digitisation.

Nathaniel Harley is the CEO and co-founder of MANTL, an enterprise SaaS company helping traditional financial institutions modernise and grow. Founded in 2016, MANTL’s mission is to expand access to financial services. Here, Harley discusses how he believes embedded finance can be best used:

Nathaniel Harley, CEO and co-founder of MANTLNathaniel Harley, CEO and co-founder of MANTL
Nathaniel Harley, CEO and co-founder of MANTL

The rise of embedded finance represents a massive new opportunity – an addressable market opportunity estimated to be worth over $7trillion in the next decade, twice the combined value of the world’s top 30 banks today. The advent of banking-as-a-service, API-driven banking and payments services has allowed more non-financial companies to compete in the financial services industry – potentially squeezing out community banks if they’re not able to digitise in order to compete in today’s integrated fintech landscape.

Rise of Embedded Finance

But what is embedded finance? It’s best understood as integrating a financial service or technology with a
traditionally non-financial service, product, or technology. Embedded finance is also the use of Banking-as-a-Service and API-driven banking and payments services to integrate financial services within other
environments and ecosystems.

Embedded finance allows organisations to open up new revenue streams and reinvent the services they offer to their customers – this is great not only for those institutions but also for user convenience. Today, companies of all types and levels of maturity—including retailers, big tech, software companies, car manufacturers etc. are preparing and/or have already launched embedded financial services to serve business and consumer segments.

Right now, banks are varied in their response. Some are playing catch-up, digitising traditional services; many provide the infrastructure and rails for embedded services; others are trying to compete with specialised Fintech providers. Some claim that banks are an outdated model, soon to be outpaced by new trends. However, banks are now facing a key opportunity to shape the evolution of embedded finance — provided they engage. To claim their role in that future, banks need to become platforms that provide specialised services with Fintech partners while also utilising their relationship/accessibility to their communities.

How Community Banks Can Digitise to Compete

Community banks inherently have a better understanding of how to support customers in their communities. With the strategic advantage of being smaller, they’re often able to be more nimble and responsive to customer needs. For example, they’re often able to be creative in helping customers obtain a loan for a home or business. Even though community banks account for only 16% of all bank loans, they finance 43% of all business loans and 40% of all agricultural loans. They can offer better products and services, with a more nuanced approach to lending, more desire to build relationships with customers, and branches/ATMs
outside of the historically high-income areas the big banks target.

The question is, how can community banks leverage their strengths to create a competitive advantage in the face of embedded finance? They must:

  • Capitalise on the new distribution channels that embedded finance creates for their products and services.
  • Replicate the approach by embedding fintech products into their own digital banking platforms.
  • Combine the human-to-human strategy of community banks, with a state-of-the-art digital experience can maximise customer acquisition.

Taking advantage of new technologies to find new opportunities

APIs create opportunities around point-of-sale financing, eCommerce and other embedded financial experiences. OAO offers analytics to help community institutions understand how consumers are interacting with their products, and thus personalise their experience. The role data and relationships play in customer ownership. To challenge embedded finance platforms for customer ownership, community banks also need to create a competitive advantage with products that provide customers with what they need, when they need it. These institutions already have access to valuable data that offers a deep understanding of each customer’s needs. Thus, community banks should prioritise utilising that data to develop tailored experiences across both digital and human channels.

Community banks can leverage customer data to differentiate their services in order to cater to current clients and create more lasting relationships. Staying relevant and using the available customer data is a critical component to successful targeted marketing and customer retention. Banks collect a massive amount of raw data about their customers that can be used to inform their marketing approach and product offerings. Through a multitude of data sets, banks can build a more comprehensive picture of customer behaviour, including online interactions, geo-location data, and aggregated payments behaviour.

The challenge is strategising how to affordably and reliably capitalise on that asset for long-term success. In order to do this, they must establish what data is valuable.

  • Who are my most profitable customers, and how is this being evaluated?
  • Which clients process credit card payments but don’t use the bank’s service?
  • Which clients closed their account and why?

By doubling down on their customer’s unique needs and turning specialised fintech partners into revenue-sharing channels, community banks can carve out a niche for themselves in embedded finance, allowing them to retain and grow their customers.