Embedded Finance: Opportunities and Challenges - Unique Perspectives from Bartel Braeckman of KBC Bank
In our embedded finance interview series, we spoke to Bartel Braeckman, Department Head of Open Bankinsurance at KBC Bank in Belgium. Being Belgium’s most innovative bank and an example for banks worldwide, they look at embedded finance in a somehow unique way.
We discussed how they define embedded finance and how they developed new services with that definition in mind. What challenges do they face on their journey, and how do they define success in building new embedded finance propositions? Why is embedded finance the next step in creating the ultimate laziness in banking? You can read it all in this interview.
How would you define embedded finance?
I define embedded finance as a way to offer financial products and services to our customers through a partner who is not working in banking or insurance. A bank active in the embedded finance space will cooperate with a company/party to tap into existing clients and new prospects through their own channels. The benefit for the bank is the acquisition of new customers and increase of touch points with existing ones by integrating deeper into the customer journey than ever before with its bank and insurance offerings.
Is this something that you would consider new or just a buzzword for the same business as we always envisioned with open banking?
It is definitely not new. Non-bank channels have been used for a long time to sell financial products. But the digital age created new customer expectations, and now we see a revival of this exploration of new ways to reach out to customers. Banking and insurance products and services now need to be integrated and offered in a different and new way, which brings extra new challenges for banks.
I recently raised a poll in my LinkedIn Group Innovation in Payments asking whether embedded finance is a disruptive new revolution. 114 answered: 15% said that it is a revolution, 34% said that it is an open banking evolution, another 45% said “new buzzword for API banking”, and another 6% said something else. So indeed, there's quite a consensus that embedded finance is probably a bit the same as what we already knew, but perhaps further developed, with a better understanding that it's an embedding in the customer journey owned by a third-party provider.
Today, we expect embedded bank insurance products to seamlessly integrate into an entire journey. That is the biggest change. Previously, you got financing at a car dealer, including all the paperwork, or you paid and accepted the required additional steps in the process. You had to fill out a form, which was sent to the back office of the bank or the financing provider, and you came in contact with the back office to end up with a complete financing solution weeks later.
Today the expectation is that you can handle it all at the point of sale, seamlessly embedded in the customer journeys. The expectations have been levelled up by both the customer and the partner offering those services.
In my opinion, there are several flavours of open banking, and one of them is embedded finance. In KBC, we are already working on open banking and beyond banking services in our own channels by enriching our offerings and services using data from other parties in our processes to provide our customers with a more seamless and convenient flow.
My task within KBC is to further explore how we can sell our products via other channels. We understand we must move along in the customer journey because we want our offer to pop up when the customer faces financial needs.
I remember Karin Van Hoecke, KBC Bank’s General Manager Transformation, saying in 2019 that the ultimate laziness should be a bank's final ambition, and making sure you are there whenever the customer needs you, but perhaps not more than that.
That is indeed, in essence, what embedded finance is about. It's perfectly aligned with the starting point of my team. For KBC, it's a transformational journey, and we need to dig deep in order to be able to provide embedded finance solutions.
It is a constant challenge to convince my colleagues that offering financial services through third parties has been done for a long time. For KBC, it's a new topic and a long way to get where Karin wants to be. It's a part of KBC’s overall strategy to move along in that customer journey. But we're not there yet.
What are KBC's focus points in the embedded finance space today? What are the services that you currently have already in the embedded finance space?
We currently focus on six products: different types of loans, account opening and pension savings for self-employed. We cooperate, for example, with solar panel providers, bike e-shops or car dealers – yes, we have a particular interest in partners involved in housing, energy & mobility - who incorporate this offer in their customer journey and can service their customers in the best possible way.
We provide an API that can be seamlessly integrated into the salesperson's or customer’s journey. The choice is up to the partner. Because several partners needed more time to be ready to use APIs, we also provided our own toolkit, which can be integrated into the sales flow. The customer can then interact with our partners via a widget in our digital banking solutions online, via a QR code, or through a physical workflow integrated into their customer journey.
Another example is the offer of an operational lease today. In Belgium, many employers provide employees the possibility to lease a bike. Today, a bike lease involves a lot of manual paperwork. The new flow will send everything needed in a digital way to KBC Autolease, where it's verified and confirmed, completely automated. So, as an employee, you can immediately know the impact on your pay check without human intervention.
Next to these credit and leasing solutions, we also allow new entrepreneurs to open a business account through a number of social secretaries. Imagine you want to start a new company; you can immediately open a business account with KBC during your appointment at the social secretary. We also work with them on a freelance retirement plan, which is a tool that is integrated into their customer dashboard in their portal.
What was the main challenge in developing these journeys? Is it on a technical, perhaps a business challenge, the partnership challenge, or the fact that you have to hand over some ownership that may conflict with compliance? What were the hurdles on the journey?
It is a mix of a few of those. Essentially, the key challenge is to make the entire company look into one direction and think in terms of the end customer. Historically, we wanted to have a direct relationship with that customer. There is a reluctance to have a third party involved, with their own vision and strategy. Suddenly we must incorporate that into our processes, our product offering, and how we cope afterwards with our customers.
Banking has really become a different kind of business in a world of embedded finance. That makes it mainly a business and people challenge, and the fear of handing over ownership in a way as well. Since we started with embedded finance in KBC, we had to convince other departments. We started with the available tools. It wasn’t always easy.
We have taken important steps; today, we can convince them with our successes. We can show we are growing, we are becoming more important. And now we have the fundamental and very interesting discussion about whether we've approached it in the right technical way. We are now investing more in future-proof architecture and future-proof processes.
Something you haven't mentioned yet, perhaps this is because it's been there for a very long time, but payments. In E-commerce, I can pay with my app; that's also embedded in finance, in a way, isn't it?
Perhaps that is because embedding payments services became business as usual for us. That's where it all started for me in 2016, when I became responsible for the payments button at KBC – this is KBC’s own e-commerce payment solution, which customers can find on almost all webshops. In the payments departments today, embedded finance is business as usual. Nobody asks why we are cooperating with Visa or MasterCard and why we have the payment button. It is important to offer your service where the customer needs it, you have to cooperate with those parties and that is not being questioned.
You don't see that in all other departments. You're correct: embedded started in payments. But the difference is that you need a bank account to consume embedded finance in payments, so you must be a client. Meanwhile, for the other journeys, we see it as a way to onboard new customers as much as a way to serve existing ones.
In the light of Embedded Finance, KBC focuses today on selling bankinsurance products to new or existing customers in other channels. We notice that the balance between new and existing customers is attractive. It shows the huge market potential you have by rolling out embedded finance services in third-party customer journeys, and it also explains why payments weren’t part of the dialogue in our conversation before.
Does that mean that perhaps the ultimate ambition of embedded finance is that we should see this as just a channel in a maybe not so far future? Just like the mobile banking developments used to be in the context of internet banking, and internet banking was something that came on top of branches in the past? Where will you try to ensure you can get all the products and services you currently have in the customer journeys so people can access them no matter where, no matter how?
My personal answer: yes, of course. From a company perspective there are pros and cons to be taken into consideration.
All right. Technology is, of course, a very important aspect. Things I heard a couple of times before: technology shouldn't be the main problem; you can do anything with technology. But of course, if you work with other partners, it's not always that easy. How complex is the technology dimension in KBC's embedded finance journey? Or how difficult is it?
We are trying to prove something with the tools at our disposal. I'm convinced that if, as a company, you are convinced that embedded finance is here to stay, and build a long-term vision around it, you will not face challenges on the matter of interfaces, and more on the kind of business logic, the ins and outs.
Technology is part of the story, but you must invest in it, and think it through before starting the journey.
The fact that you hand over ownership to corporates, how challenging is that change of mindset that you need to make within the bank?
It's a challenge for some departments and for some people. But, returning to your first question “What is embedded finance”: we are selling KBC products through other companies. Ultimately, they become KBC customers who have to align and tick all the boxes that a customer who joined us through our own online channels or a branch.
That’s the difference between embedded finance and banking-as-a-service, where you indeed hand over the type of customers you onboard; it's just a technological story. As a bank, we have legal restrictions to consider. If you work together with partners, there is a mindset change for a lot of our risk functions. But in the end, we're not selling a loan or something else through embedded finance that we would not sell through our own channels.
Recently Roland Berger published a report stating the biggest concerns of embedded finance for consumers are (a) data security 61%, (b) transparency about service conditions and pricing 42%, and (c) trust in a company, security and stability (33%). Does this sound familiar to you? And more importantly, does it make sense? Or is it a wrong perception by consumers?
I believe it is perception because, as I said, new customers we onboard meet the same data security measures and SLAs as our other customers. If we integrate with a partner, they must meet all the security and technical requirements that we apply in our own channels like in KBC Mobile.
In terms of pricing, I can guarantee that within KBC, if you request a home loan online or in a branch, you always get the same proposal. There will be no deviation, and the same if you go through a partner. Still, customers call us or a friend who works at KBC asking to evaluate a proposal they received. Customers have to learn that their channel doesn’t affect the interest rate they get for a loan, for example.
We’ll have to go through that same learning cycle for embedded finance, I guess. The offer we make in whatever channel will always be the same. Both in terms of cost, and in terms of quality of the product or service afterwards.
One last question. What makes your positioning so different from many others who are discovering embedded finance these days?
With some of the challengers in the embedded finance market, sometimes I wonder how much of what they offer is true and how much is a list of buzzwords, for marketing.
At KBC, our philosophy on embedded finance is to attract more customers with our qualitative product, based on many years of experience in managing the company, and to be selective as well.
To give you an example: buy now, pay later. It's a very hot topic in embedded finance, but we know how hard it is. And we know how hard it is to manage the credit side, customers, and their data. I guess some other companies see that as an entry into the financing atmosphere, and I can follow that. But we, as an incumbent, should really care about our brand and the trust we have already received from our customers, and we should protect that; it's imperative.
We have a social responsibility, and we don't want to sell to those who can't afford it.