How can harnessing the power of ecosystems make finance effortless?

Companies from a wide variety of sectors want to use finance to provide a more seamless experience to their customers. For example, an e-commerce giant has opened up physical grocery stores where customers who are signed into their app can pick up what they want to buy and exit without having to visit a checkout.

This demonstrates the power of the customer lifecycle — which begins at the first engagement with a brand and continues all the way through to the after-sale experience — over the product or service lifecycle. By making the overall experience simpler, quicker, and easier for customers, the retailer can differentiate itself and create more value.

FS companies can help non-financial companies improve their customers’ experience by making finance more effortless. The integration of financial services into non-financial value chains, known as embedded finance, via ecosystems makes this possible. It is already helping car manufacturers to offer subscription services and enabling telecoms companies’ customers to charge the cost of movie rentals and other content to their phone bills.

Consequently, it is no surprise that two-thirds of FS sector respondents to the EY Ecosystems survey said ecosystems were extremely important to their company’s future success. A further 88% indicated their satisfaction with how ecosystems have contributed to their company’s business. 

Growing belief in the potential of ecosystems

The FS industry’s optimism about ecosystems is being fuelled by their ability to create long-term value. In the next three years, for example, one-quarter of FS respondents to the EY Ecosystems survey predicted that ecosystems will account for at least 20% of their revenues. A further 39% forecast that they would account for between 10% – 19% over the same period. 

This growth will be driven by new markets and new offerings that ecosystems can help to create. While a majority of FS respondents (55%) said increased efficiency and cost reduction was the biggest advantage ecosystems offered over traditional operating models, 54% cited extending into new geographies and 47% mentioned creating a new joint product.

These statistics indicate that FS companies recognize the need to adapt and that their ability to pivot toward more dynamic business and operating models will directly impact their market share and potential for growth.

But succeeding at ecosystems should not be taken for granted. While there is recognition of the need to embrace an ecosystem approach, many companies are not culturally or structurally prepared to participate in, orchestrate or monetize them. Addressing the challenges inherent to ecosystems are crucial to unlocking their opportunities.

Establishing one’s role within an ecosystem, for example, is commercially, operationally and technically complex. Reaching internal agreements on areas such as cost allocation and strategy, and maintaining cyber security — a crucial area of focus given threats — are other obstacles that need to be overcome.

Yet data suggests such concerns are not proving to be a disincentive. Seventy-seven percent of respondents to the EY Ecosystems survey said they had four or more ecosystem relationships, compared to 23% who said they had up to three relationships.

Unlocking the embedded finance opportunity

From direct-to-consumer retail to complete homebuying services delivered on an app, companies from a wide range of sectors are acting on their belief that they cannot serve their customers on their own — especially when it comes to ensuring their financial peace of mind.

To deliver the experiences customers increasingly expect, embedded finance is becoming not just a nice to have, but a must have for many businesses.

Take Tesla, which offers an insurance product that is based on real-time driving behavior. This ecosystem includes the electric vehicle firm, an insurance company, a telematics specialist, and payment and billing providers. The end goal is a more accurate, competitively priced product that a customer can purchase at the same time as the vehicle — thereby saving them time and effort.

But embedded finance is not just for technologically savvy companies. Traditional organizations are reacting to weak margins in their legacy businesses by adding embedded finance to new digital services. Increasingly, sectors including automotive, healthcare, retail, education, and telecommunications are turning to direct payment, protection, and lending products.

This combination of new players and increased demand for quicker, more seamless payments from incumbents means embedded finance is projected to have a market value of $7.2 trillion in 2030 by the WEF. 

2. Define your role in the ecosystem

Ecosystems can be complex structures that constantly evolve, so it is important to understand the role that you and other participants can play to create, capture and share value for everyone — including your customers.

At a basic level, there are three clear roles: orchestrator, enabler or customer.

• Orchestrators are the organizations that drive the ecosystem’s value proposition. Often, the orchestrator is also the company that has the clearest brand identity with the end user.
• Enablers are the other organizations working with the orchestrator to deliver the value proposition.
• Customers are the end users or organizations that are the core beneficiary of the value proposition.

Which role you play will be dependent on a number of factors. Nearly half (48%) of FS respondents to the EY Ecosystem survey said that they participate in a model where a leading participant, often a software company, provides an open platform on which developers can build branded products. In this instance, the respondents are enablers. But it’s not just tech platform providers that can take the lead.

“The key to defining your ecosystem role is working out what is most appropriate to the skills your organization possesses and your ability to deliver it in a way that nobody else can,” says Aaron Byrne, EY-Parthenon Financial Services Leader.

One way to help this happen is to set up a dedicated ecosystem function and appoint an individual at the highest level in the organization who can move ecosystems from a silo to an enterprise-wide growth and value-creation strategy. That individual will be best placed to assess what new capabilities are required and whether you need to buy, build or partner to access them.

Whichever capabilities are needed and however you plan to acquire them, successful FS ecosystems rely on these essential criteria: connectivity, speed and trust.

Connectivity determines how well you deliver for your customers and partners.

It means connecting with customers where they are, whether that be social media or online marketplaces. But it's also about connecting with partners aligned with your proposition and your purpose and having the interoperability to work with them.

Speed is a function of your platform strategy and your ability to work differently. 

Using cloud and automation technologies alongside agile methodologies, for example, will help you remove friction and adopt new processes so you can think, experiment, and move faster. At the same time, you need to be able to move quickly as the market changes and pivot ever more speedily to new business models.

Trust holds your ecosystem together and helps you to perform your chosen role. 

It can be secured by consistently delivering on your purpose and proposition, and by being a valued and reliable partner. But it’s important to realize that trust can be undone if value is not ultimately created and the accountability of ecosystem partners is not tracked and accepted. Putting in place appropriate governance structures can help to mitigate any issues. When there’s trust, new ways of creating and sharing value become possible and your employees become resilient to transformation.

Alongside these criteria, all successful ecosystems focus on what creates value for customers. Defined metrics should reflect how value is delivered and how performance is measured in an open and transparent way. It’s important to articulate a clear link between the metrics that measure meeting the customer needs and how they will ultimately translate into value for the group and its stakeholders, including investors and shareholders. While financial KPIs are an obvious place to start, it is important that FS organizations deliver on their purpose and provide financial well-being to customers, employees, and society.

Bringing all these elements together is hard but not impossible. EY Nexus, for example, offers transformational technologies, data and services from a range of trusted partners in an easy-to-use, cloud-native platform. Optimized for the FS industry, it accelerates innovation and powers frictionless customer experience through a curated and trusted ecosystem of partners that any company can tap in to.

Of course, transformation is not a question of replacing the old with the new. Legacy systems still need to run alongside new technologies, adding an extra layer of complexity. Ensuring you have the capabilities to manage both will be important as you engage in ecosystems.

A roadmap to make finance effortless

Do you know what your customers really want? Do you think your organization can provide this on its own? If the answer to both these questions is “yes” then, increasingly, you are in the minority.

Companies are aware that alliances are needed to deliver what customers want and to access capabilities that remove friction and cost while building agility and resilience. This is particularly true for FS companies — just 29% of FS respondents to a recent EY Tech Horizons survey said ecosystems were too difficult to execute or manage.

“By identifying where and how an ecosystem can add value, defining your role, and transforming to deliver — FS companies have a roadmap that will enable them to make finance effortless for their ecosystem partners and their end customers. That will increasingly make FS providers key to delivering the value that ecosystems promise,” Jan Bellens, EY Global Banking & Capital Markets Sector Leader.