How Embedded Investing is Overhauling the Way We Invest
We are at a time when the top 30 popular brands that retail customers connect with do not include a bank or a broker. This realization is bound to have an influential impact on how the next generation of investors put their money to work. Most of us who vigorously participate in the echo chamber of fintech have come to notice a growing theme around what we call "embedded finance."
This new concept provides a way for non-traditional financial services companies to offer financial services and products to enhance their client experiences. It thus helps them monetize their clients and create additional revenue streams.
An excellent example of this could be your everyday social media platform allowing you to open a high interest checking account so that you can pay your friends in your group. While popular brands partnering with banks have been around for decades, the concept of embedding an integrated financial services experience is both new and game changing. In this case, the platform is owning both the customer and banking experience altogether.
Over the past few years, embedded finance has gained traction in payments, education, and insurance. This growth puts pressure on the traditional brick and mortar banks and forces them to make drastic changes to the way they operate. Today, we see a similar trend in online investing, in what some are calling "embedded investing."
Embedded investing in its raw form provides platforms with a launchpad to seamlessly integrate stock market investing into their vertical offerings. This concept allows investors to invest in the stock market without leaving their favorite social media, payments, or retail platform. Imagine reading an article on your favorite news site or engaging in an online chat room about a company you like, and being able to buy shares with just a few clicks. Or better yet, being able to gift your family member a few shares of stock. Embedded investing is changing the way companies operate, and the possibilities are endless.
Most recently, we saw PayPal allowing customers to buy cryptocurrency from their PayPal accounts. This approach is disruptive because it has a dis-intermediating effect on the large online brokers who have tried to own the end-to-end customer experience to charge fees and upsell other products.
Over the last three decades, traditional brokers have grown with vertical offerings and have entirely owned the customer experience. Their business models operate on the concept of pushing or herding online investors to their doorsteps. These doorsteps could be an app, website, or in some cases, a store. The products, marketing, and incentive structures are all based on re-routing investors to their doorsteps. Though nothing is inherently wrong with this model, however, the problem is that it is neither seamless nor naturally convenient for the online investor.
Today, we have a new generation that champions social experiences, values time, and strives for a seamless ecosystem of platforms and services. Since 2018, we've had 20 million millennial investors with little brand loyalty looking for a more tech-savvy way to handle all aspects of their life including investing. Instead of looking to a broker or bank for all things finance, they're looking to friends, social platforms, and existing ecosystems to provide these resources.
API-based brokerage firms have been at the forefront in enabling this growing trend of embedded investing. They have built APIs to reflect every critical microservice ranging from opening an account, funding, trading, portfolio management, and market data. These core features allow companies to offer investment services to their customers without them ever leaving their platform. This technology and positioning have helped these API-driven brokerage firms to grow and become the de facto infrastructure to build investing capabilities.
We now have trading capabilities within messaging platforms, payment providers, social communities, e-sports, news sites, and retail channels. We even see it in the workplace where some companies let customers and employees buy into their stock from employee portals. Tradier today powers embedded investing from everything ranging from your Alexa devices, discord groups to substack newsletters in addition to advanced trading platforms.
In the bigger picture, embedded finance is at the core of how the unbundling of investing is changing the way brokerage services are delivered and consumed. Financial services can now re-imagined to be served and distributed at locations where consumers engage rather than herding them to brokers' stores, apps, and websites. Naturally, companies with a large consumer audience noticed this trend, but the upstart cost of creating an investment offering within their company could be both expensive and distracting. API-based brokerages like Tradier that offer the infrastructure that power trading platforms have seen considerable growth. Embedded finance provides seamless integration into their existing product stack for most businesses and creates a new revenue stream. In the end, this approach delivers value for their customers, who thus become more loyal to the company's products or services.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.