1. Build APIs to break barriers and scale up quickly

Building and enabling a modern developer experience is key to businesses' success in scaling up quickly. Aside from working with accredited and fully compliant businesses, technology may be needed to support this, such as self-service access for third-party developers and properly documented APIs.

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APIs are defined as sets of instructions and protocols used to build software and enable its connection between systems and data access. In this way, users and their activity can be monitored, allowing for risk assessments of customers. However, the world of APIs has since evolved to create API-as-a-Product, whose capabilities go beyond data delivery methods. It has become an actual product, nearly equivalent to an API-driven Software-as-a-Service (SaaS), offered to customers as a product they can utilise according to their preferences, especially within a B2B approach. 

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Using APIs can help banks provide third-party developers with secure and controlled access to their data and services and increase revenue streams by monetising their data and services. Banks also use these APIs to reduce IT integration costs and complexity, freeing up as much as 30% of their capacity to change and help reduce costs by streamlining processes.

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Furthermore, for businesses without any infrastructure, it is important to externalise processes for seamless integration of EmFi products into distributors’ journeys or platforms.

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According to Infopulse, bank API products saw an annual 15% global growth in Q2 of 2022. In essence, with more banks exploring the benefits of open banking and collaborating with third-party providers, API adoption in the banking industry is expected to continue growing and empower banks with new business models and use cases, including:

• Digitising traditional financial services on mobile and web, such as online or mobile banking 
• Extending services to trusted partners, such as delivering financial services from third-party applications
• Fostering new third-party connections, such as through Peer-to-Peer lending (P2P lending)
• Leveraging new technologies for real-time customer data analysis, such as through credolab’s behavioural data analytics platform

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2. Partner with accredited businesses that follow proper risk mitigation protocols

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The fintech market must first prioritise regulatory and compliance risks. Therefore, regulators must ensure fintech firms consider risks and build mitigation protocols. To begin with, the role of Risk and Compliance in Fintechs is to ensure that operations are compliant with laws and regulations within its operating country, professional standards, and international standards. As a result, it is recommended to work with accredited businesses that follow risk mitigation protocols and are certified to ensure the security of personal information and compliance with regulations. 

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In order to protect critical assets and ensure personal information security and compliance against increasing levels of cyber threats and attacks, organisations should digitally enable their cybersecurity function. However, as identified in A Beginner's Guide to EmFi: Part 2 Navigating the Challenges, data security is a challenge of EmFi due to the high risks of system security breaches and data confidentiality. Therefore, to improve and preserve data security, taking practical and proactive approaches that follow protocols and regulations to improve overall cybersecurity and enhance data security measures were essential, as shared in Top 3 Challenges of Embedded Finance: Expert Tips on How to Overcome Them. 

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Furthermore, by preserving personal data security with protocols and certifications such as ISO 27001, another challenge of EmFi can be tackled - stakeholders’ resistance to change. The adherence to risk mitigation protocols and certifications reassures stakeholders that the business follows information security assessment, data governance, and due diligence processes. 

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3. Leverage A/B testing to measure process success

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A/B testing, or split testing, is invaluable for measuring process success, segmenting customer groups, and boosting recovery rates. It refers to a randomised experimentation process comparing two or more versions of variables, for example, webpage or apps, to observe and analyse which version performs best and leaves a maximum impact. Businesses can also benefit from it by understanding and leveraging user behaviour. For example, by segmenting customers based on their buying history, an online retailer can run A/B tests on different versions of its email marketing campaigns to determine which messages resonate better with each group.

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By leveraging A/B testing, businesses operating at scale can allocate resources more effectively and achieve better repayment rates over time. Some metrics or repayment rates include:

• Improving user experience by identifying which variables promote better user experiences
• Increasing conversion rates by identifying elements that drive conversion rates and lead conversions
• Enabling data-driven decision-making by using user behaviours and performance metrics to test versions and measure results

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For instance, credolab’s marketing solutions help businesses optimise the results of their marketing strategies with behavioural insights. Its outcome-based and personality-based behavioural insights can help businesses to improve marketing segmentation, targeting, activation, conversions and engagement rates.

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Ultimately, A/B testing should be used as a part of any form of digital strategy, especially in EmFi, as it provides an invaluable tool for improving the overall business process and performance and drives success. 

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4. Personalise customer experiences in messaging and payment methods

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Creating a consistent and user-friendly environment that meets customers' unique needs through personalised messaging and payment methods is essential. 

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In an Epsilon survey of 1,000 consumers aged 18 to 64, 80% of participants indicated they would be more likely to conduct business with companies that offer tailored experiences, with 90% saying personalisation appeals to them. Furthermore, a McKinsey report shares that 71% of consumers expect companies to interact with them, and 76% get upset if businesses fail to do so. Ultimately, it highlights the high demand for personalised customer experiences in the world of digital banking, where 72% of customers view personalisation as a crucial part of digital banking, and institutions without personalised experiences face an abandonment rate of up to 80%.

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Embedded payments are one of the major categories in EmFi that improve the customer experience. By embedding payment systems into existing purchase journeys, you can increase visibility over customers' transactions and track product types, transaction volumes, and purchasing rhythms to create personalised deals that fit their unique needs. However, businesses should realise that payments do not carry value for customers. The focus should be on creating valuable services and purchase processes that meet users' needs and add value by incorporating embedded payments. 

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As a result, businesses can allocate resources more wisely and achieve better repayment rates over time, especially with the role of data in personalisation. Individual services can be tailored to meet customer preferences and behaviours to make the most of embedded payments. By using data collection and analysis, such as leveraging credolab’s solutions that harness behavioural data analytics, gain more information about your customers and their purchase journeys to help create more personalised recommendations, relevant product offerings, and compelling communications. 

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5. Build a strong foundation of credit risk management for effective risk mitigation

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A proper credit risk management framework is crucial for any business involved in lending, as it helps evaluate and mitigate potential credit risks effectively. Building and maintaining effective risk management processes provides the necessary confidence to operate within the company's risk appetite while driving growth and protecting capital. It should be regularly reviewed based on the company's specific needs to ensure the ongoing alignment with the company’s goals.

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When it comes to credit risk, a comprehensive risk management framework is essential. This includes a robust risk scoring that is able to identify and quantify potential risky and fraudulent applicants accurately. It also involves implementing credit risk mitigation strategies, monitoring credit risk exposure, and making necessary adjustments to risk strategies when needed.

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An effective risk management framework is crucial to any business, especially for evaluating a customer’s credit risk. In addition to this framework, it is important to consider the challenges associated with using different risk solutions. One way to address these challenges is using multiple sources of data that are orthogonal with each other and add value to the ability of the general model to discriminate between good and bad customers. One of such sources of data is the one that credolab collects and processes to calculate its flagship alternative risk score: anonymous and permissioned behaviour-based risk detection that can be used to gather intuitive and real-time behavioural data and insights.

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For instance, credolab’s risk solution helps businesses assess every applicant with behaviour-based alternative risk scores. The solution helps credit risk management teams identify risky applicants and their probability to default in real-time and without any friction added to the user experience.

Conclusion

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A strategic approach to EmFi is essential for businesses to maximise their potential. By incorporating the five key considerations in this article, business owners can increase their chances of success. Businesses can also improve overall customer experiences, business growth and business success by using technology solutions such as those offered by credolab, which offers "all-in-one" solutions securely and competently. Utilising Artificial Intelligence (AI) and Machine Learning (ML) algorithms from smartphone and web metadata, credolab identifies behavioural patterns to calculate rich insights for solutions related to credit risk, fraud detection and marketing segmentation, all delivered through a single API. These solutions are also available to any company, not just lenders and financial institutions, looking to scale their businesses without compromising security and customer experience.

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The EmFi market offers significant growth opportunities for businesses, but they will also encounter challenges. However, by adopting the right strategy and using the right tools, businesses can thrive in the rapidly-evolving world of EmFi.

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