EY estimates that the market size of global embedded finance will grow from $264billion in 2021 to $606billion as early as 2025. With the space set to disrupt the financial sector worldwide dramatically, The Fintech Times seeks to understand how.
Having already explored the impact embedded finance solutions can have on improving financial inclusion and on achieving global ESG goals, The Fintech Times now turns its attention to how the embedded finance space can bridge the financial literacy gap among Gen Z.
“Embedded finance solutions help to bridge the financial literacy gap”
Einat Steklov is the co-founder of Kashable, a financial wellness solution for employees. Steklov explains the important role embedded finance can play in improving education and guidance in the space: “Embedded finance solutions help to bridge the financial literacy gap among Gen Z by leveraging technology and ‘meeting’ Gen Z consumers at their familiar places with easily accessible tools.
“These solutions transform how financial services are accessed, delivered, and experienced in the digital age. Gen Z, known for their reliance on technology and digital solutions, will benefit greatly from embedded finance, which brings financial services directly to them beyond traditional financial institutions.
“Additionally, embedded finance provides education and guidance as necessary, when poised with making financial decisions. By integrating financial management tools like budgeting apps, expense trackers, and goal-setting features, embedded finance empowers individuals to monitor their financial activities, track their progress, and improve their financial habits.
“Financial literacy efforts should focus on empowering Gen Z with accurate and reliable resources to make sound financial decisions and avoid potential pitfalls. Equipping Gen Z with the necessary knowledge and tools will enable them to make informed choices and build a strong financial foundation for their future.”
“Gen Z are brand loyal”
Debbie Kennedy, chief executive at insurance broker LifeSearch, said: “Depending on the research you read, as much as 40 per cent of Gen Z are spending more than they earn – with as many as 75 per cent blaming the economic downtown and rising cost of living.
“In their relatively short lives, this generation has already lived through large economic downturns, war and a global pandemic. Consequently, their trust in government and large financial institutions is at an all-time low.
“Gen Z are brand loyal, and that extends to financial well-being. Globally the successful arrival of digital-first challenger banks, insurance disruptors, online retailers, investment platforms and travel super apps means that this ‘on-demand’ audience can now work, live and play 24hrs per day and from the comfort of a smartphone.
“Embedding finance solutions in trusted modern brands will inevitably reduce scepticism and wariness of establishment. The industry has the opportunity, if delivery and integration is simple, to educate in language that matches the embedded distributor and utilise large pools of proprietary data to personalise information and therefore financial product.
“However, some key guidelines must be followed when embedding financial solutions for this audience if the literacy gap is to be narrowed. Long, repeated, monotonous question sets during the application process will be a huge barrier for Gen Z if we want greater adoption. Product manufacturers must commit to data sharing via digital integration. The industry must also work with financial regulators and data custodians to ensure that we have safeguarding in place that is fit for today’s audience.”
The embedded finance opportunity is “ripe”
Nick Lawler, market sales director UK and Ireland at financial SaaS platform Mambu, discusses the important link between financial literacy and well-being: “Financial literacy is linked directly to financial well-being; however, financial literacy tends to be low among Gen Z groups, according to a report from the TIAA Institute. In the inflationary market we find ourselves in, younger generations’ financial health is challenged even more.
“The opportunity is ripe for financial and non-financial institutions alike to embed financial literacy content into the experience. Creating and offering easy access to financial literacy materials directly on your platform can help deepen relationships and trust between providers and customers.
“Take a young consumer who needs a loan for a major purchase. Companies who embed buy-now-pay-later (BNPL) tools in their online checkout process can also incorporate educational resources to educate consumers on payment plans to understand how their financial decisions inside and outside of their traditional banking environment impact overall financial health.”
“Financial literacy is paramount to financial well-being”
PJ Gupta, founder of the all-in-one push payments platform Checkbook, explains the role embedded finance can play in reducing the financial literacy gap: “Financial literacy is paramount to financial well-being, and embedded finance has the tools and the user interface to promote literacy more efficiently than other systems because the experience is interactive.
“Embedded finance can present the user with the pros and cons of making a financial decision at the moment of the transaction in real-time, which is key since human memory is short-lived.
“Embedded finance is a great tool for financial literacy because it transforms the legacy process of balancing a chequebook for the modern age. When making an electronic transaction, you are actually balancing your chequebook, so this acts as a learning tool in itself.”
“Companies must take responsibility to educate and explain the risks and rewards”
Justin Zacks, VP of strategy at online trading platform Moomoo, concludes: “To best educate Generation Z about financial topics you first must go where they are. That means mobile, digital-first interactions with the fintech brands they love.
“By embedding financial solutions such as payments, banking and insurance into the products and services Gen Zers use the most, these customers can gain familiarity about finance in a setting that is comfortable for them.
“However, merely offering these products is not enough, companies must take responsibility to educate and explain the risks and rewards associated with using embedded financial solutions.
“For example, embedded finance solutions can see relevant, and replicable, examples in retail trading platforms. Many online brokers have already realized that providing a single platform with integrated capabilities works well. To serve Gen Z in particular, brokers need to offer not only a good platform for trade analysis and execution but a suite of educational materials and tools that enable investors to understand money and markets.”
