A thriving product ecosystem is what every business strives for. Embedding financial services are adding new opportunities to fast-growing offerings.
Ecosystems. We don’t need to get too David Attenborough here, we all understand the basic idea that in an ecosystem, multiple species interact in ways that support and benefit each other and the ecosystem as a whole.
Product ecosystems work in much the same way. A business offers a range of products and services that complement each other and strengthen the entire business. And just like environmental ecosystems, elements can be introduced which change and improve the product ecosystem over time. The end result? An interlocking product set that is more valuable together than each one is on its own.
But before we get into that, let’s look at how a product ecosystem works in practice.
Amazon has one of the largest product ecosystems in the world - explaining all its elements would require pages. But let’s imagine a (not unlikely) scenario. You and a friend are discussing what to do on the weekend and you decide to watch a film together. You ask Alexa for the 10 highest-rated films that came out the previous year and, once you’ve picked one, you tell Alexa to purchase the film via Prime Video. It’s instantly on your TV.
You then decide to up your movie night game, so you ask Alexa how much a popcorn machine would cost. It gives you the price as well as some reviews, you opt for it, it arrives the next morning thanks to your Amazon prime subscription. When your friend arrives, your phone buzzes and you see them at the door through your Ring doorbell system (another Amazon product).
By Amazon’s standards, this is a pretty focused example. When you consider Amazon Web Services, their physical stores, payment services and more, Amazon is really an ecosystem of ecosystems. But the example illustrates how their products and services lock together. It isn’t just that they create great products, they connect with one-another so they are more than the sum of their parts.
You may be thinking ‘good for them, but my business isn’t Amazon’. That’s fine, ecosystems aren’t about size. Amazon’s ecosystem may be as vast and interconnected as some sort of giant rainforest in Brazil (if only we could remember its name…), but even a line of two or three products has the same potential. The point is that building these products to work together is more valuable than each one in isolation.
There are a number of reasons why this is:
Revenue: Offering more products doesn’t inherently boost revenue. It is of course down to how those products sell, versus the costs they incur. However, products that not only sell, but increase the sales of other elements in your product line, have a much better chance of giving your business increased revenue.
This is not just about single purchases encouraging further single purchases. Looking at the Amazon example again, as well as selling products themselves, they take a commission from third-party sales, they sell digital-only products like movies on Amazon Video and if a customer signs up to Prime, they then have a regular subscription revenue stream to top it off. Revenue isn’t just increased, it is layered in different patterns.
Brand loyalty: The more interactions a customer has with your brand the closer the relationship you build with them. A product ecosystem makes your business a more prominent feature of their life which makes them more likely to recommend you and more likely to opt for future products and services you release.
New data: New products give you the chance to learn more about your customers and iterate your existing products accordingly. Take Tesla for example. In LA, customers are able to purchase insurance directly from Tesla when they buy their car. Not only do the products clearly complement each other, but Tesla then receives all the data from insurance claims, which it can use to make improvements to its vehicles. The better the cars they make, the more they are going to sell - and the fewer insurance claims they will see.
We recently published an article on the rise of Super-apps and the role that financial services have played in that rise. Super-apps are a prime example of individual products becoming product ecosystems, and how embedded finance is helping non-finance businesses make similar strides.
This is because embedded finance can give your product ecosystem a whole new angle, enhancing existing products and services or offering a different feature altogether. With no need for licensing or a high-level developer input, a huge number of doors are opened for your business. Long-standing customer problems can be addressed with a single API call.
A tailored payments offering, banking products such as accounts or short-term loans, foreign exchange, insurance - all can be built-in to existing services or offered in addition. In fact, we recently explored what this might look like, but so much of this potential is down to what your business strategy demands - and what your customers need.
This is where we believe the future lies: businesses gathering more insight into their customers, expanding the products and services they’re building for their customers, and building out this ecosystem over time.
Addressing issues that your customers are facing with new products and features that are wildly different to what you’ve offered before used to require a huge investment of time, money and probably, luck. Now, embedded finance is allowing businesses to be more holistic in their approach to the benefit of themselves and their consumers, and build flourishing product ecosystems in the process.
It may not be the same as watching lions hunt across the savannah or orangutans in the jungle, but we think it’s still rather beautiful, in its own way.
Welcome to the first day of the rest of your (embedded finance) life.
Knowing how embedded finance projects are initiated, and why, can help you build better products and services