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the launch of an SME bank and an acquiring business_Tinkoff is now the second largest online card acquirer in Russia.

Over the years, Tinkoff's data model sophistication improved drastically, catalyzed by the fact that Tinkoff was becoming their customer's primary bank and, as a result, was gathering a very comprehensive data set on their customers, allowing Tinkoff to target those customers with the right product, at the right time, at the right price. Over time, Tinkoff has also added external data sources to its model. According to Neri Tollardo, VP of Strategy of Tinkoff Bank, Tinkoff has now received and processed 250 million credit applications since their launch, which means that most Russians have applied for a Tinkoff product. All that data has gone to enrich their data models, which in turn is becoming more precise and now leverages artificial intelligence to refine its predictions. Tinkoff's philosophy is simple: data is used for the benefit of the customer to make sure Tinkoff can satisfy their financial needs.

      When it comes to its target market, Tinkoff's customer base has evolved over time. Tinkoff started by being a regional mass-market credit card lender, outside Russia's big cities, focused on small towns where branches were not always available. The launch of the debit card and the mobile app brought a more mass affluent, younger, and digital customer base, for which Tinkoff developed a certain number of new services. While those customers were not necessarily as interested in credit cards, they wanted to be able to use a brokerage account and buy insurance for their car. Tinkoff also has recently launched a private bank service for high-net-worth individuals. Nowadays, Tinkoff boasts 14 million active customers and covers all segments of the Russian population. Neri Tollardo believes Tinkoff offers a product for everyone.

      Tinkoff describes itself as a financial Super App, which is different from China's Super Apps that offer services such as ordering cabs and food delivery. Tinkoff's app offers a single view of all available financial services to the user, whether they are using those services already or not. The idea is to increase cross-selling in a way that is relevant to them. Tinkoff has developed a range of content and materials available in the app, in the form of articles, Instagram-like stories, and tickets, that makes it pleasant for the customer to come back and engage and which ultimately drives cross-selling of Tinkoff's services. Neri Tollardo explains:

      If they are big sport fans, we would tell them there's this football game on this weekend, they can buy game tickets, travel tickets and book hotels. You can do a lot of lifestyle-related activities like book a theater ticket or a sports game ticket all inside the app, which gives the customer an extra reason to come and spend a little bit more time and do something that they have positive feelings about within the app. Obviously, as they do that, it drives the frequency of Tinkoff's app usage.

      Tinkoff has also negotiated rates with merchants and is offering cashback to its users. This strategy is most definitely working, as out of its 14 million monthly active users, 5 million of them are daily active users of the Tinkoff app.

We can't discuss customer segmentation excellence and the success that neobanks have had without mentioning that a portion of the traditional finance service players, particularly credit unions, pioneered the customer segmentation piece for financial services.

      Many of the innovations commonly attributed to neobanks using advanced technology to segment customers first appeared with credit unions or building societies. Credit unions serve specific groups, for example, the employees of the same business or industry, and therefore were advanced in tailoring their services to meet the needs of their customers, known as members. There are credit unions targeted toward the military, teachers, Disney employees, and the list goes on.

While there are a few primary examples of credit unions leading from a data perspective, such as the early payment of paychecks based on the simple data of direct deposit information, a benefit for consumers that is still a marquee function of neobanks today, there are some differences for this generation of neobanks. The key difference lies in the neobanks’ ability to utilize technology and data as a primary competitive advantage. Equipped with this information, the next generation of neobanks allows people of different communities, regardless of location, to become part of the movement.

      This customization based on data and truly knowing your customer is where embedded finance comes front and center.

LOOKING ACROSS BORDERS: THE CASE OF CHINA

Yassine Regragui, fintech specialist and expert on China, explains that China's development in fintech is very unique, as it started in 2003, 19 years ago, with Alipay that was an escrow service created to build trust between the buyers and sellers of the e-commerce platform Taobao. Over the years, Alipay became a Super App that is today used by nearly everyone in China. Alipay and its competitor, WeChat Pay, now represent over 90% of mobile payments in China, while their offering extends far beyond financial services into lifestyle. The lifestyle services offered by those payment apps are now used more than 50% of the time by users engaging within the Super App. While this is something very typical to China, we are now seeing similar use cases in Southeast Asia, in Europe, in the US, and in other countries, because these payment apps are expanding their services and taking part in the daily lives of their users. The natural integration of financial services in these Super Apps, along with the fact that Chinese consumers are accustomed to going to one place to meet most of their needs, positions China to be at the forefront of fintech innovation. This is in large part thanks to the Big Tech platforms leading the charge when it comes to financial innovation, a progressive regulator encouraging competition, and the banks that offered API-based services early on to enable Big Tech to connect to it.

      China's speed of innovation and technological developments can be attributed to several factors. The first factor is that those who started these payment services are nonbanking companies, including Alibaba, an e-commerce platform and Tencent, a gaming or messaging platform, who built a relationship with their users. Many gamers in the US will be familiar with Tencent for their hit games including Fortnite and PubG. This relationship and Chinese cultural tendency of being more open to new services enable the fast and consistent adoption of the new services they deploy. The second factor focuses on the ecosystem. These two giants have many external services connected to their internal ecosystem (the Super Apps) which creates a halo effect and builds trust externally through their partner's brands. The last factor is the Chinese regulators’ openness and support to encourage more competitors to enter to stimulate innovation. By contrast, Western payment companies are kept out of the Chinese market, protecting the homegrown players.

EMBEDDED FINANCE IS HERE

It has taken time for the embedded finance ecosystem to develop. First, banks needed to digitize their offerings and open products and services via APIs, which allow two sites or apps to communicate and exchange data. Next, a sophisticated fintech sector needed to emerge and begin interfacing with bank technology in order to deliver superior versions to their customers, consumer, or business. Third, regulators needed to soften their approach to nonbank vendors offering financial services. Fourth, companies needed to understand the opportunity embedded finance offers and find the right opportunities to offer products. Software-as-a-service companies are seeing the value in financial offerings, which can become the most lucrative parts of their business. Big Tech has the audience, the agility to innovate, and is already searching for solutions to improve customer stickiness and brand loyalty and diversify their revenue base. They also have the data on their users that they can leverage to provide the best possible financial services, at the best price, with the least risk. Finally, most individuals have reached the point of psychological safety needed to start accepting financial services products in other shopping contexts and through different distribution channels.

      Embedded finance is officially here. Are you ready?

      Summary

      Embedded finance is the new way financial services reach customers. Instead of customers going to banks, embedded finance delivers financial products to customers through services they already use, in the context of their everyday lives. Embedded finance was born from fintech, the fusion of financial services and

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