Embedded finance is rapidly taking its root in businesses of every kind and size, with more emphasis on customers and new business models.
The acceleration of the modern finance industry will rely largely on improving the financial lives of consumers and enterprises through non-banking providers. The idea that “any company can be a Fintech company” is rapidly gaining ground by embedding digital financial services (payments, lending, insurance, etc.) in core businesses of non-financial service companies.
Embedded finance is an unexplored territory, which inculcates Finance as a Service and integrates capital and tech infrastructure for one goal—seamless banking experience—right at the point of demand source. In this article, we will know how businesses are incorporating embedded finance
Embedded Finance: Breaking Down Barriers
The traditional financial scenario has deep-seated inefficiencies like banks holding a monopoly on credit issuance and debt offerings and being highly regulated. The massive scale of digitisation has increased
data availability, and smartphone usage now calls for more customer-centric services and new payment paradigms.
Today, the most exciting area of Fintech innovation is embedded finance. From consumer tech companies offering virtual cards and digital wallets to ridesharing apps availing banking services and instant pay-outs for their drivers, it is bringing down both technical and financial barriers and making way for a new revenue system and brand loyalty for businesses.
From small and medium businesses to large corporations, any business can incorporate everything from IT, compliance, loan, and insurance— in simple, easy solutions, without any extra cost or additional time.
Why Embedded Finance is set to change the Lending Industry
The future of non-Fintech companies with tech-driven financial services is incredibly bright as many companies are now offering bank-like products and services as bundled offerings and improving customer experience, loyalty, and profitability. Following are some merits of embedded financial services:
1. Added Value for Customers
By embedding digital innovation into banking technology, non-financial companies can pave the way for new customer journeys that solve real-world problems in sectors like transportation, health, retail, education, and many more. Reimagining modern value propositions, say, retailers including lending options for customers on big purchases, help extend beyond use cases.
For customers, there is more financial transparency, control, and simplicity than the traditional ways of banking. By considering the customer profile, businesses can embed finance products as per their requirements using the invaluable reserve of data about their preferences.
For businesses, there are fewer entry barriers and increased opportunities to present new business models and strategies for customers into their purchasing funnel. Focusing on key areas like convenience, digital experiences, and ease of use, they can catch up with traditional players by adopting end-to-end banking as a service (BaaS) to serve their customer retention and trust goals.
2. Easy Management of Loans
Many businesses now believe that incorporating embedded lending can boost their revenue by 5x.
Determining creditworthiness for new or small-and-medium businesses has always been cumbersome and lengthy with high interest rates or expensive fees. With embedded loans, the merchant/business has increased visibility, with limited investment and infrastructure costs. The lucrative option like “buy now, pay later” gives customers the luxury to split the price into multiple payments. As a result, the size of the shopping cart increases, and so does the sales volume.
Further, the budgeting tools and embedded features into the business’ platform will remove the need for digital discovery on the part of the end-user.
3. Increased Revenue
As brands look for alternative revenue streams, offering financial services could open new avenues with limited infrastructure costs and investment. Payments become more intuitive as the appeal is transparency and ease of use. This is simple— the easier it becomes for customers to spend money, the more money they will spend on the product offerings.
According to the Business Insider, embedded finance is a $7 trillion opportunity. Non-banks and brands can identify products by white-labelling financial services and tactically leverage revenue and gain trust. Strategic decisions to integrate finance into businesses and operating models can ensure both short-term revenues and long-term benefits.
4. Customised Offerings
With the digital migration of customers, it is now easier for companies to tap into customer and market niches, allowing customisation of product offerings.
From a business perspective, one of the many aims of embedded finance is to watch out for the touchpoints to influence the customer journey. Since finance as a service will significantly impact and improve the brand, it requires features, say, plugging an application program interface (API) into the information architecture.
As companies will get to own more and differentiated customer experience data, it would help them customise better products and increase the conversion rate.
5. Rapid Launch of Products and Services
With in-house financial services, there is an added advantage of the rapid launch of services with low entry costs because resources need not be spent on unnecessary infrastructure, licenses, or other components. Thus, embedded finance ensures low initial investment costs and efficient management of time and resources.
Use Cases for Embedded Finance
Many consumer-facing companies are now open to a wide variety of markets through the evolution of market demand, regulatory frameworks, and technological advances.
The benefits of embedded finance arise from monetising investment, loan, debit, and credit processes for sales opportunities. Today, it is more than mere automatic payments as the use cases centre around insurance, healthcare, education, agriculture, and so on. Part of the roadmap is forging new partnerships with banks and Fintechs. Another is innovating traditional banking processes and having open banking standards.
Here are some use cases of embedded finance:
The safety of riders and commuters is a major concern during rides. Insurance is no longer a separate part of ride-hailing but a necessary purchase in this case. Companies like Uber have leveraged their embedded finance models and provide insurance almost immediately.
Customers will continue to demand better healthcare to match their new remote working lives as the economy starts rebounding from the coronavirus pandemic.
Embedded finance facilitates robust financial services in medicine and health insurance where customers can avail easy and multiple payment options, especially in cases of emergency. This will avoid any deterrent, like unwanted costs or delays for healthcare providers, insurers, and patients.
E-commerce is undoubtedly the most lucrative area for embracing embedded financial services. With more consumers shopping online, e-commerce platforms are offering better-suited loans for customers in need of funds. Additionally, options like “Buy Now, Pay Later”, e-wallets, and instant payments are making shopping experiences more convenient and enjoyable.
Embedded financial services are not just for consumers as the end-users. Corporate success is an important segment for the success of any business. And many companies are now emerging as opportunities to allow financial products and services without any hassle or migration to other service portals.
Today, imagining future businesses without financial capabilities is hard. Embedded finance is everywhere, from insurance services to payment processing and compliance management, offered by non-banks and businesses of every kind.
Integrating finance as a consumable product by tapping into customer data and innovative Fintech approaches can help deliver new products and businesses, all delivered in new ways.
Write to firstname.lastname@example.org to know more about embedded financial offerings for your business.