Have you checked out the latest options from your favorite retailer or service provider lately? Chances are, they now offer various financing, banking, or payment options – all without redirecting you to another website or app.
The seamless integration of financial services into non-financial businesses is known as embedded finance. This allows companies to provide customers with a more streamlined experience by offering financial products within their existing services.
As fintech has made it quicker and easier to develop financial solutions, embedded finance has taken off. Businesses from all industries are partnering with fintech firms to embed financial services like payments, lending, banking, and more.
Customers enjoy convenient choices, while companies discover new revenue streams! Even companies you wouldn’t expect, like retailers, telecoms, and streaming services, now offer embedded finance.
The next time you’re checking out or paying a bill, check if your service provider is one of the many offering embedded finance. It’s likely that fintech is now an integrated part of their business model, allowing them to provide you with an even better customer experience.
What Is Embedded Finance?
Embedded finance is the integration of financial services into non-financial businesses and platforms. Companies are incorporating fintech solutions to enhance the customer experience and expand their product offerings. Embedded finance enables customers to access financial products where and when needed.
How Does Embedded Finance Work?
Embedded finance works by partnering a company’s technology and customer relationships with a fintech provider’s financial expertise and licensing. The fintech provider does all the behind-the-scenes financial heavy lifting, while the partner company provides the interface for customers.
For the partner company, embedded finance is a win-win. They can provide a better customer experience by offering financial products without having to build the infrastructure or obtain regulatory approval. They also gain valuable data and insights into their customers’ spending habits and needs.
Meanwhile, for fintech providers, embedded finance opens up whole new customer bases and distribution channels. They get exposure and scale much faster than attracting customers on their own.
Embedded finance does come with more responsibility for companies in pre-qualifying customers and determining creditworthiness to offer certain financial products.
Using credit reports for fintech, providers can help assess risk and set appropriate terms. With open banking, they can also access customers’ financial data with permission to make better lending decisions.
Overall, embedded finance has huge potential to transform customer experiences and expand financial inclusion. When financial services are integrated into the platforms and businesses we interact with daily, they become more accessible and useful for all.
Why Non-Financial Companies Are Adopting Embedded Finance
You’re likely familiar with fintech companies like PayPal, Square, and Robinhood. They all provide financial services through apps and websites. But, have you noticed that more and more non-financial businesses are offering financial services, too? That’s where embedded finance steps in.
Non-financial companies are realizing that they can tap into new revenue streams and boost customer loyalty by embedding fintech solutions into their products and services.
The numbers say it all – the embedded finance market was valued at USD 65.46 billion in 2022, and it’s only expected to grow from there.
Integrating fintech allows non-financial companies to give customers a seamless experience and more value from their platform. Customers can handle multiple needs in one place, rather than using separate services. Conversely, companies gain data to better personalize offerings.
Of course, with these benefits come regulatory requirements and risks. For forward-thinking companies, however, embedded finance is a chance to future-proof their business models and build a competitive advantage.
The possibilities for enhancing the customer experience through fintech solutions are endless. Embedded finance may just transform industries and change the way we manage our financial lives.
Examples of Embedded Finance Across Industries
Embedded finance is reshaping how non-financial businesses operate by integrating financial services into their offerings. Some major examples of embedded finance across industries include:
Ride-sharing
Popular ride-sharing services like Uber and Lyft feature embedded payments that allow you to pay for your ride directly within their app. No more fumbling with cash or swiping your card. The payment is seamlessly built into the experience.
B2B Marketplaces
Invoice financing in B2B marketplaces allows businesses to auction off unpaid invoices to investors. The investors then collect the payments from the customers, providing much-needed working capital to the businesses. This embedded finance solution helps B2B companies improve their cash flow.
Retail
Many big retailers provide financing options for large purchases like appliances, furniture, and electronics. For example, customers can often get approved for a line of credit right in the store to buy that new washer and dryer set. Also, e-commerce retailers may offer customers the choice between buy-now-pay-later loans and personal loans.
Car dealerships also frequently offer auto loans and leasing options right on the lot. These embedded finance solutions make it easy for customers to say “yes” to a purchase, even if they can’t pay the full amount upfront.
The Future of Embedded Finance: More Integration Ahead
The future of embedded finance looks bright. As more businesses realize the power of integrating financial services, embedded finance will enter the mainstream.
Expanding Offerings
Non-financial companies will continue finding new ways to embed financial products to enhance their customer experience.
For example, e-commerce platforms may offer installment payment plans at checkout, allowing customers to pay over time with interest. Ride-sharing apps could integrate insurance offerings tailored to drivers and riders. The possibilities are endless.
Reaching New Customers
Embedded finance also makes financial services accessible to underbanked populations who otherwise couldn’t or wouldn’t use them. People who don’t qualify for traditional financial products due to poor or no credit history can access alternative options through companies they already use and trust.
A telecom provider, for example, may offer phone financing to customers with little or no credit. This helps both the customer and the telecom company.
Improved Efficiency
Embedded finance improves efficiency for both businesses and consumers. Customers can access multiple financial services in one place, often with a single application. Plus, companies can leverage customer data and insights to provide customized offers.
Embedded finance also simplifies operations by automating application processing and decision-making. For example, a customer may be instantly pre-approved for a line of credit based on their payment history with the company.
Tighter Integration
In the coming years, embedded finance will become even more tightly integrated into the customer experience. Real-time data sharing between financial providers and non-financial companies will enable personalized offers that anticipate customer needs.
Biometric authentication using facial or fingerprint recognition, an important component of digital financial services, will create a seamless experience across products and services. Additionally, open banking APIs will facilitate the flow of data between various embedded finance partners.
The future of embedded finance is all about integration—streamlining the customer experience through personalized, data-driven, and automated financial services embedded where people live, work, and play. As embedded finance continues evolving, it will modernize both consumer and business finance in exciting new ways.
Conclusion
So, there you have it. Embedded finance and fintech solutions are revolutionizing industries across the board by giving companies new ways to provide value to customers.
Whether it’s offering financing options at the point of sale or integrating banking services into your favorite shopping app, embedded finance is bringing financial services to places they’ve never been before.
For businesses, it opens up a whole new world of opportunities to boost loyalty, increase average transaction sizes, and build lasting customer relationships. While for customers, it means getting what you need when you need it in the places you already go.
The future of finance is embedded, and it’s poised to redefine our everyday experiences in completely new ways.
