As you evaluate strategies to grow your business, embedded finance presents an immense opportunity. By integrating financial services into your existing customer journeys, you can boost revenue while providing more value.
This complete guide empowers you with everything you need to know to capitalize on embedded finance. We’ll explore what embedded finance is, types and also benefits. You’ll gain actionable insights to incrementally or fully embed lending, insurance, savings, and other offerings. Whether you’re new to embedded finance or looking to optimize an existing program, this guide equips you to meet customers where they are and unlock new streams of revenue.
What Is Embedded Finance?
Embedded finance refers to the integration of financial services into the digital experience of non-financial companies.
Rather than relying on traditional financial institutions, embedded finance allows companies to provide tailored financial services to their customers within their own digital platforms and applications.
Benefits Of Embedded Finance?
Embedded finance provides several advantages to both businesses and consumers. For companies, integrating financial services into their existing products allows them to provide a better customer experience, generate additional revenue streams, and gain valuable customer data and insights.
1. Improved Customer Experience
By embedding financial services into their products, companies can provide customers with a more seamless experience. Customers can access multiple financial and non-financial services in one place without switching between different websites or mobile apps. This convenience and simplicity often leads to higher customer satisfaction and loyalty.
2. New Revenue Opportunities
Embedded finance opens up new revenue opportunities for companies through commissions, referral fees, interest, and other charges. Companies can either build the financial services in-house or partner with third-party providers to offer services like payments, lending, insurance, and wealth management. These embedded services provide an ongoing source of revenue that complements a company’s core products or services.
3. Enhanced Data and Insights
Companies gain access to rich customer data by facilitating financial transactions and services. They can analyze spending patterns, risk profiles, and other useful information to improve products, personalize offerings, and cross-sell additional services. These data and insights provide a competitive advantage and help companies better understand and meet the needs of their customers.
In summary, embedded finance allows companies to boost customer loyalty, tap into new income streams, and gain data-driven insights. By integrating financial and non-financial services, companies can provide customers with an all-in-one experience that is both convenient and personalized. The benefits of embedded finance will only continue to grow as open banking regulations expand consumer access to data and more third-party providers enter the market.
Different Types Of Embedded Finance
Embedded finance refers to the integration of financial services into non-financial products and services. There are several types of embedded finance currently transforming industries:
1. Payments
Embedded payments allow customers to pay for a product or service from within the merchant’s mobile app or website. This provides a seamless experience for customers and can increase conversion rates for merchants. Popular examples include paying for an Uber ride through the Uber app or paying for a meal delivery through the restaurant’s website.
2. Lending
Embedded lending integrates loan and financing offers into the purchase experience. For example, customers can apply for a loan to finance a large purchase directly on a merchant’s website. The merchant benefits from higher conversion rates and bigger basket sizes. Consumers get a convenient lending experience tailored to their needs. Embedded lending is gaining popularity, especially for big-ticket items like furniture, home improvement, and automobile purchases.
3. Insurance
Embedded insurance weaves insurance products like warranty, shipping, or product insurance into the purchase experience. Customers can purchase insurance coverage at the point of sale on the merchant’s digital properties. Embedded insurance creates value for both customers and merchants. Customers get insurance that is customized for their specific purchase, while merchants see higher conversion rates and customer lifetime value.
4. Investing
Embedded investing incorporates investment products like retirement accounts, brokerage accounts, and robo-advising into a company’s digital experience. For example, employees can open a 401(k), invest in the stock market, or get automated investment management through their employer’s website or mobile app. Embedded investing aims to make investing more accessible and help people achieve important financial goals.
Embedded finance is transforming how people access and use financial services. By embedding tailored financial products into everyday experiences, it is enabling innovative new business models and a higher level of convenience for customers. The types of embedded finance payments, lending, insurance, and investing are poised to become more integrated into people’s lives and continue driving growth in the financial industry.
Who is Embedded Finance For?
Embedded finance refers to financial services that are integrated into the user experience of a non-financial company’s product or service. This allows companies to provide their customers with a convenient, customized experience by offering financial services within their existing applications and customer journeys.
1. Companies
For companies, embedded finance presents an opportunity to boost revenue and enhance loyalty by offering financial services to their existing customer base. By embedding services like payments, lending, or insurance into their products, companies can capture a greater share of their customers’ financial lives and build stickier customer relationships.
2. Customers
For customers, embedded finance means enjoying a simplified and streamlined experience. Rather than navigating multiple financial providers and their various systems, customers can access services through platforms and applications they already use. Embedded finance also allows for a personalized experience tailored to customers’ specific needs and circumstances.
3. Financial institutions
Embedded finance also presents opportunities for financial institutions to reach new customers and gather more data to improve underwriting models. By partnering with popular consumer platforms, financial institutions can gain exposure to a wider base of potential users. They can also leverage data from their partners to better assess risk and tailor product offers for individuals.
What to Consider Before Implementing Embedded Finance?
There are some critical factors to consider before incorporating embedded finance into your company solutions. This includes:
Types of Embedded Finance
Based on your objectives and target audience, you must decide which type(s) of embedded finance your company should use.
Regulatory compliance
Because embedded finance rules and regulations are always evolving, you should stay up to date on any regulatory changes and be aware of the requirements in the markets in where your company operates.
Security
Because your application will handle financial transactions and collect sensitive financial data, it is critical that you maintain strong platform security.
Exposure to this data will not only have a detrimental impact on your customers, but will also result in significant financial and reputational damages.
Technology
To successfully implement embedded finance functionality, it is critical to have a thorough understanding of the latest technologies, such as APIs, cloud computing, big data, and machine learning.
That is why you must seek advice from professional fintech developers who can provide the necessary support.
Conclusion
Embedded finance provides significant benefits to both organisations and customers. As a large portion of commerce and other services shift to the internet domain, we expect to see an increasing number of organisations adopt embedded finance in the future.
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FAQs
What is embedded finance?
Embedded finance refers to the integration of financial services into non-financial platforms and apps. Companies embed services like payments, lending, and insurance into their existing customer experiences. For example, when you pay for an Uber ride from within the Uber app, that is embedded payments. Embedded finance aims to provide a seamless financial experience for customers in the context of their daily lives and the platforms they already use.
How does embedded finance benefit companies?
Embedded finance allows companies to deepen relationships with existing customers, open up new revenue streams, and gain valuable data and insights. By offering financial services, companies can capture a greater share of the customer wallet and turn one-time users into long-term, loyal customers. Embedded finance also provides companies with rich transaction data to better understand and serve their customers.
How does embedded finance benefit consumers?
Embedded finance provides a convenient, frictionless experience for consumers. They can access financial services in the apps and platforms they already frequent, without switching contexts. Embedded finance also often offers more transparent, accessible financial products to underserved communities. Consumers may get approved for a line of credit from a company they have a purchase history with, even with little or no credit.
What types of financial services can be embedded?
The most common types of embedded finance include:
- Payments: Integrating payments into an existing platform, like paying for an Uber ride in the Uber app.
- Lending: Offering lines of credit, installment loans, or “buy now, pay later” options within a non-financial app.
- Insurance: Selling insurance products tailored to a company’s customers and integrated into its existing experience.
- Investing: Enabling customers to open investment accounts or buy stocks and cryptocurrencies within platforms they frequent.
What is the future of embedded finance?
Embedded finance is a fast-growing trend that is reshaping the financial services landscape. More and more companies will look to embed financial offerings to boost customer loyalty and unlock new revenue streams. Embedded finance also has the potential to promote financial inclusion by providing underserved communities greater access to responsible financial products in a seamless manner. Overall, embedded finance aims to make financial services a natural extension of the everyday platforms and experiences that shape our lives.