The Future of Finance Is Embedded - Here’s Why

The rise of embedded finance has been one of the most significant developments in the financial industry over the past decade. Embedded finance is an approach to providing banking and financial services that are integrated into traditionally non-financial environments, enabling customers to access these services without connecting with their bank or other traditional financial institution. This model has enabled companies from all sectors – from retail to healthcare – to offer their customers more convenient and cost-effective ways of managing their finances. As such, it has become increasingly popular among businesses looking for new ways to engage with their customers and increase revenue streams.

Despite this, the adoption of embedded finance is lagging in several industries, begging the question if it truly has the potential to dominate the future of financial services? In today's blog post, we will answer this burning question and more.

What Is Embedded Finance?

Embedded finance is an innovative way of providing banking and financial services that eliminate the need for consumers to interact with traditional banking or financial institution. It involves incorporating banking and financial features into everyday consumer-facing applications, such as online retail stores, mobile apps, gaming consoles and more. By incorporating these services into existing applications, businesses can provide their customers with a seamless and integrated user experience while also enhancing the customer's overall experience.

How Embedded Finance Works?

In order to appreciate the true potential of embedded finance, it is crucial to understand how it actually works.

Traditionally, financial services of any kind fall into either of these three categories.

•  Transfer of Value in Space - This includes conventional banking services such as savings and checking’s accounts and payment processing.
• Transfer of Value in Time - This includes investments and loans where the financial product has a fixed tenure attached to it.
• Managing Risk - Lastly is managing risk through products such as insurance which provide some form of protection against potential risk.

Now each of these categories can typically be integrated into a non-financial environment and delivered over a network. However, what sets embedded finance apart is its ability to not only integrate these services vertically but also achieve cross-industry integration. To understand this better, let's take the example of a digital wallet.

A digital wallet essentially allows customers to store their payment information within their phones, such that they can conveniently use it to pay at brick-and-mortar establishments or complete a transaction seamlessly on an online eCommerce platform. However, in order to set up a digital wallet, the consumer first has to share their debit or credit card information into the app, both of which are issued by traditional banks.

Once set up, consumers can now leverage the digital wallet to complete transactions in any scenario. Not only this, but most digital wallets also empower customers to participate in peer-to-peer transactions, meaning they can seamlessly send money to each other without having to fiddle with cash or a card.

While digital wallets are an example of a transfer of value in space, embedded finance enables the integration of the remaining two categories across industries as well.

For instance, Buy now pay later (BNPL) is a type of embedded finance solution that is an example of a transfer of value in time. It provides consumers with the ability to finance a transaction at the click of a button, sometimes even without a credit check. This technology allows customers to purchase goods or services and spread out their payments over time in smaller instalments rather than paying for them upfront.

BNPL solutions are typically offered through digital wallets or online payment services, allowing customers to quickly and easily access financing options. The process is simple; users add items they want to buy into their cart on an eCommerce platform, select BNPL as their payment option, review their terms and conditions and seamlessly complete the checkout.

From there, depending on the provider's offering, customers can then receive regular reminders from the merchant or lender regarding upcoming due dates for future payments until all amounts have been paid off in full.

Another example of embedded finance can be found in integrated insurance services.

These days, travel aggregators, such as airline and hotel booking agents, are increasingly integrating embedded insurance services into their platforms. Embedded insurance allows customers to purchase travel insurance directly during the checkout process, providing them with an added layer of security and convenience.

By doing so, these aggregators not only provide their customers with peace of mind that their investments are protected but also offer them added flexibility in the event of a financial emergency or unforeseen incident. While this might appear to be a small feat at first, in reality, it is revolutionizing how financial products which are designed to offer customers an added layer of security are being offered. By embedding this solution directly across industries, not only are more customers benefitting in terms of having an extra layer of protection, but also how businesses are nurturing a new revenue stream.

The Takeaway - The Future of Finance Is Embedded

Embedded finance is revolutionizing the way customers are able to access and use financial products, allowing them to benefit from an added layer of security and convenience. With its seamless integration across multiple industries, it has become a popular choice for businesses looking to generate new revenue streams as well as customers seeking peace of mind with their investments.

As embedded finance continues to rise in popularity in the coming years, more people will be drawn towards this convenient solution that provides a secure alternative when paying or investing online. It's no wonder that embedded finance is becoming the first choice for millions of customers and businesses around the world, ensuring that the future of finance is truly embedded.

Looking to offer your B2B customers an embedded lending experience? Get in touch  with us today to learn how we can help.