Embedded Finance: Making Life Easier One Financial Decision at a Time
24 February 2022
There is a rise of neobanks and new entrants shaking up the sclerotic banking system. We see an everyday luxury for consumers becoming a reality for businesses. We are talking about the financial revolution that has already taken consumers by storm — embedded finance.
Remember that time you were able to pay for a purchase in instalments? Or when you needed to order a cab, you were able to do so with the simple click of a button and no physical exchange of money? These are just two examples of embedded finance — the revolution we are talking about that is often taken for granted.
So, what is embedded finance? In simple terms, it integrates traditional financial solutions, such as payments, loans or credits, into non-financial providers.
What is driving this revolution?
The most important driver is the growth and pervasiveness of plug and play Application Programming Interfaces (APIs), whereby a new business model enables a company’s core service to be used as an integral part of another businesses’ proposition. It sounds complicated, but it is as simple as ordering a pizza for delivery via a third-party company such as Deliveroo or Uber Eats.
Many companies have begun offering their services via an API, which effectively lets companies bolt-on services to their existing offerings — like payment transfer, credit, or insurance. For example, think of buy now, pay later services like Klarna, the Starbucks’ loyalty app, which lets you buy coffee using your phone, or Uber, which is now way more than just a rideshare company.
Embedded finance is making more headway in consumer applications, but there are signs that B2B applications are bubbling up and proving invaluable to companies.
One of the most interesting is Shopify, a platform for online stores. However, today it also provides merchants with embedded banking solutions that allow them to manage the money they make from their customers within the platform. As a popular model, it is likely to be looked at as a future solution to embed other products such as lending and insurance.
Embedded finance can provide a better financial world if enacted successfully. More people than ever will have access to meaningful financial products and services in a manner that is more accessible and a better fit for their everyday lives.
Businesses seeking to embed payment services into their platforms don’t have to hand over a vital customer relationship to a payment service provider. In doing so, a consistent experience is maintained throughout the complete customer journey. The sales process becomes seamless when payment services are fully integrated into the buying journey instead of redirecting customers to a bank channel or switching between user interfaces.
Companies are also looking for a provider that can offer easy access to a global managed payment network, removing complexity and allowing the business to embed payments into their customer (external) and enterprise (internal) journeys. This is the next transformation as embedded finance steadily becomes the embedded norm.