As embedded finance continues to gain traction, it is clear that it isn’t just a financial fad, but rather the future. While the coronavirus crisis compelled businesses to redesign and accelerate their digitization strategies in ways never seen before, plans for digitization projects that were years in the making were accomplished within months.
As with any new concept, it can be difficult to grasp what embedded finance actually means for those yet to become adept at working with it. Simply put, embedded finance is the use of financial tools or services such as lending and payment processing by an organization that is not financially involved.
Redefining the Financial Sphere with Embedded Finance
Embedded finance simplifies consumers’ access to financial services by streamlining payment and borrowing processes. Previously, consumers had to go to a physical bank branch to apply for credit before making a substantial purchase. By integrating embedded finance, customers can now buy a product and obtain credit in one place: the point-of-service.
Embedded finance offers consumers several benefits, among which is convenience. Removing pain points for consumers, such as the need to seek credit elsewhere, may make them more likely to complete a purchase and experience customer satisfaction, which is crucial to building brand loyalty. As a result, businesses are more likely to make more profit as consumers repeat purchases.
Even so, embedded finance isn’t all about convenience. This tool is also used to better understand consumers’ spending habits and needs. A business can later use this data to drive future growth.
Here’s how embedded finance delivers value in the financial industry:
- Buy now, pay later: Modern shoppers are creating a line of credit with buy-now-pay-later instalment plans. The ability to pay over time for a wider range of products empowers consumers to shop differently, whether that means investing in a higher-quality piece of home technology or a travel system for a newborn.
- Integrated insurance services: Customers may want to ensure that, in case of an unforeseen event, they will not lose money by purchasing a new product or service. And that’s where integrated insurance comes in. With insurance financing tools embedded, businesses can better deliver insurance services.
- Investments and trading: Investment applications integrate finance tools that can be used to connect with brick-and-mortar banks to invest in a way that meets their financial needs and their spending habits.
- Fintech-as-a-service: From invoicing to customer acquisition and everything in between, the use of financial technology-as-a-service is on the rise among companies.
Just as the emergence of integrated finance itself grew out of consumer demands for convenient financial services and the increasing number of online transactions, so did platform ecosystems. For starters, companies can design an embedded finance strategy that works for their needs.
A good place to start is by identifying the company’s embedded finance project goals. These could include improving customer service, growing your client base, or launching a new venture to meet a specific target audience or need. Analyzing the digital needs and choosing the appropriate tools for integration, however, requires a great deal of time and effort.