Haven’t heard of embedded finance yet? You will soon. Embedded finance is about to radically transform digital businesses and create a new benchmark for customer experience across countless industries beyond financial services.
The embedded finance market will be worth $138 billion by 2026, according to Juniper Research. In the next few years, you’ll see banking, payments, lending and more become woven into digital platforms.
Think of an online shopper being able to split their purchase into four or a large international company being able to give employees access to their accrued wages ahead of traditional paydays. As fintech consultancy 11:FS describes it, embedded finance is ‘finance that shows up just when you need it’.
Embedded Finance unlocks timely financial services
This should matter to you if you’re a leader at an ambitious digital business, because for the first time you too will be able to deliver great financial products. You will be able to do this while increasing customers’ loyalty to your core business offerings. And your adoption of embedded finance will create additional revenue streams.
Leading companies already integrate financial services of almost every hue into third-party platforms through APIs. If you’re a consumer or business, or any kind of digital innovator for that matter, it’s likely you’ve already benefited from an embedded financial service.
Embedded financial services have helped companies like:
- Tesla offer personalised insurance when buyers purchase their cars
- Shopify-run stores to accept payments without customers needing to leave their site
- Alibaba to insure marketplace merchants for shipping and product returns.
Embedding financial services can create highly positive outcomes, according to Fintech Revolution, a new report authored by Post Street Capital founder and ex-Square executive Jackie Reses. “We’ve seen valuation multiple expansion across the board, and in most cases a steep function improvement in experience for their end customers,” the report says.
How financial services will evolve
Lightyear Capital estimates embedded finance can unlock $230 billion in net new revenue by 2025. Embedded finance works best for companies with a digital mindset, focus on customer centricity and deep digital ecosystem integration. Such businesses will claim the opportunities across other areas of fintech innovation, such as Banking-as-a-Service and Open Banking.
For example, Open Banking will continue to drive greater use of money management tools. And as consumers become more used to connecting their accounts and carrying out financial tasks with their shared data, this mindset will flow onto business-to-business (B2B) scenarios.
Open Banking data will support better lending, as risk assessment will be guided by richer data on under-served markets and business owners. And greater data sharing will open up opportunities in the significant total addressable market of finance-hungry SMEs and micro-entrepreneurs across the globe.
And don’t forget the ecommerce merchants and other growth-minded businesses will always want to save money on recurring expenses, like transaction fees and frequent cross-border payments.
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The near-future of embedded finance
Embedded finance will enable digital businesses to serve SMEs and micro-entrepreneurs across the globe. Digital businesses can sell to their core offering and create diversified revenue streams, by embedding payments, insurance, lending and other financial services all under the banner of their existing business brand. The possibilities for customization are endless.
This is an opportunity that both B2B vendors and consumer-facing businesses can seize, but they will need to work with the right partners.
We’re in a new phase in the history of financial technology and digital transformation. In the coming years, innovative businesses will adopt embedded finance to:
- Overcome perennial challenges around handling payments across geographies, currencies, and differing regulatory zones.
- Offer fintech as a service and help clients implement financial services into their own business models.
- Harness the benefits of a global network of licenses, payment corridors and banking partnerships, while avoiding costly builds and long deployments.
Platform-based approaches will help companies optimise their international expansions and create new revenue streams. Through a single API, businesses will integrate any number of solutions to connect their customers to financial products in their moment of need.
Nium’s approach for example is unique and different, as we use our global suite of licences and full-stack offerings to manage the whole solution. We integrate capabilities and provide the infrastructure, that then enables our customers to embed these solutions globally. We clear the way for increased liquidity and interoperability and help lower barriers for businesses to enter new, complex and highly regulated markets.
What makes embedded finance partnerships tick
Ultimately, the success of embedded finance will come down to sound partnerships. Lightyear Capital has identified several traits of effective embedded finance partnerships. These traits include:
- A customer-first approach, to create clear value and ease specific problems.
- Clear motivation — think revenue growth, customer acquisition, or retention.
- A new mindset about customer ownership, data sharing and security.
- Ongoing investment beyond one-time projects and products.
The partnership between Nium and Weavr will make Nium’s banking-as-a-service infrastructure accessible to any digital innovator, and will enable such innovators to easily build, deploy and run embedded banking solutions for their digital applications, without requiring specialist knowledge of banking and payments, and the associated security and compliance skills.
Much as AWS brought the power of sophisticated data centres and made setting up complex hosting environments far quicker, Weavr’s technology running on Nium’s banking infrastructure will radically speed up the time to market for any business wishing to take advantage of embedded banking.
The next customer experience revolution
Embedded finance is opening the door to the next phase of fintech revolution — and we’re excited to be part of it. Digital businesses who want to use embedded finance can do so much more than lift revenues — as they can improve customer experience across different industries.
Expect embedded finance to be used more widely as businesses will choose to deploy their own-branded versions of popular financial products like buy now, pay later or flexible earned wage access, etc.
That does not mean these businesses will become fintechs themselves. They’ll be able to focus on the core business of what they do best while taking advantage of embedded finance’s ability to enhance customer value, improve monetisation, and customer retention.
Written by Frederick Crosby – CRO at Nium and Alex Mifsud – CEO and Co-Founder at Weavr