What is embedded finance and how is it revolutionizing financial services?

Embedded finance solutions and banking-as-a-service products allow companies of all kinds to offer financial services such as payment processing, lending, banking, and more. Compare the best https://globalcloudteam.com/ currently available using the table below. Now is the time for each bank to decide how it will play in embedded banking for SMEs. In the platform-branded model, banks could partner with digital platforms to reach new SME customers, potentially generating new revenue without absorbing the costs of end-to-end distribution. Given that platforms play in winner-takes-all markets, banks will need to act quickly to secure partnerships with the most attractive players in each sector.

When you take a ride using one of those companies, you don’t have to hand the driver cash at the end or pull out a debit or credit card to pay. Instead, you complete the transaction in the app after the ride is over. In some cases, that pain can be enough to make someone reconsider a purchase. Instead of having to dig into their wallet for cash or find their credit card, a consumer using an app with an embedded payment program simply taps a few buttons and they’re all set.

Enablers’ goal: making things easy

The sweet spot is likely a combination of all, depending on the vertical sector at play and the products in scope. In 2021, transaction revenue via cards was weighted toward platforms at $0.75 billion, contrasted with enablers at $0.35 billion, of which over 90% resulted from debit transactions. By 2026, we expect both levels to rise based on higher volume of embedded transactions by nonfinancial institutions. This should cause revenues to reach just over $4 billion for platforms and $1.3 billion for enablers. In the same period, we expect enabler SaaS fees to scale proportionally, growing to over $5 billion. By 2026, we project that consumer payment transactions through embedded platforms will more than double, reaching $3.5 trillion and earning platforms and enablers $21 billion in revenue.

Users can apply for loans at the point of purchase for convenience and pay later transactions which they can repay over time. A survey of FinTechs in Europe found that over 50% considered banks as ‘mission critical’ partners. With innovation and access as their primary goals, both banks and FinTechs must work together to customizable products offered in-context. This means you can introduce financial touch points which help develop new experiences to retain customers, attract new ones and build exciting new revenue streams. The key is to be practical and clear about monetization strategies, focusing on how to reach the volume necessary to justify the expense of building new capabilities. It makes sense to outline participation choices early, staying close to areas of strength and core capabilities.

Embedded Finance Platforms for Landlord Studio

Highline supports all forms of recurring bill payment, from personal loans and credit cards, to rent and utilities. Simply drop the Highline API into your customer experience and give qualifying customers instant access to a better way to pay. When a customer’s employer sends their paycheck, Highline divides it as needed. The loan payment flows through the customer’s virtual Highline account directly to the lender, and the rest flows normally into their checking account. For most banks with proprietary distribution, embedded finance represents a significant cannibalization risk. However, banks with limited footprints or localized relationships, such as community banks and regional banks, may see it as an attractive way to expand their revenue base.

Alviere provides the most complete enterprise software solutions for embedded financial technology available on the market today. Alviere enables the world’s most trusted and visible brands to offer financial products to their customers and employees, via a one-stop-shop, fully compliant, and future-proof platform. In 2019, we wrote about the burgeoning movement of fintech from a business model unto itself to a key ingredient in the software platform stack—the “fourth platform.” Since then, the transition has been swift and unrelenting. Several platform archetypes have emerged, including e-commerce , food delivery services and rideshare apps , and wellness .

Pioneering Fintech Entrepreneurs and One Strong Vision

Leading banks are thinking about where to compete under their own brand with their own products and services, and where to collaborate with digital platform players to solve SME challenges and reach new customers. Banks can partner with digital platforms to reach massive pools of SME customers, potentially creating significant revenue streams without incurring the costs of end-to-end distribution. If banks do nothing, new embedded finance offerings could claim up to $32 billion of SME banking revenue by 2025. Embedded Finance will enable access to affordable, tailored, and easy-to-access financial services that will serve customers in all economic and social demographics. With a plethora of Embedded Finance companies coming up, and our most-loved brands now offering financial services, customers are now spoilt for choice. Existing services are only getting better, and accessibility is only set to improve.

Platforms can offer credit to their customers through a familiar interface at the point of demand creation rather than having to redirect them to a third-party site. Now that we’ve covered Embedded Finance, the rest of this article is a deep dive into Embedded Credit. It provides full-stack API and SDKs for digital businesses to embed credit products into their platform, and connects them with a diverse network of lenders. Increased access to affordable financial services – Users get access to an array of flexible, easy, and cheaper financial services.

For example, if you are seeking to improve customer service and satisfaction, an embedded payment could be one method to explore. A BNPL model could make goods or services more accessible to certain customers. Embedded insurance could make it easier for you to become a one-stop-shop concept.

Compare the Top Embedded Finance Platforms of 2022

As of 2021, we estimate that around $12 billion in B2B loans transacts via embedded finance. This is based on a total SMB loan value of just under $400 billion, where the individual loans are less than $1 million in value. Of this total, embedded penetration stood at around 3%, underpinned by the market shares of the relative embedded finance balance sheet providers, such as Cross River Bank.

The Hydrogen Technology Corporation makes it possible for any institution or business to capitalize on the various embedded finance opportunities. Our no-code embedded finance platform is easy to implement, even without high-level coding experience. We invite you to sign up online today for access to Hydrogen’s embedded finance platform. As finance becomes deeply embedded over time, the financial service will become part of our everyday life and activities.

Demand will grow because the proposition promises to improve customer experiences and financial access, along with providing cost-reduction and risk-reduction benefits to companies throughout the value chain. Technology providers provide the platform through which distributors can access, customize, and offer embedded-finance products. Some, including Marqeta, provide point solutions for specific categories of financial products, such as card issuing. Others, including Unit, Bond, and Alviere, operate platforms that offer distributors multiple financial products, such as deposits, money movement, and lending. The fully customizable product enables businesses to embed payments into their own platforms as either a Nuvei branded or white label offering.

Investing in the right capabilities will ultimately lead to opportunities to serve the new value chain in multiple ways. Customers benefit from contextual, seamless experiences; platforms can unlock new use cases and often use proprietary customer data to improve financial access, while reducing costs for their end customers. Demand will grow because the “better together” proposition promises to improve customer experiences and financial access, along with providing cost reductions and risk benefits to companies.

This financial transformation will continue to gain strength across nearly every sector as more companies adopt embedded finance and as consumers become more comfortable with these services. As embedded financial services become widespread—and more non-financial companies start wading into these new waters—financial services companies will need to rethink business models as they compete for new frontiers. By embedding financial services into established buyer journeys, many new revenue streams have already been established. Additional revenue streams are likely to continue popping up as companies find new and creative ways to add value through embedded finance. Another challenge is understanding the role your company would play in the ecosystem. The new payment-platform-as-a-service solution is well suited for businesses that see payments as a crucial customer retention and revenue generation priority through delivering the best possible experience for their customers.

Embedded finance has the power to transform our industry, putting financial products directly at the forefront of transaction flows exactly when and where consumers need them. BaaS, or Banking as a Service, is an end-to-end model that allows third parties to connect with banks’ systems via APIs. This allows third parties to build banking services on their regulated infrastructure.Embedded Finance refers to the use of BaaS to integrate financial services in particular within non-finance environments and ecosystems. Data enables banks to tailor their financial products to the end customer. New sources of data such as platform data will facilitate advanced underwriting and enable them to approve customers. This will give rise to a new generation of innovative financial products.

Embedded finance—growing the SME banking market through platform economics

In this way, the customer has a frictionless, more convenient, faster and simpler shopping experience, where banking transactions are available when and where they need them. A value proposition that drives e-commerce and encourages brand loyalty. “Any company that wants to invest in user loyalty and user experience should focus on financial services integration,” says Roland Folz, CEO of Solarisbank, a leading fintech in the BaaS sector. Embedded finance will play a fundamental role in shifting how consumers interact with their finances. The number of new enablers serving distinct niches will grow in ways that will both fragment and consolidate the value chain. This will give platforms plenty of choice to curate partnerships that suit their needs.

• VoPay’s Fintech-as-a-Service platform allows any company to embed financial services and payment capabilities into their existing applications, product, or services through a single and scalable API.
• His work has been featured in publications like Forbes, Fortune, and Inc.
• Banks can partner with digital platforms to reach massive pools of SME customers, potentially creating significant revenue streams without incurring the costs of end-to-end distribution.
• Yet despite the rapid growth of embedded financial services, there has not been much quantitative exploration of the industry’s dynamics.
• Other categories have recently emerged, including compliance , human capital management , and procurement within marketplaces.

Many distributors are adopting a “land and expand” approach to embedded finance. They start by offering payment acceptance or deposits and then extend their product portfolio to lending products or more complex offerings to address customers’ broader financial needs. Best Upcoming Embedded Payment Trends Being able to apply embedded finance that exists within the business-to-consumer context to the business-to-business context is an exciting development. We believe that B2B embedded finance use cases will emerge when digital and physical supply chains meet.

Key decisions for embedded-finance market entrants

However, banks roles might be reduced to being a provider of compliance in the industry and their services might be seen as more utilitarian. Leading banks and platforms are already thinking about how best to position themselves in this emerging sector, and which partners can help them deliver innovative propositions at scale. Those that are not yet moving into this market are at risk of missing a multi-billion dollar opportunity. At the same time, embedded finance could expand the overall SME banking market by up to $92 billion. Digital platforms and banks that move first will be able to secure partnerships with the prime players and unlock significant growth opportunities.

Opportunities for Embedded Finance

For example, non-bank payment processors already offer merchants analytics tools they can use to drive customer insights out of their transactional data. Around 31% of respondents in our research said the pricing for banking services on platforms must be the same as their bank’s fees, while 16% said they would be willing to pay a premium. Embedded Finance or embedded banking is the seamless integration of financial services into a traditionally non-financial platform.

Most Popular Insights

As this market expands, success will hinge on rethinking the risk and brand calculus, embracing different integration models, and understanding where to play. Delivers seamless and engaging customer experience across all channels. DFS® removes logic from the channel and banking processes, making the platform flexible.

As a futurist, it would be great to witness the evolution of embedded finance in travel and transportation systems. As an example, imagine a scenario where one simply completes a train journey and the right amount of travel fare is automatically deducted from your digital wallet, without having to pass through fare gates. Similarly, you could park your car without needing any parking tickets and instead get charged directly based on your entry and exit from the car park. In a B2B scenario, a payment request would be triggered automatically when goods are delivered by a lorry and the receipt is signed digitally by a warehouse clerk.