Embedded Finance: Everything You Need To Know

Embedded Finance

The emergence of embedded finance is reshaping the financial services industry. By incorporation of banking products to any company’s products and services, the financial services industry ceases to exist independently, and finance suddenly becomes omnipresent.

For non-bank merchants, embedded finance is the best way to establish more personal connections with their customers, generate new revenue streams, and create a completely new way to interact with money. By embedding finance into financial services, brands can reimagine how they relate to their customers and acquire new customers.

What Is Embedded Finance?

Banks historically dominated financial services including payments and lending. As highly regulated entities, banks have for the longest time built custom tech stacks. These two realities made it digitally impossible for banking services to leave the confines of the bank itself.

As a result of the Open Banking movement and supporting legislation, such as PSD2, these barriers have been effectively dissolved. As a result, banks, fintech, and other regulated entities are now able to connect non-finance companies to their platforms using APIs.

Why Should You Be Paying Attention To Embedded Finance?

Financial services and the economy, in general, should experience unprecedented growth through embedded finance in the coming years. The integration of financial services allows banks and companies deploying them to learn valuable information about their users, allowing them to provide more targeted lending and insurance services.

Data collected in this manner will enhance the efficiency of this process. Consequently, we may see a change in how merchants engage with customers. For instance, they may offer personalized banking (such as discounts) and more accurate loans in the future.

How Can Implementing Embedded Finance Benefit Companies?

Payments are more easily controlled

A major advantage of being a financial services company is being able to manage the payment process for clients. Ultimately, customers will no longer be redirected to third-party sites, but will be able to complete the entire process under one “digital roof”. The benefit of this is not only that it translates into a better payment experience, but it also allows companies to better understand how their customers pay.

Added value to customers

With embedded finance, companies can completely reimagine their relationships with customers. In addition to offering Alternative Payment Methods (APM), merchants can also offer localized payment options that might be appealing to their target audience.

Lower costs

Merchants can also benefit from embedding the payment process by eliminating expensive payment providers such as card networks, which results in a lower cost of payment processing.

To Conclude

Convenience reaches a whole new level with embedded finance. Almost no payment is made, so the concept of payment falls away. Customers no longer have to take out their debit cards and go to a separate screen to enter their payment information, now they just need to click the “Buy Now” button to purchase the item. The process saves them time, energy, and builds trust with the merchant. In the future, Open Banking and PSD2 will make this the norm rather than the exception.