What is Embedded Finance?
Embedded finance aims to integrate financial services into platforms and applications, opening the door to a new source of value for businesses. According to Ben White, Head of Research and Policy Development at Plaid, embedded finance enables the delivery of financial services at the right time, meeting immediate financial needs.
Embedded finance emerged in the 2010s, following the difficult context weighing on the banking, insurance, and other financial services markets. Indeed, the numerous flaws in the infrastructures of certain players, notably the cumbersome management and the obsolescence of many processes, did not allow them to innovate quickly enough.
With the advent of Open Banking and fintechs, digital payments are becoming an essential part of consumer choice, and embedded finance is at the heart of this. Integrating payment solutions into online journeys reduces friction and improves the customer experience.
Several fields of application
Many non-banking companies, such as Uber, Shopify, and Magento, for example, use embedded finance services to complement their offerings. Here are several areas of application:
Embedded Payment : By integrating a payment solution, companies simplify the traditional process: a seamless, truly integrated journey, coupled with numerous innovative payment facilities (One Click, fee-free payments, etc.). Although invisible to the end consumer, embedded payment is a more than promising opportunity for merchants, fintechs, software publishers and customers.
Embedded Lending: A few years ago, consumers were obliged to use a lending institution to take out a loan, subjecting themselves to higher or lower interest rates. Embedded finance has changed the game by enabling companies to offer loans directly at the point of sale. “Buy Now Pay Later” is one form of these on-board loans, enabling consumers to pay for their purchases later, often in several monthly instalments, and all free of charge.
Embedded Insurance : The oldest form of integrated finance, but which has seen its spread explode in recent years. Thanks to their partnerships with fintech, companies are now able to offer insurance options as part of their payment process, enabling their customers to choose insurance as an “add-on” to their purchase.
What are the benefits ? And for whom ?
The evolution of Embedded Finance is based on an ecosystem made up of 3 different players, and beneficial for all.
Payment service providers
With the entry into force of PSD2 in 2018, some institutions are now able to integrate payment solutions into their third-party offerings. Embedded finance allows PSPs like CentralPay to support businesses and platforms in their journey to digital payments. Together, businesses and fintechs are co-creating the value-added services of tomorrow.
Integrator/merchant partners
The integration of these financial services offers new opportunities for integrators/merchants, allowing them to rethink their entire user journey (new payment channels, easy-to-use and personalized) and to stand out from the competition with new value propositions. Thanks to integrated financial services, payment is an integral part of the user journey, and therefore does not create a frustrating disruption for the customer. Integrators/merchants only have to adopt effective marketing strategies to stimulate customer loyalty, increase the level of their revenues and diversify them.
End users
Embedded Finance has revolutionized the consumer experience. Embedded Payment, Embedded Lending, and Embedded Insurance provide a 360-degree view of all their collections and offer access to innovative new features.
The introduction of technological innovations is necessary to promote the digital transition of businesses, and Embedded Finance is at the heart of this transformation !
