What is embedded finance?
As part of the fintech market expansion over the last years, fintechs came up with new offerings to attract new segments in the market. Embedded finance enriches a non-financial consumer experience with a financial product. Financial products were traditionally offered by financial institutions but now they become part of a digital customer experience. It is integrated with one single platform to reduce barriers and simplify the life of users.
A company that provides non-financial services, such as an online shopping site, can offer a spot-on solution to accelerate the purchases of customers and improve the overall customer experience. Currently, retailers and gig economy companies are leading the way to embedded finance, however fitness clubs, gaming, non-profits and healthcare are expanding the use cases.
As reported in the recent study of Bain & Company in the US, transactions through embedded financial services amounted to $2.6 trillion in 2021 and will reach $7 trillion by 2026. Those numbers are an indicator of how customers are shifting their interactions with their finances, along with their customer experience.
Types of embedded finance
Most of the development in embedded finance takes place in products like deposits, payments, issuing, lending and insurance. These offerings form an easy integration with a consumer experience, it is straight forwarded to develop new use cases and it enables different opportunities for money movement.
With embedded banking, also called Banking-as-a-Service, non-financial companies offer their users a virtual or IBAN account to hold funds and make payments. Embedded banking typically makes the most sense for sellers or service providers using a company’s platform to conduct business. It is often also the basis to offer additional embedded finance products like payments, cards and lending.
For example, an acquirer can provide merchant settlements on their own IBAN accounts that can be used by the merchant to pay for supplies.
Taking out a debit or credit card, entering the PIN or tapping the card is a friction point that can cause consumers to abandon a digital purchase should their card not be handy. It is a total frictionless process in embedded payments as no plastic card is required.
The best example is the Uber taxi paying experience where the app stores the card data and payments are frictionlessly done when ordering a taxi.
Embedded payments are not only restricted to cards, but they can also give consumers the possibility to pay directly from their bank accounts.
An interesting global survey conducted by IDC revealed that within 2030, 74% of digital consumer payments will be made with platforms offered by non-financial institutions.
Embedded Card Issuing
Branded debit and credit cards exist for quite some time. As part of embedded finance, the use cases for using cards outside traditional retail payments are unlimited. For example, in the B2B space today expense management applications are able to issue one-time virtual T&E cards and are able to perform better spending controls in order to avoid that staff members use plastic corporate cards for private use.
In the past lending money for large purchases was done via credit cards or a traditional loan with a financial institution. The rise of new players and specialists in the fintech industry has led to significant growth in the lending area. Over the past few years, several BNPL platforms such as Klarna and Afterpay proliferated and gave consumers new opportunities to access funds easily when purchasing goods and services. The report concluded by Bain & Company estimated that by 2026, the market size brought by BNPL platforms will reach $265 billion. Their research showed also how customers are inclined to spend slightly more when using BNPL platforms, increasing conversion rates and revenues. Thanks to new accessible and frictionless technologies, embedded finance in lending is now becoming a significant part of the way consumers and businesses access funding.
The continuous increase of data collected in all fields is not sparing the insurance market which collects information to be used for tailor-made and competitive policies. Embedded insurance programs differ from traditional insurance because they eliminate the insurance agent or broker for example when purchasing a new car or when using traditional payment methods. These new digital platforms enable traditional insurance companies to manage time-consuming and laborious activities such as claim registrations by offering a better customer experience, and technological platforms. We are also seeing new players outside of insurance using embedded finance to deepen customer relationships and drive loyalty. A great example is offered by Tesla, which offers competitive insurance policies when purchasing a new car, instead of being a separate part of the process.
How should an embedded finance platform look
Embedded finance platforms improve customer experience, journey and design to non-financial platforms. This is made possible thanks to an ecosystem made of partnerships between banks, technology providers, and distributors of financial products. Customers and businesses that use these modern interfaces can easily integrate their software thanks to open APIs and benefit from high levels of flexibility and configurability. Plus, a platform’s embedded finance offering comes also with scalable and reliable micro-services, flexible workflow configurations and a centralized customized dashboard that permits companies higher dynamicity and a shorter time to market.
TAS Global Payment Platform (GPP): how should an embedded finance platform look
Hundreds of financial institutions choose the TAS Global Payment Platform (GPP) to provide a better payment experience and enable faster time to market. The GPP platform is suited to any ecosystem operator between banks, technology providers, and distributors of financial products to guarantee a great and seamless customer experience. We work with businesses in digital banking, BNPL, insurance, travel and payments thanks to a highly configurable platform with open APIs.
Our embedded finance offering comes with scalable and reliable micro-services, flexible workflow configurations and a centralized custom overview that permits companies higher dynamicity.