Oracle predicts that the embedded finance sector would be worth more than $7 trillion in the next ten years, which would quadruple the current combined value of the top 30 banks in the globe.
In a market that is becoming a fiercely fought conflict, there is unquestionably a market opportunity that may be taken advantage of.
Several start-ups are offering companies integrated services like buy now, pay later (BNPL) and credit terms insurance, which have become somewhat of a buzzword in recent years in the consumer finance industry.
It’s time to learn why embedded finance is the upcoming big thing if you’re not already aware of it.
The integration of financial instruments or services—typically obtained through a bank—into the goods or services of a non-financial business is known as embedded finance. Consider a website that provides BNPLs, short-term loans, or your phone’s digital wallet, which supports contactless payments right now. But this is only the start.
By lowering obstacles to entry for various goods and services, embedded finance has already started to simplify financial operations in both consumer and commercial trade. Before a customer could have to go to a real bank to obtain a loan for a big purchase, or a company buyer might have to spend hours filling out difficult paperwork to obtain trade credit. At the point of sale, these services are conveniently accessible.
The Types of Embedded Financing
There are several sorts of embedded funding from which shops and online stores might profit. Let’s examine some of embedded finance’s most advanced subfields.
- Embedded Payments
The ability to make rapid payments at the press of a button provided by embedded payments simplifies lives for customers and company purchasers.
An illustration of this is when payment technology is built into an app’s or website’s architecture, removing the need for users to enter their credit card information each time a transaction is made. Embedded payments are used by rideshare applications like Uber so that users don’t have to dig out their credit cards or hunt for cash; instead, they are instantly charged via the app when their journey is over.
Another type of integrated payment that has gained enormous popularity with the introduction of Apple Pay in 2014 is the use of digital wallets, which allow for contactless mobile transactions and immediate internet purchases. Furthermore, Apple has recently established its split payment system, enabling users to use consumer financing without any help from third-party financing platforms.
- Embedded Lending
When a credit or financing products are incorporated into a non-financial services provider, such as a store or marketplace, purchasers may access delayed payment arrangements at the point of sale without needing to go to a bank or other lender.
Due to the popularity and profitability of well-known companies like ChargeAfter, Klarna, and AfterPay, embedded lending—more generally known as BNPL—is well-known within the consumer-focused embedded finance industry. However, a growing B2B BNPL market offers firms access to an enhanced digital replacement for conventional trade credit, doing away with the requirement for heavy paperwork and protracted approval wait times.
- Embedded Insurance
Before, after spending time, money, and effort researching and purchasing the goods in the first place, a customer wishing to cover a new purchase would be required to go through the tedious process of identifying and acquiring the finest insurance package they could find.
With just one click, insurance products may now be identified and added to a transaction at the time of need, avoiding the need to speak with a broker or insurance agent and effectively eliminating the need to sift through possibilities from various insurers. Travel offers us travel insurance every time we buy a plane or train ticket, which is a typical example of embedded insurance.
Where is Embedded Finance now
Embedded finance has the adaptability and generalizability to be used in any business or sector with a transactional component. Additionally, it has the capacity and momentum to completely revolutionize payments and open up new avenues for financial services innovation. Even established players, who have historically been sluggish to adopt new techniques, have started to see the vast array of opportunities offered by embedded finance.
While it would be conceivable for banks and insurers to shift to a new tech stack, it would be a huge and risky endeavor since legacy systems and procedures are not built to make the real-time judgments necessary for the selling of integrated financing products. To do this, many people have opted to collaborate with agile IT start-ups.
Embedded Finance has a huge future in terms of consumer financing options. As mentioned above, BNPL lending is one of the most popular integrations of embedded financing. Especially, when multi-lender BNPL companies, like ChargeAfter, are also implementing BNPL white-label for banks and Fintech companies are now in a solid connection with traditional banking services. We can be sure that consumer financing has a great future ahead.
The Future of Embedded Finance
An intellectual “paradigm shift” is necessary for embedded finance. The loan product is a supporting component of the underlying transaction and is no longer the primary item that customers were seeking initially. For instance, if you wish to buy a ticket for a trip, you will certainly see many offers for travel insurance and buy one as well. This is an excellent illustration of how an embedded system functions and how several areas may complement one another. In contrast to embedded finance, which depends on the idea that customers take out financial goods when they are in need, the majority of banks and insurance firms have distribution networks that promote their products.
As a result, producers of financial products must see their offerings via a technical lens to support embedded finance. The financial statements product and the API are combined into a digital product that is offered to partners. Traditional banks and insurers lack the resources necessary to create, describe, and advertise an API to an ecosystem. They still don’t understand that the “API” is equally vital to the contract and that they truly have two clients: the developer or partner responsible for integrating the product and the end user who will utilize it.
Businesses that want to take advantage of these new prospects should first evaluate their current tools and processes to see which may be easily improved by an integrated solution. After that, do some research and contact an appropriate partner that can offer a cutting-edge, hassle-free solution.
ChargeAfter is a leading multi-lender platform for Buy Now pay later (BNPL) Consumer Financing. It connects businesses with the most reliable lenders, enabling them to offer customers the greatest financing solutions. With the best system of Waterfall Financing, ChargeAfter guarantees BNPL lending to every shopper, by matching the most relevant lender to every client. Using the unique consumer financing technology, ChargeAfter provides all parties, merchants, lenders, and consumers, with the best shopping experience. Phoenix, MUFG, VISA, Bradesco, BBVA, Synchrony, PICO Partners, CITI, Propel Venture Partners, Plug and Play, and other companies worldwide are among the investors of ChargeAfter.