The emergence of embedded finance has allowed brands to directly integrate financial services such as accepting payments, providing lending, or selling insurance right into their digital platform. In essence, any brand is now able to utilize embedded finance and instantly transform itself into a fintech company.
Gone are the days where we as consumers fumble through entering tedious banking details or pay online through third-party services. Embedded finance has opened the door to brands to offer financial services and has changed the way consumers experience financial services forever.
Maybe as Andresson Horowitz’s Angela Strange suggests, “every company will be a fintech company.”
Embedded Finance Brings The Future of Banking
So what exactly is embedded finance? In a short sentence, embedded finance is the integration of financial services into a non-financial system, app or platform.
Using APIs (Application Program Interfaces), it is possible to connect financial services with the backend of nearly any online platform. Think about your favourite eCommerce brand and how easy it is these days to shop, buy, and pay for your purchase without ever leaving the page or the app. That is embedded finance at its best; we don’t realize it’s been added to the site, but without it, making payments would be cumbersome and awkward.
Embedded finance is eliminating the need for brands to integrate banking services with their technology. There is a reason why embedded finance is also known cleverly as Banking as a Service. What used to be the frontier of legacy banks, is now available through a simple API for any platform on the internet. Embedded finance is changing the future of the banking industry, and not necessarily in a good way for legacy banking establishments.
Companies Employing Embedded Finance
All around us, companies are implementing embedded finance into their digital ecosystems. Not only does it provide a smoother consumer experience for transactions and payments, but it adds an extra layer of security by having the entire process remain in-house. We talk a lot about the ability to integrate payment transactions, but there are so many more uses of embedded finance that we are already using today.
Companies like Klarna or AfterPay utilize embedded finance to provide embedded lending processes. Have you ever heard of Buy Now Pay Later? These companies are able to provide on-the-spot lending so that a customer can choose to pay for a product through separate payments at a later date.
Another field that is growing in usage is embedded insurance. Rather than sign up for pre-existing policies with a traditional insurance company, Tesla is providing insurance to drivers of its vehicles that are generally cheaper and personalized for each driver. How do they determine how much you should pay? From the data that the vehicle provides about your own personal driving habits!
Roadmap for Brands to Embedded Finance Integration
Despite embedded finance making great strides in online shopping and other industries, the technology is still in the early innings. In the long run, embedded finance will more than likely be a staple of any consumer platform.
Before integrating embedded finance, brands should determine their goals to achieve with their own financial services. The goal may be improving customer experience, increasing customer retention, streamlining the workflow to reduce expenses, or building new revenue channels.
In embedded finance ecosystem, there are 3 major parties involved:
- Brands: The companies in need of offering their own financial services to their customers.
- Providers: Financial institutions and license holders managing regulations, risks, and compliance. They ensure the safety and stability of the financial activities.
- Enablers: Fintech firms acts as a bridge between Brands and Providers. They provide embedded finance infrastructure that is compatible with regulations. Brands use Enablers’ ready-to-use API-driven platforms to utilize their financial offerings. Recently, BaaS Providers are on the rise as convenient options for companies.
After identifying their goals and evaluating the potential benefit on their services & products, brands can find the enabler, such as a BaaS Provider, to discuss the needs and capabilities and start the integration process.
As more of our behaviour shifts online, look for brands to integrate more services that will help improve the overall consumer experience. As much as we say that the banking industry will be changed forever, more likely than not these companies will adapt and offer BaaS or embedded finance products as well. If embedded finance truly is the future, then we can surely expect legacy banks to follow suit, or risk being rendered obsolete.
How Can EMBank Help?
European Merchant Bank (EMBank) offers accessible financial products for fintech companies and local/regional SMEs across various industries. Established in Lithuania and licensed by the European Central Bank, EMBank provides a Banking-as-a-Service offering, combined with Safeguarding, Business, Payment, Accumulative account types as well as payment options through SEPA, Swift, and Target2.
Call us today on +370 700 11200. Alternatively, please send an email to [email protected] to arrange a telephone or video call.
