What is embedded finance and why you should care?

In just a few years, embedded finance has transformed from a hyped-up buzzword to a concept that is fundamentally changing how businesses and consumers engage with financial services.

The best way to understand embedded finance is as a way to seamlessly integrate financial services with a product or service from a non-financial company. As consumers live their lives doing everything from going shopping to ordering a takeaway, they benefit from the emergence of embedded finance, perhaps without even realising.

For example, when a shopper buys a £200 jacket online and they select a Buy Now, Pay Later (BNPL) payment option at checkout, they have entered an agreement with a lender through embedded financial technology.

Even purchasing a car from a company like Tesla has been positively impacted from embedded finance. Right after the vehicle has been bought, Tesla offer customers the ability to buy insurance directly from them, as opposed to going to a third-party insurer.

Customer benefit

There’s no question that consumers stand to benefit from the spread of embedded finance solutions. Perhaps the most significant advantage embedded finance brings to consumers is the elimination of many pain-points. Unnecessary steps in the purchasing journey are removed and friction is eliminated when buying products, resulting in increased convenience for consumers.

Take the example of purchasing an item like a television or sofa that may cost thousands of pounds. In the past, consumers would have needed to either save up and wait or take out a credit card or loan to afford the relatively large upfront cost.

Thanks to BNPL and point-of-service loans, all it takes is a few clicks and an affordable payment plan is created that enable the purchase to be made. It’s no secret that the more seamless the customer journey, the more likely customers are to spend more money.

Business value

Retailers, too, are able to use embedded finance to diversify their revenue streams and increase brand loyalty. As customers are directly buying these financial services from the business, instead of going to a third-party, payment fees and insurance fees can be gained in addition to the original purchase.

Advanced customer insights can also be gained from customers who use embedded financial solutions. By leveraging the data collected from the credit scoring details from customers, businesses can gain a deeper understanding of customer data and better tailor experiences.

From payments and lending to insurance and wealth management; there is seemingly no end to the areas where brands can add embedded finance. Apps like Acorn, which automatically invests users spare change, are just the tip of the iceberg when it comes to embedded finance, with innovation being a hallmark of this technology.

With the size of embedded finance in payments alone expected to total more than $140 billion by 2025, an increase from $16 billion in 2020, it’s clear that consumers and businesses alike are growing increasingly aware of the benefits from these solutions.

Written by Finbarr Toesland, Editorial Contributor, VC Innovations

You can learn more about embedded finance at FTT Embedded Finance & Super Apps on 26 April at the County Hall, London.

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