Embedded Finance: The opportunity for an entire ecosystem

So what is Embedded Finance? Who are the players involved? What are the benefits? An overview of this new buzzword.

Embedded Finance involves integrating financial services into applications that traditionally do not use them. For companies, it’s a new way of creating and capturing value. Ben White, Head of Research and Policy Development at Plaid, believes that “embedded finance brings financial services to the exact moment they are needed, rather than being an entirely separate part of consumers’ lives”.

The birth of this movement is the result of the difficult context in the banking, insurance and other financial services market. Indeed, the 2010s highlighted the many flaws in the infrastructures of certain players, notably the cumbersome management and obsolescence of many processes, preventing them from innovating fast enough.

With the arrival of Open Banking in 2018 and the burgeoning of fintechs, 100% digital solutions have become an essential part of consumers’ daily lives. Embedded Finance is at the heart of this digital shift. Natively embedding financial services within online journeys helps limit friction points for end-users, and ultimately improves their customer experience.

Uber, Tricount, Magento… Today, many non-banking players use embedded finance products and services. There are many types, the most common of which are payments, loans and insurance:

Embedded Payment: By putting payment at the service of digitization, companies simplify the traditional process: a fluid, truly integrated payment path, coupled with a host of innovative payment facilities (One Clic, no-fee 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 embedded finance, but one that has seen its distribution explode in recent years. Thanks to their partnerships with fintechs, 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.

👉 Digital payment solutions: where do we stand today? Find out more here!

Embedded finance evolves in an eco-system made up of 3 different players, each benefiting in their own way from the growth of this movement.

Since the creation of PSD2, payment service providers have been able to offer third parties (companies) the possibility of embedded financial services within their platform. For PSPs like CentralPay, embedded finance is a way of supporting companies in their digital transition. Hand in hand, companies and fintechs co-create the value-added services of tomorrow.

New opportunities are opening up for companies integrating financial services into their solutions. They are able to re-invent their entire user journey by creating innovative value propositions that set them apart from their competitors. They offer their customers new payment channels that are intuitive, easy-to-use and branded to their image. An integrated financial solution simplifies end-to-end customer data collection, notably by eliminating all existing breakpoints. A better understanding of the customer journey is made possible! All that’s left for companies to do is develop the right marketing strategies to effectively boost customer loyalty. Ultimately, these enhancements diversify revenues, generating additional income at relatively low marginal costs.

The end consumer is at the heart of this movement. Thanks to the improvements enabled by embedded finance, customers are seeing their online consumption experiences transformed. These new integrated interfaces simplify transactions, making them run more smoothly and saving considerable time and energy. Thanks to embedded payment, embedded lending and embedded insurance, they have total visibility of their collections and access to innovative new financial features!

Implementing technological innovations is essential to help companies make the digital transition. And embedded finance is at its heart. The adventure of payment solutions is just beginning!