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As embedded finance becomes a standard part of non-financial businesses, competition will come down to quality of service, customer experience and the strongest tech-powered solutions. How will it change as more businesses offer integrated experiences where customers can access everything in one platform? There is a lot of value to be derived from offering your customers a one-stop-shopping experience. More tech-savvy corporate and banking services are adopting new, cutting-edge fintech technologies to fasten the process and enhance customer experience. Concepts like UPIs, consumer lending, SME lending, and insurance are helping the embedded finance market grow. These concepts are also expected to push the market upward in the forecast period, digitizing multiple sectors from finance to retail.

  • The former can attract new customers and increase revenue through card usage, while the latter can attract new customers and increase brand loyalty by offering rewards and benefits specific to their products or services.
  • By 2026, this market will grow to between $80 billion and $90 billion, with negligible growth of PoS transactions overall but an increasing share becoming embedded (see Figure 8).
  • Businesses in the health, education, real estate, and employment sectors have all experienced successful integration with financial services in recent years, and that trend will only persist as they continue their increase in digitalization.
  • The nature of the financial institution is changing, and as banking evolves, so do the platforms that support it.
  • In short, the pandemic changed the way consumers want to interact with businesses—they now prefer digital experiences and offerings that are intuitive, seamless, and integrated into a business’s platform.

This should cause revenues to reach just over $4 billion for platforms and $1.3 billion for enablers. In the same period, we expect enabler SaaS fees to scale proportionally, growing to over $5 billion. The enablers monetize through a discount rate on the total transaction value that they charge to the merchant. Over the past five years, BNPL has proliferated across e-commerce platforms, alongside the rise of unicorn enablers Affirm, Klarna, and Afterpay. Catalyzed by pandemic lockdowns, BNPL and PoS lending proved useful for consumers to access goods and services, even if they didn’t have all the money required at the point of purchase.

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As digital transformation has taken a hold of Europe’s business ecosystem, companies of all sizes have gone online. As a result, finances, banking and monetary transactions of all types have also gone digital – and it’s meant a wave of changes for the finance world. As these financial services become more popular among SMEs, platforms can capitalise on commission-based revenue with every successful funding, enhancing their balance sheets without incurring capital risk. By streamlining the financial process, it makes customers more likely to complete purchases, and provides consumers with a new level of convenience, which is one of the main drivers of customer satisfaction and loyalty. The latest trend in the market explains the upward trend in the market as an outcome of multiple technological advancements and companies setting up embedded finance services because of the rapid digitization, and growth of corporates. The embedded finance market grows with the significant digitization and integration of fintech services post covid-19.

As the popularity of embedded finance grows, so does the need for in-house banking solutions. However, businesses need to carefully consider all the implications that come with what format or partner they choose. If not, they might end up regretting their decision—in fact, more than half of respondents (57%) share that they have buyer’s remorse related to their embedded finance investment or implementation in the past 18 months.

What does it take to win in embedded finance?

Embedded finance is proving has the potential to drastically reduce churn, leading to a 90% reduction in churn rate for platforms like Takepayments. By addressing specific pain points such as working capital needs, embedded finance offers non-debt powered capital to merchants, allowing them to expand inventory, improve customer satisfaction, and drive sales. This approach has led to a 26% increase in Gross Merchandise Value for eBay sellers, helping merchants embedded finance trends grow through better inventory, agility and resilience. Offering embedded finance within platforms can fuel merchant growth, enabling a steady stream of merchant sales, particularly in busy periods like seasonal sales. It’s all about offering the most seamless, convenient experience, which is the very purpose of Fintech and embedded finance. It makes every company its own store, bank, and even insurer, as lines between industries begin to blur.

There’s little doubt that embedded finance has had more headway in these kinds of consumer applications to date. But that’s not to say that will remain the case, and there are already signs that B2B applications are proving invaluable to companies. But today it also provides merchants with embedded banking solutions that allow them to manage the money they make from their customers within the platform. Today, fintechs offering services via API are abundant, meaning companies can cherry-pick the services from different providers they’d like to combine and offer to their own customers.

Embedded Finance Market – 2023 Analysis Report Covers Answers to your following Questions:

For most software programs focused on small and midsize businesses (SMBs), consumer payments are typically one of the first financial services to be embedded, given the friction those customers face in setting up payment acceptance. Though the domain of embedded finance expands by the day and draws in more financial offerings, we focus here on the key segments of embedded payments, lending, banking, and cards within the US. These segments lead other products in terms of digital maturity, revenue generation, and use cases currently served.

Although competition will continue to compress providers’ margins, the revenues for platforms and enablers should still increase from $2 billion to $11 billion within banking and cards. These revenues are composed of transaction fees across debit and credit cards, which account for the majority of platform revenue, and SaaS fees charged to the platforms, which account for the majority of enabler revenue. Debit transactions compose the largest share of card issuance and transaction volumes, while the credit market remains small, with a limited number of enablers serving it. Earlier this year, the company announced its expanded embedded payments strategy with its suite of Citi Pay® products, citing that 85% of Americans want retailers to have flexible payment options at checkout. Embedded rewards eliminate the need for separate loyalty cards or accounts and provide a seamless experience for customers. The ascent of brands, powered by BaaS, offering  ‘platform banking’ will help democratise access to better banking products to more people.

Key insights

Several platform archetypes have emerged, including e-commerce (such as Shopify), food delivery services and rideshare apps (Uber, DoorDash), and wellness (Mindbody). These offerings are supported by an army of well-funded fintech enablers, which help platforms deliver products and services. End users increasingly prefer the convenience of using payments, lending, insurance, and other financial services embedded in their day-to-day software, rather than accessing standalone services from traditional financial institutions. Embedded finance refers to the placing of a financial product in a nonfinancial customer experience, journey, or platform. That’s not something that is new – for decades, nonbanks have offered financial services via private-label credit cards at retail chains, supermarkets, and airlines (for example).

embedded finance trends

In lending, for instance, they are looking to increase their share of revenues by finding ways to share in the risk, such as offering repurchase agreements for loans originated by balance sheet providers. A few banks and fintechs, including Cross River Bank and Banking Circle, fulfill both of these functions. Having built their own technology layer on top of their own balance sheet, they provide embedded finance to distributors such as retailers, business-software providers, marketplaces, and OEMs by themselves, with no need for additional partnerships. Speaking of “embedded,” with the rise of voice-activated virtual assistants and smart speakers, brands should also consider integrating credit card functionalities into voice commerce platforms. This allows customers to make purchases, check account balances and access credit card benefits through voice commands.

A $51 billion market opportunity

Insider Intelligence’s Embedded Finance Explainer defines the concept of “embedded finance” and explains its potential impact on how financial services and products are distributed and consumed. The report also provides real-world examples to illustrate how embedded finance works in practice. “Since embedded – or contextual — banking promises to give consumers banking services when and where they need, it will increase conversion and the overall size of the market. According to estimates from Simon Torrance, the embedded banking opportunity could add USD3.7 trillion to the market capitalization of the companies able to exploit it.” the Aperture Report says.

embedded finance trends

Like any new industry, embedded finance is being defined by early adopters and leaders that are emerging to take advantage of this massive commercial opportunity. Today, growth in the embedded finance market is being driven by embedded finance trends in service, delivery and value that decide which firms are able to create successful, user-focused offerings that drive revenue and customer success. Our data experts can help you take a deep dive into the numbers, turning newly acquired customer data about financial transaction uses and preferences into powerful business insights that help you develop better financial products and services for your customers. While our qualified agents, trained in financial services, collections, and back-end admin functions, have the necessary skills to offer world-class digital customer experiences.

What is embedded finance?

We pioneered the value-added approach to investing and have invested at the forefront of the technology industry in more than 370 companies since our founding in 1984. The winners will likely provide a full suite of services, including some regulatory oversight, compliance, origination, and fulfillment. Enablers that take the hassle out of embedded finance for platforms through easy integrations and great servicing should hold the upper hand. They can choose a high-volume, self-service model, or a higher-touch operation across fewer, bigger platforms.

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