Embedded finance sounds like a win-win for everyone. A consumer selects a product, clicks on the selection and – thanks to being pre-authorised – they’ve already paid.
Likewise, a customer signing for the delivery of an item can also use that signature to confirm payment. One process, one authentication, no fuss.
It seems the concept of embedded finance is popular with consumers, too: banking platform Tuum has identified high demand from consumers for services like insurance and loans at the checkout as opposed to sourcing separately, but only – and this is key – if doing so is simple and straightforward.
Consumers ready – but banks…?
Tuum’s research says 84 percent of banks recognise embedded finance as a potential source of new revenue – though almost two-thirds of UK banks don’t currently offer these services.
Part of the problem is that it’s arguably easier for banks to see the business case for embedded finance in businesses than with consumers.
“An Accenture study estimates embedded finance could exceed 25% of SME banking revenues by 2025.”
For example, the speed and convenience of confirming delivery and payment in a single action has obvious benefits for SMEs, while some consumers may prefer the reassurance of separate browsing and payment.
It comes as no surprise, then, that a report from Accenture estimates embedded finance could account for more than a quarter of all SME banking revenues by 2025.
Devil in the technical detail
Consumer appetite for embedded finance is one thing: but banks’ technical capacity to deliver the service is another.
One reason for the reticence of banks to deliver this service – at present, fewer than one in five banks offer any kind of embedded product – is the size of technical uplift banks require in their core systems and payment platforms to shift from separate selection and payment to combining these functions, even inside their own product suites.
As traditional banks continue to grapple with the digital revolution and laggards risk being left behind, it may be that embedded finance becomes part of a banks’ overall digitisation strategy.
For logistics companies and those involved in trading larger-scale volumes of goods and services, by contrast, the technical and regulatory challenges implied by shifting to embedded payments are less pronounced.
In most cases, customer relationships are well-established and security is less of an issue, plus any changes would take place in delivery software to confirm payment – rather than wholesale changes to core systems. While consumers appear to want embedded financial products, they may have to wait longer than SMEs and larger companies to see it become reality.
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