The trend to embedded finance: Taking control of the customer

Businesses around the world are increasingly looking to embed financial services into their customer proposition.

This trend to embedded finance allows companies to take control of the end-to-end customer journey and generate new revenue by partnering with FIs.

In turn, embedded finance creates an alternative distribution channel for FIs to deliver products through fintech and enterprise channels (Banking-as-a-Service).

Payment use cases are the prime example of embedded finance applications, enabling businesses to integrate payments into their offering and control the customer experience from start to finish.

Think of Uber and Lyft, which embed payments in their apps, enabling a frictionless customer checkout experience, or Amazon and Klarna, which provides monthly instalment plans (buy now, pay later) to increase conversion.

Payment applications represent the lion’s share of the expected value within the embedded finance opportunity.

The embedded payments case is forecasted to generate over 60% of the total value attributable to embedded finance, growing from $16 billion in revenue in 2020 to $141 billion by 2025—a compound annual growth rate (CAGR) of 54%.

The route to embedded payments

Businesses (FinTech firms, corporations) seek to embed payment services into their native customer engagement platforms or white-label entire services.

This way, companies do not have to hand over the customer relationship to a payment service provider and can maintain a consistent experience throughout the complete customer journey.

The sales process becomes seamless for the customer when payment services are fully integrated into the buying journey, as opposed to redirecting customers to a bank channel or switching between different user interfaces.

A new white paper, Realising the Embedded Payments Opportunity,  highlights the global trend to embedded finance and focuses specifically on payments as the most promising opportunity in this space.

Key takeaways:

The growth of embedded finance is strongly accelerated by the digital transformation of financial services through APIs, leading to open finance.

While the integration of financial services into corporate systems used to be a complex undertaking requiring a bespoke implementation project, APIs have made such integrations much easier. API integrations often require the inclusion of only a few lines of code in the logic of the enterprise.

Within the embedded finance opportunity, payment applications represent the lion’s share of expected value. The embedded payments case is forecasted to generate over 60% of the total value of embedded finance.

To enable embedded payments, banks and other FIs have started to provide Payments-as-a-Service (PaaS) to FinTech firms and other enterprises. PaaS enables the provision of payment services to nonbanks using an existing licensed financial institution’s (FI’s) secure and regulated infrastructure.

The services are delivered through the FI’s API platform or through a third-party platform that the FI has contracted with.

With continued globalisation, businesses have a greater choice of who to do business with, who suppliers are, how services are provided, and by whom. Faster payment methods, with account-to-account settlement, provide a significantly higher rate of satisfaction, strengthening business relationships.

Companies are looking for a provider that can offer easy access to a global managed payment network, removing complexity and allowing the business to embed payments into both their customer (external) and enterprise (internal) journeys.

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