Have you ever run to grab a coffee, only to find at checkout that you’re prompted to pay using Apple or Google Pay? Suddenly, there’s no need to rummage for cash or a card — a quick tap of your smartphone does the trick!
This seamless transaction is a prime example of embedded finance at work.
Embedded finance in FinTech refers to the integration of financial services like payments or insurance into the products of non-financial companies. It is used in various forms, including convenient payment solutions like Apple and Google Pay, Buy Now Pay Later platforms, and integrated insurance options available through E-commerce stores.
Embedded finance in FinTech enhances both the customer and employee experience. In this article, we explore the world of embedded finance — its growth, the benefits of using it, helping you choose the right partner, and how to use it in your business.
The Rise & Drivers of Embedded Finance in FinTech
The shift toward embedded finance is driven by various factors including evolving consumer preferences. It has changed dynamics in the banking industry and rapid technological advancements.
Central to the surge in embedded finance in FinTech is the trust that tech-savvy generations like Gen Z and Millennials are placing in financial technology firms. Illustrating this trend, a Marqueta study revealed that:
- 86% of US mobile wallet users have executed a purchase through a retailer’s embedded mobile app
- 72% felt confident enough to forego carrying a wallet, relying solely on their phones for transactions
This data highlights a growing comfort and reliance on contemporary mobile wallet solutions via embedded finance.
Another key driver of adoption of embedded finance is the evolving operational requirements of modern businesses. Today’s companies are actively seeking ways to enhance their financial processes for both efficiency and to better cater to the digital-first expectations of their customer base.
Capterra reports that 94% of businesses that use embedded finance report increased revenue. In the same survey, Capterra found only 14% of business leaders say that they don’t plan to invest in embedded finance in the next year.
Such trends emphasize the growing demand from businesses for integrated financial solutions. These not only simplify and expedite processes but also create a foundation for innovation in a rapidly digitalizing commercial landscape.
Technological strides are another driver behind the growth of embedded finance. The development and adoption of APIs make it easier for banks, service providers, and companies to work together and combine their services in the embedded finance sector.
Benefits of Adopting Embedded Finance
Using embedded finance has many benefits, including enhancing experiences for both customers and employees. It creates a faster, more reliable transaction with fewer interruptions and redirects, which can increase sales and build trust in your brand through everyday payment interactions. This frictionless process boosts customer retention and conversion rates.
Additionally, embedded finance can also provide important data into customer spending patterns. This is useful for both creators and distributors of embedded finance products. Companies get greater insights allowing them to improve their target marketing while customers receive a streamlined transaction process. It’s a win-win!
Many gig economy giants, including DoorDash, Uber, and Lyft, have adopted embedded finance to streamline financial transactions. This shift enhances payment collection from customers and ensures prompt earnings disbursement to workers. By leveraging FinTech innovations, these firms amplify efficiency and user convenience in the digital age.
Other corporations have been quick to recognize the value of embedded finance in enhancing their rewards programs as well. Companies like Starbucks, for instance, seamlessly integrate financial tools into their apps to reward customer loyalty. Through embedded finance, patrons can easily load funds, earn rewards, and redeem them, all within a single platform. Such integrations not only foster customer loyalty but also drive repeated business in today’s competitive market.
Choosing the Right Embedded Finance Partner
Research indicates that adopting embedded finance in FinTech into your processes can elevate your bottom line. A striking 94% of businesses utilizing some form of embedded finance reported an uptick in their revenue post-implementation.
It is vital for companies to carefully select the right embedded finance partner, given the variations in their offerings and competencies. When searching for an embedded finance in FinTech partner, here are six aspects to consider:
- Alignment on Business Outcomes: Ensure you have clearly defined internal objectives for what you want to achieve with an embedded finance solution. Ensure alignment among all stakeholders to this vision.
- Support for Your Specific Use Case: If increasing worker retention and productivity is a main objective, outline how embedded finance could facilitate this. Solutions might include earned wage access, early pay options, or one-time-use reward cards. The prospective partner must understand your primary objectives and have the tools to achieve them.
- Evaluating Track Records and Business Objectives: In 2021 alone, over 25,000 new FinTech firms were launched around the world, many of which were in the embedded finance space. It is imperative to assess a company’s history of success and alignment with your business objectives. For example, Juice has processed over $20 billion and has been in business for over 20 years.
- Bank and Card Network Relationships: Ensure that your provider has established, strong relationships with its sponsoring bank and card network.
- Reliability and Support System: A non-functional embedded finance system can potentially stall incoming revenues. Inquire about the support team’s experience and responsiveness. Ensure that the provider meets your API integration needs.
- Understanding Pricing Structures: Be aware of the pricing structures and ensure they align with your business size.
Real-Life Applications and Use Cases
While the applications of embedded finance are virtually endless, here are a handful of common applications to consider.
Enhance customer loyalty and lifetime value by introducing a rewards program
Use embedded finance to allow customers to complete transactions and earn rewards.
Boost worker retention and productivity through Earned Wage Access
Facilitate on-demand payment to employees and contractors through reloadable cards, allowing them earlier access to their hard-earned money outside of regular pay cycles. This can be achieved through instant payments that bypass the standard 2-3 day delay via ACH. You can also even one-time-use reward cards as a token of appreciation.
Reduce administrative hassles, risks, and fees by leveraging expense cards.
Streamline expense programs with embedded finance, issuing expense cards with granular spend controls – so purchases can only be made at certain types of vendors. This approach can greatly reduce fraud and extra costs usually linked to cash or check transactions.
Moving Forward with Embedded Finance in FinTech
Embedded finance in FinTech is revolutionizing the way we think about financial transactions integrating non-financial products and services. Driven by evolving behaviors and technological advancements, this integration means faster transactions, enhancing the experience for both customers and employees alike.
As a business considering this trajectory, choosing the right embedded finance partner is key. It helps in fine-tuning operations, saving time, and nurturing customer relationships.
With the right tools and strategies, embedded finance in FinTech can open up a world of streamlined transactions, foster customer loyalty, and enhance worker satisfaction — a true win-win for all parties involved.