Find out how embedded finance is transforming banks and credit unions today.
Many apps now do enable instant money transfers but how is this occurring? In what way are traditional banks being substituted by digital transactions? Embedded financial services provide the answer. So, what makes embedded finance significant?
Understanding Embedded Finance Better
The manner in which individuals purchase financial products is evolving. Now, consumers are increasingly seeking immediate access to products or services, particularly in the case of financial products. It is no longer common practice to compare financial products by shopping around using traditional channels.
Embedded finance and value-added offers provide consumers with a product that is more personalized and custom-tailored. Consumers now are not only seeking out financial products such as mortgages or personal loans but also anticipate offers that align with their life priorities. It is even predicted that embedded finance will generate around $160 billion in revenue.
Embedded finance and value-added offers provide consumers with a product that is more personalized and custom-tailored. Consumers now are not only seeking out financial products such as mortgages or personal loans but also anticipate offers that align with their life priorities. It is even predicted that embedded finance will generate around $160 billion in revenue.
Embedded Finance Services Process
Understanding the stakeholders involved is necessary before grasping the back-end process of embedded finance. There are three main parties involved:
- Consumer:
Someone who purchases a non-financial product and therefore may become a potential client for the financial services integrated within it.
- Business:
Refers to the entity that offers a non-monetary item or service for sale.
Financial institutions such as banks, non-banking financial companies (NBFCs), or fintech firms: are the entities that offer or support embedded financing products. These companies sell their financial products indirectly, using other businesses as intermediaries.
Financial institutions such as banks, non-banking financial companies (NBFCs), or fintech firms: are the entities that offer or support embedded financing products. These companies sell their financial products indirectly, using other businesses as intermediaries.
Types of Embedded Finance
Embedded Payments: Embedded payments occur when payment features are integrated into a software platform. Fintech apps allow users to buy items and complete transactions within the app. These applications assist customers in making payments without the need to switch between different apps.
Embedded Insurance: means providing insurance services in non-financial products and services. It gives customers power. Think about this situation: a consumer is interested in purchasing an item online, checks prices, clicks on “Purchase This Item”, and is given the option to add protection for the product. Choosing insurance is a great choice to easily secure using a mobile device in just a few clicks. You don't have to look elsewhere and buy something else.
Embedded Lending/Credit: refers to providing lending financial services through non-financial products/services like retail or food delivery apps. It is useful for obtaining loans, settling debts, and making installment payments for online purchases. In this manner, you will make a purchase upfront and then settle the payment in multiple installments.
Embedded Investments: Assists in the investment process by offering a unified platform for managing investments.
Embedded Insurance: means providing insurance services in non-financial products and services. It gives customers power. Think about this situation: a consumer is interested in purchasing an item online, checks prices, clicks on “Purchase This Item”, and is given the option to add protection for the product. Choosing insurance is a great choice to easily secure using a mobile device in just a few clicks. You don't have to look elsewhere and buy something else.
Embedded Lending/Credit: refers to providing lending financial services through non-financial products/services like retail or food delivery apps. It is useful for obtaining loans, settling debts, and making installment payments for online purchases. In this manner, you will make a purchase upfront and then settle the payment in multiple installments.
Embedded Investments: Assists in the investment process by offering a unified platform for managing investments.
Advantages of Embedded Finance
Embedded finance offers numerous advantages for different parties and participants. Consequently, in recent years, an increasing number of individuals have been drawn towards it.
Advantages of Embedded Finance for Businesses
Additional revenue stream: Businesses receive a portion of the profits generated by customers who purchase financial products through their websites/apps.
Having a competitive edge and gaining the trust of customers: Customers are more likely to be drawn to a website that offers financial products such as insurance, easy financing (EMIs), and online payment choices, compared to one that lacks these features.
Increased value: EMI and BNPL choices reduce the necessity for customers to purchase a larger quantity of expensive items than usual.
Having a competitive edge and gaining the trust of customers: Customers are more likely to be drawn to a website that offers financial products such as insurance, easy financing (EMIs), and online payment choices, compared to one that lacks these features.
Increased value: EMI and BNPL choices reduce the necessity for customers to purchase a larger quantity of expensive items than usual.
Advantages of Embedded Finance for Financial Institutions
- Customer acquisition:
Business collaborations and integration of their products on pertinent websites and apps make it simpler for NBFCs to acquire customers, providing access to a vast and suitable customer demographic at a low cost. Financial services can reach customers through online platforms, which may not be feasible through traditional methods.
- Data collection:
Financial institutions can access a variety of data, including financial information and details like shopping habits and usage of services such as ride-hailing. This data can be utilized to create tailored financial products on a larger scale and promote additional offerings on a smaller scale.
- More convenient handling of clients:
When companies operating websites and apps manage consumers, the task of user lifecycle management is split between financial institutions and businesses, thus reducing the load on financial institutions for addressing queries and customer service.
Advantages of Embedded Finance for Users
- Convenience:
Users have easy access to financial services such as online payments (debit or credit) or EMI options while using a website or app.
- Tailored Services:
The financial services currently offered in the market lack customer-friendliness in terms of both their offerings and procedures. Embedded finance fintech provides personalized financial services to customers with just a simple tap. For instance, they have the option of purchasing now and paying later with a personal loan at checkout.
- Inclusion:
Embedded finance allows users who are typically excluded from traditional financial services to access formalized financial services that would otherwise be unavailable to them due to their limited access, complex procedures, and strict screening requirements utilized by financial establishments.
- Better affair:
For consumers, receiving additional benefits conveniently always enhances their overall shopping experience.
How is Embedded Finance Providing a New Model For Banks And Credit Unions?
By moving beyond limited definitions and offering package deals, banks and credit unions can improve their ability to serve their customers and members. This has already been adopted by both newcomers and established banks. Value-added services can cater to a particular customer group and also provide a chance to explore alternative business avenues through partnerships
Having a Competitive Edge
In terms of trust, banks and credit unions hold a unique edge compared to their rivals and emerging competitors. Consumers continue to value the availability of in-person banking representatives and community-focused strategies still attract customers or members. Exploring fresh business strategies enables banks and credit unions to fulfill customer/member requirements and expectations while making use of existing relationships and trust.
Ease and Continuity
Embedded finance enables customers or members to access traditional financial products through unconventional distribution channels. Examples of embedded finance include split payment solutions, BNPL services, auto loans from dealerships, and personal loans from medical providers. Providing these financial products through non-traditional channels gives customers and members the convenience they anticipate and require.
Banks and credit unions can leverage embedded finance to reach fresh customer segments and boost sales volume at a reduced acquisition cost. If someone requires a loan at a healthcare facility, they might not have an account with a bank or be a member of a credit union. However, by providing an integrated product at a doctor's office in collaboration, banks and credit unions can reach a previously untapped customer base seeking a convenient financial solution.
Banks and credit unions can leverage embedded finance to reach fresh customer segments and boost sales volume at a reduced acquisition cost. If someone requires a loan at a healthcare facility, they might not have an account with a bank or be a member of a credit union. However, by providing an integrated product at a doctor's office in collaboration, banks and credit unions can reach a previously untapped customer base seeking a convenient financial solution.
Customized and Life-Centred Deals
Financial and non-financial products are packaged together in value-added offers and distributed through conventional means. Value-added offers as part of the product strategy are focused on life and set banks and credit unions apart. Rather than solely providing a mortgage to new homeowners, a bank could combine it with a life insurance policy and home insurance.
This customized strategy has the potential to draw in new customer demographics and increase additional revenue for banks and credit unions, all while providing added value. These deals cater to the wants of customers and members, providing a convenient shopping experience. Banks and credit unions have the chance to take advantage of this special opportunity by utilizing fintech.
They will use fintech to incorporate these extra benefits into their product offerings, mobile apps, or operations. Through collaboration with local medical providers and leveraging FintechOS, banks can provide patients with fast and efficient financing options directly at the office. They can be able to increase their loans and deposits by implementing this non-traditional point-of-sale solution and expanding the creative financing option to other markets.
This customized strategy has the potential to draw in new customer demographics and increase additional revenue for banks and credit unions, all while providing added value. These deals cater to the wants of customers and members, providing a convenient shopping experience. Banks and credit unions have the chance to take advantage of this special opportunity by utilizing fintech.
They will use fintech to incorporate these extra benefits into their product offerings, mobile apps, or operations. Through collaboration with local medical providers and leveraging FintechOS, banks can provide patients with fast and efficient financing options directly at the office. They can be able to increase their loans and deposits by implementing this non-traditional point-of-sale solution and expanding the creative financing option to other markets.
Consolidating Everything With Fintech
Embedded finance presents regional banks and credit unions with opportunities for new revenue streams, customer segments, and ways to modernize. Banks and credit unions can focus on a life-centric approach to product management by combining and bringing together existing systems that were once separated. This customer-focused strategy connects with individuals during important moments in their lives, such as buying their first home or car, undertaking significant home renovations, and starting college.
By utilizing automation and a strong integration framework, Fintech has the capability to bridge the gaps between isolated, disconnected systems. By utilizing fintech for customization and bundling, regional banks and credit unions can maximize the revenue potential of embedded finance, uniting financial and non-financial products in value-enhancing bundled packages to cater to customers.
It will also cater to members at crucial life junctures, providing improved service for them and their families. Since embedded finance is a contemporary method of delivering financial products that mirrors the constantly changing market and customer needs, regional banks and credit unions can maintain resilience in times of change by leveraging these new customer segments and opportunities.
By utilizing automation and a strong integration framework, Fintech has the capability to bridge the gaps between isolated, disconnected systems. By utilizing fintech for customization and bundling, regional banks and credit unions can maximize the revenue potential of embedded finance, uniting financial and non-financial products in value-enhancing bundled packages to cater to customers.
It will also cater to members at crucial life junctures, providing improved service for them and their families. Since embedded finance is a contemporary method of delivering financial products that mirrors the constantly changing market and customer needs, regional banks and credit unions can maintain resilience in times of change by leveraging these new customer segments and opportunities.
Conclusion
Embedded finance is flexible and attractive to every sector. It enables financial institutions to utilize fintech to incorporate extra benefits into their product offerings, mobile apps, or operations. It also holds the capability to transform payments and expand opportunities for innovation. As time passes, we can anticipate an increase in unique and innovative products from different companies and individuals.
