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The world of banking technology encompasses a myriad of services, solutions, and activity. Subsequently, the proliferation and maturation of the embedded finance model happens to be one of the sector’s most interesting storylines. According to experts at Bain & Company, embedded finance transactions already account for $2.6 trillion, or 5%, of all financial transaction value in the US. By 2026, this number is expected to grow to $7 trillion, or 10%, of all financial transaction value. So, what is embedded finance anyway? Embedded finance takes form when non-financial organizations offer financial products and services. Such offerings can include integrated e-commerce payments, consumer and B2B lending options, checking and debit services, and much more.
Like the omnichannel approach that took shape over the last 20 years, the embedded finance model can be viewed as a means to further power a seamless and unified customer experience. Customers find benefit in being able to accomplish both primary and secondary goals within a single platform during a single event. A tangible example includes booking a vacation experience, obtaining a buy now, pay later (BNPL) loan to finance it, and securing trip insurance to mitigate travel risks. In a well thought out and robust ecosystem, this can all be quickly accomplished with only a few clicks of the mouse or taps of the finger. By partnering with various fintech enablers to make such an experience a reality, organizations can offer customers a more cohesive and convenient experience. Thus, the embedded finance model adds value, minimizes costs, and reduces build-out lead times through what can be thought of as partner-enabled vertical integration.
"Embedded finance model can be viewed as a means to further power a seamless and unified customer experience"
With competition for time and attention being at an all time high, keeping the customer within the platform is paramount to continued success. Use of embedded finance helps to accomplish this task while also providing significant value to both the organization and the customer. Businesses can now collect new and interesting data points that were previously inaccessible. These data points can be used to refine offerings, build new services, and to acquire new customers. From a customer perspective, many will gain access to financial products and services previously regarded as out of reach. This access by association is granted as businesses extend financial product and service offers based on better understanding of customer needs and risk profiles thanks to analysis gleaned from the new data. Such an evolution in the market place gives organizations taking advantage of embedded finance a leg-up on the competition. Both brand loyalty and revenue will grow as customers award more savvy and more platform-oriented organizations their business.
The current embedded finance environment is dominated by payment and lending enablers. This includes integrated payment providers like Shop Pay and Stripe, BNPL providers like Klarna and Afterpay, and point-of-sale installment lenders like Affirm. But the future is bright as growth will be had through the continued development of B2B payments, small business lending, insurance, tax, and accounting options. Take Quick Books for instance, within a single platform a merchant can secure bookkeeping services, integrated payments, checking and debit services, and capital to fund operations. As the embedded finance storyline continues to develop, one thing is for certain, your organization risks being left behind if it is not already utilizing or actively implementing an embedded finance platform approach to better connect with customers.
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