How can embedded finance help my business?

If you haven’t yet embraced it for your business, it might be time to start work on your embedded finance strategy. Before you dive in, here’s a look at what we’re talking about, how it can help your business, and what to do next.

What’s it all about?

Embedded finance is the use of banking as a service (BaaS) and API integrations to offer financial services to customers, even if you are not a financial services business. In short, you could be adding a finance layer to your existing revenue streams.

You’ve no doubt seen embedded finance all over the place, from buy now, pay later (BNPL) providing new credit lines to customers, to integrated insurance offerings when you buy, or enter a contract for, a new product (your mobile phone, for example). If you use a trading app, you may have noticed how easy it now is to add funds, as apps are increasingly using open banking and API integrations to enable you to connect to your bank from within the platform. If you have a prepaid loyalty card for a large faceless coffee shop chain, you’re using embedded finance and effectively cash flowing their business interest free every time you deposit funds; you get a discount, they get a cash advance, everybody wins… except the artisan roaster next door.

All this BaaS and embedded finance, driven by API integrations, is allowing customers to interact with your business much like they would a traditional bank, only via your shiny user interface at the point of purchasing your product or service, rather than separately arranging finance through a clunky old bank, and possibly losing interest in the process.

What does this mean for businesses?

Much as infrastructure as a service (think Amazon Web Services offering a subscription to joined up computing, data storage, etc.) removed a huge barrier to entry, no longer requiring businesses to build their own infrastructure, embedded finance enables businesses to offer seamless user experiences without massive upfront cost. For start-ups, or any business not sitting on mountains of cash, this not only helps them compete with slick, well-funded rivals, it helps them break into the market faster, generate revenue sooner, and potentially open up new fintech revenue streams they’d otherwise be missing out on.

Could you be a FinTech in waiting?

Short answer: yes… and no.

By employing embedded finance and BaaS, businesses can now avoid almost all the elements which need to come together to be a true fintech. It’s the service providers handling the core systems, regulatory compliance, data, fraud detection, capital, payments, and risk management. So, whilst on the surface your business may look like a FinTech, you’ve swerved the headache of actually being one.

What next for your business and embedding finance?

First things first, it’s important to have a clear idea of what you’re trying to achieve, from reaching new customers to improving your existing service offering. In the case of the former, BNPL may open up your services and/or products to new customers, whilst integrated payments or insurance could improve the user experience.

If you are thinking about an embedded finance strategy, our team of experts are here to help you take the plunge and explore the various options available to you. Let’s start a conversation!