Embedded finance models have become increasingly popular in recent years. As the name implies, embedded finance refers to the integration of financial service or technology into a non-financial product, service, or technology. Enterprises and organizations can use this to create new revenue streams and reinvent the services they currently offer their customers.
Companies in the tech industry invest most of their time and money into digitizing their products, interfaces, and distribution channels. Therefore, by integrating embedded finance models into your platform, you can offer various financial services such as payments, cards, loans, bank accounts, compliance, investments, and payroll.
A product that is tailored to this model is more likely to stick with customers since the options are extensive. This helps you collect more than just platform fees from your customers.
In that regard, let us take a look at the models presented.
When the platforms integrate payments into their business workflows, their customers can pay them using credit or debit cards, digital wallets, and UPI. Until recently, integrating payment systems was an extraordinarily difficult task, which could only be achieved by massive companies. Today, any platform can add payment functionality to a tool or product with just a few lines of code.
The ability to create and use transactional accounts will greatly increase the usability of platforms. If end customers collect and make frequent payments via the platform, bank accounts are a good choice. As a result, they would be able to maintain a balance for those funds rather than making constant bank transfers. Ecommerce and service industries benefit significantly from this approach.
A trend to watch in the world of financial services is embedded lending. Embedded lending is the seamless integration of lending into a website or application. By offering credit through the platform, the platforms eliminate the need to redirect customers to a third-party website at the point of demand creation. Companies can increase service levels by leveraging partners' data to offer personal loans to their partners.
Using a modern card issuing platform, a payment card could be customized to authorize transactions based on precise spend controls. Business cards may be used in situations where contractors and employees regularly travel or need to spend individually.
Platforms can integrate stock market investing into their vertical offerings by using embedded investment. The trend of embedded investing has been led by API-based brokerage firms. Their APIs cover all microservices, including account opening, funding, trading, portfolio management, and market data. This allows various platforms to offer investment services to their customers contextually.
Due to the growth of borderless eCommerce, businesses can now serve customers worldwide. Embedded finance is still heavily influenced by regional regulations, particularly how quickly new businesses can get to market and reach new audiences.
One of the more time-consuming steps in providing embedded cross-border payments is compliance with applicable regulations. The regulations that apply to companies' end-users vary depending on where they are located.
By harnessing the full power of technology and connectivity, embedded finance presents an opportunity to re-think traditional business models and sources of value. It opens up the possibility for many companies to expand beyond their niche offerings and provide goods and services to multiple markets.
Embedded finance’s evolution demands that companies become more adaptive. All participants in the market will need to take a different course of action, which is either to start from scratch, collaborate with others, or create completely new ventures to have a chance at winning. A new era of rapid development and competition is approaching, and platform thinking is the best approach.