How You Can Use Embedded Finance in Your Business
Embedded finance allows businesses of all sizes and sectors to offer loans, payment plans, and even insurance options directly to their customers. This can help simplify the customer journey and speed up the buying process. It also raises conversion rates and offers the opportunity for brand-new revenue streams.
Read on to learn more about embedded finance, how it works, and what benefits it offers to both companies and consumers.
What Is Embedded Finance?
Embedded finance is the integration of financial services, like lending, insurance, and banking, into the in-store and online payment platforms of non-financial businesses.
For example, when you shop online, you may see buy now, pay later (BNPL) as one of the checkout options. You don’t have to apply for this form of short-term finance on another app or site. It’s embedded directly into the payment process as seamlessly as using a credit card.
There have been two main drivers to this digitalization of finance. The first is legislation and initiatives like Open Banking, which allows banks to share financial data with authorized third-party firms.
Second, financial service providers and software developers want to make embedding their technology as accessible as possible. They make the APIs and interfaces that connect with their back-ends as easy as possible to integrate into e-commerce and mobile app platforms. In many cases, it’s no more complicated than downloading an extension to your WordPress e-commerce site.
Democratizing financial services is a core part of today’s fin-tech business models, so those companies can expand their market reach and generate revenue through the widest possible adoption.
How Embedded Finance Improves Company Balance Sheets and Profitability
Customers expect high-quality service and ease of use. To meet these customer needs, you should remove as much friction as possible from each touchpoint before and after the sale. You should also make it possible for customers to pay for an order in the way they want, manage their accounts online in real-time, and more.
Embedded finance can help you do that, letting you build stronger and more durable customer relationships and improve retention levels. It also offers you the opportunity to bring in new revenue streams by letting you serve customers who are looking for more advanced payment options or financial services.
Take the example of the e-commerce store provider Shopify.
Shopify is a non-bank provider of embedded finance services for merchants using the platform as their e-commerce store. This includes Shopify Balance, which works like a checking account.
Shopify isn’t a bank and doesn’t hold a banking license. Instead, it partners with a fintech company through a banking-as-a-service (BaaS) model. This partner handles banking transactions for Shopify’s customers, integrating their platform with Shopify’s, so merchants can manage finances, process payments, and access banking services — all within the Shopify ecosystem.
The fintech companies behind these partnerships are generally far more nimble and agile than traditional financial institutions. They actively look for ways to integrate their technology and platforms into existing business workflows and customer journeys to increase market share.
The fintech revolution means that startups and online marketplaces can add these features directly into the payment ecosystems so they can compete effectively with established players.
6 Ways to Add Embedded Finance to Your Business
Embedded finance is changing the way companies interact with their customers, thanks to the integration of financial products and services into non-financial platforms. Here are six prime use cases for leveraging embedded finance in your business.
1. Embedded Payments
Embedded payment processing allows customers to pay with their credit or debit card or via digital wallet solutions like Apple Pay and Google Pay. These options are made available directly from the e-commerce platform, app, or in-store point of sale where the purchase is being made. This provides customers with more flexible payment options.
2. Embedded Lending
Embedded lending allows you to build loan and credit-related products into your business so that your customers don’t have to look elsewhere for financing. A popular example of embedded lending is buy now pay later, which allows customers to spread out their payments for your products and services over time.
BNPL’s popularity began in the B2C sector, as providers like Afterpay and Klarna made it possible for retailers to offer installment payment plans to customers.
But now, for B2B companies, services like BackdPay provide a similar embedded lending option.
With BackdPay, you can offer your clients the opportunity to pay for purchases up to 12 months. You receive the full invoice amount upfront, while your clients could benefit from lower interest rates than they’d pay on many credit cards.
3. Embedded Insurance
With embedded insurance, you can add insurance-related products into your purchasing process. This means customers can add insurance coverage at the point of sale. They benefit from immediate protection and don’t need to find external quotes. You’ve likely encountered embedded insurance yourself when you’ve purchased a home appliance and been offered a protection plan.
In many cases, your business will receive a commission from the insurance provider for closing the deal.
4. Embedded Banking
With embedded banking, you can offer your clients services like digital checking accounts, money transfers, or payment cards.
These value-added services deliver new revenue streams to non-financial businesses as well as enhance your firm’s level of engagement with customers.
5. Embedded Financial Management
You can integrate financial tools into your platform — like payroll processing, expense tracking, tax calculators, and invoices. This is especially useful for companies in the B2B sector.
Your business benefits from helping customers better manage their money, which can increase their reliance on your overall range of services.
6. Branded Payment Cards
You can offer branded debit or credit cards to your customers, letting them make purchases and earn rewards with your company. Your small business also earns a fee every time the card is used to make a purchase.
Advantages and Opportunities With Embedded Finance
Offering embedded finance options to your clients offers the following important benefits:
Higher revenues: You can improve cash flow and profitability by opening new revenue channels, like signing up clients for financing or credit cards.
Greater customer loyalty: Tying discounts or loyalty programs to the use of your branded card gives customers an extra reason to return to you in the future.
Reduced paperwork: Automate your payment and lending systems to streamline your business and reduce the chance of human error associated with manual processing.
Deeper customer data: You will gain a better understanding of customer needs, behaviors, and preferences, enabling you to target your marketing more effectively.
Better customer experience: Customers can complete purchases without leaving your platform, which will reduce abandoned shopping carts and increase conversion rates. In addition, you allow customers to pay using the method they prefer.
More affordable: By offering flexible financing where the customer doesn’t need to pay everything upfront, you can sell to customers who otherwise wouldn’t have had the funds.
Disadvantages and Drawbacks of Embedded Finance
Five potential drawbacks of embedded finance are:
Regulatory compliance: You will need to ensure that you and your provider are meeting regulatory and compliance requirements.
Data security: Be sure you're working with a trusted fintech provider and that your online systems have proper security measures in place. You want to ensure you're safeguarding customer data to the best of your ability, which is also vital for protecting your business’s reputation.
Technical complexity: Although many embedded finance solutions should easily integrate into your tech ecosystem, some may require additional integration work or custom development, increasing the onboarding cost.
Inquire About BackdPay to Grow Your Business
Embedded finance fuels business growth. It improves the user experience by giving customers a greater number of finance offerings to choose from to pay for their purchases. At the same time, it can help your business close more sales opportunities and unlock new revenue streams.
Although embedded finance market providers have primarily focused on solutions for the B2C sector, there are also specific B2B embedded financial solutions. One of the stand-out examples of embedded finance for B2B transactions is Backd’s buy now, pay later service.
BackdPay can be integrated into your payment process in two ways:
Invoice link: Include a link or a QR code to the BNPL option directly on your invoices.
Online checkout: Add BackdPay into your checkout system to automate the process.
To offer buy now pay later to your business customers, visit our BNPL partner page.
