Innovative technology in combination with the expanding Open Banking movement is paving the way for new growth and value opportunities throughout the global economy. A key opportunity arising from this development is embedded finance, a concept that has garnered significant attention lately. Simply put, embedded finance allows non-financial companies to integrate financial services into their business model via APIs.
A recent report released by Lightyear Capital estimates that embedded finance will grow to £164 billion in revenue by 2025, which constitutes a ten-fold rise from £16 billion last year. Wider industry analysis goes a step further, suggesting that embedded finance could be worth $7 trillion by 2030, double the aggregate value of today’s top 30 banks worldwide.
The auto sector has wholeheartedly adopted embedded finance, with ridesharing apps like Uber and Lyft exemplifying this trend. These apps have evolved over time and now offer embedded financial services to enable customers to pay right from the app after the driver drops them off.
The nature of buying or leasing vehicles is also changing. Traditionally, when purchasing or leasing a car, dealers would consult financial institutions to assess affordability and credit risk. However, this practice is evolving. Tesla's direct sales approach serves as a prime example of embedded finance revolutionizing the sector. While some automotive websites and apps already allow customers to handle lease payments directly, bypassing the dealership, Tesla takes it a step further by offering car insurance as well.
Democratised financial services, as simple as ‘point and click’
The beauty of embedded finance lies in its accessibility. It caters to businesses of all shapes and sizes. Ambitious brands, regardless of whether they operate in the automotive, retail or travel sector, can now embed an easy-to-use financial service in their website or app.
Banking-as-a-Service (BaaS) platform Railsr offers an apt comparison, equating embedded finance to the revolutionary impact Apple's iTunes had on the music landscape. Spurred by the burgeoning API economy, embedded finance is deconstructing financial products into their basic digital building blocks, akin to how iTunes transformed music into individual digital tracks. Embedding financial services into apps and customer journeys is now, therefore, as simple as ‘point and click’.
As such, a growing number of non-bank brands are offering embedded financial services, such as bank accounts or wallets, payments, and lending, in a targeted effort to increase customer acquisition and retention. For their customers, the major appeal is ease of use: a small business can now get a bank account or loan from its accounting software, or a consumer can pay via the retailer.
Embedded finance is central to the concept of increasing customers’ so-called ‘lifetime value’. Venture capitalists, such as Angela Strange at Andreessen Horowitz and Matt Harris at Bain Capital Ventures, have been encouraging their portfolio companies to consider embedded finance as a key monetisation lever, “making every company a fintech company.”
Embedded lending solutions are gaining traction
One embedded finance solution that is gaining traction across various industries is embedded lending.
This cutting-edge innovation empowers merchants to form symbiotic relationships with lenders, providing seamless financial services directly to consumers through non-financial businesses. It's helping businesses offer smoother transactions for their customers and driving a renaissance in consumer spending through models like Buy Now, Pay Later (BNPL).
In fact, BNPL is perhaps the most obvious and prolific example of embedded lending. Online retail giants like Amazon are partnering with banks like Barclays to offer lending solutions to customers making larger purchases. But even smaller e-commerce businesses are making use of BNPL through platforms like Klarna and Clearpay, for instance.
Through leveraging API integrations with advanced fintech platforms, businesses can deliver frictionless and secure access to financing options, thereby increasing customer loyalty and trust. By encapsulating the entire journey of loan application, approval, and acceptance within a single digital environment, embedded lending is rewriting the rules of engagement for company leaders looking to excel in this new era of customer-centric finance.
This fusion of technology and lending enables ambitious business to create unparalleled value to their customers while maintaining a competitive edge.
Getting ready to enter the embedded finance arena
Companies looking to venture into the lucrative embedded finance domain have a lot to consider. The pandemic vastly accelerated the digital revolution across industries with an emphasis on customer acquisition. Solutions must be developed with current demands in mind and how these might have evolved.
The application and onboarding process for financial products, such as bank accounts, loans, or asset financing, should be just as effortless and user-friendly as major platforms like Amazon and Netflix.
Luckily, companies can now access customer acquisition software that draws on advanced analytics and the data-rich Open Banking environment to streamline the onboarding journey by introducing intelligent automation and providing applicants with a better user experience.
And just as banks and other incumbent lenders must move quickly to build real-time transaction data and analytics into their credit decisioning software, so must other brands. This enables them to make more accurate credit decisions quickly, based on a holistic assessment of each borrower's situation.
Teaming up with Ezbob
New advances in API technology are paving the way for embedded financial services to become a crucial expansion avenue for progressive organizations.
By using Ezbob’s robust API strategy, any brand, regardless of sector, can embed a financial service into their purchase process. This includes customer accounts opening, credit card applications, consumer and business loans, overdraft facilities, asset finance and invoice financing.
Ezbob revolutionises customer onboarding into a streamlined, automated digital journey, reducing customer input by 75% and boosting completed applications by 400% - a quick and seamless process.
By leveraging its cutting-edge proprietary AI-enhanced decisioning algorithms, Ezbob can also make precise credit decisions in real time, providing customers with the instant, personalised offers they now expect.
Get in touch to discuss how we can help you to take advantage of the embedded finance opportunity.
