Businesses accelerated their digitization strategies at the start of the decade, and few have slowed down since. The finance sector is a particularly clear example of this; businesses are embedding financial mechanisms into their overall business plan to create a new level of interaction between businesses and money. This business-money integration is known as embedded finance and is estimated to be worth over $138 billion by the end of 2026. The era of embedded finance, therefore, will not be a passing fad; it’s the future.
While a complete financial environment can be built with embedded finance, there are four specific processes that are worth highlighting.
1 – Point-of-service lending
Embedded finance unlocks significant potential for point-of-service lending. Rather than waiting for one-size-fits-all loans to be approved, businesses can invite customers to borrow against their purchases in real-time, changing the customer experience and the company’s bottom line.
2 – Buy now, pay later
Buy now, pay later programs are not new, but they are increasingly becoming an integral part of a company’s customer outreach. The e-commerce sector is a prime example; customers who purchase online can opt to defer payment, meaning the business is paid immediately, but the customer has the option to pay later.
3 – Investments and trading
While investments and trading are not always related, they can come together to create a truly innovative system. Investments represent one of the biggest opportunities for embedded finance and can be linked to trading. While most businesses offer a trading option, embedded finance can create a more interactive system, allowing potential investors to gain a much clearer picture of the risks and rewards. This makes investing a more interactive process.
4 – Integrated insurance services
The insurance sector is notoriously complex and lacks innovation. Embedded finance, however, can change this. Businesses already offer insurance, of course, but embedded finance can create an innovative service where customers can also reap the rewards from their insurance plan. A customer could be rewarded for choosing a certain insurance provider and for renewing their policy.
How to meaningfully engage in Embedded Finance
With embedded finance, businesses can become more meaningful to their customers and reap the financial benefits. However, to reach this stage, businesses need to reach outside of their comfort zone and embrace new processes. But with a little effort, it can be achieved.
Traditional businesses must first look at the value of the customer. Once this has been determined, businesses must then look at how value can be created within their business model. Once this has been accomplished, businesses can then look at how the customer will be engaged by the business and how the business can create the best environment for its customers.
The era of embedded finance is here, and traditional businesses must leap on board or risk being left behind. While the concept of embedded finance is not new, it has now reached the point where it is mature enough for businesses to use for their own ends. It is time for traditional businesses to embrace their customers and open the door to the future.
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