October 19, 2022

Embedded Finance Is The New Gold Rush

The newest gold rush in town is taking the financial market by storm. Learn all about how you can profit from embedded finance while helping your customers grow.

The concept of embedded finance is relatively new in the money industry. But it has quickly jumped from a “buzzword” to an essential part of the financial ecosystem in just a few short years. Some are hailing it as the next generation of banking and fintech services, which it might very well be.

According to a report by Future Market Insights, the embedded finance market is currently worth about $54 billion and could reach $248.4 billion by 2032, registering a strong 16.4% CAGR between now and then. Bain Insights takes an even broader and more optimistic view of the embedded finance market. Bain’s research puts the addressable embedded finance market at $2.6 trillion with a $7 trillion projection over just five years, which is more than 10% of the current US financial transaction value.

Let's not dwell on who has the correct figures for now, but instead focus on what these analyses actually mean from an investment perspective. Is embedded financing the gold mine that such statistics suggest? Well, yes, embedded finance might just be the new gold rush. Read on to find out why.

What is embedded finance?

Put simply, embedded finance is the integration of financial services or tools within the business processes of a non-financial organization. Embedded finance enables non-financial businesses to offer services traditionally found in financial institutions, such as payment processing, investments, lending, credit/debit accounts, and insurance. Ultimately, this streamlines the customer experience by allowing clients to complete multiple financial transactions on a single platform. The beauty of embedded finance is that the business owns the additional financial services, eliminating the need for sophisticated contracts with third-party service providers.

Any organization, from retail stores and online businesses to brick-and-mortar establishments, can integrate embedded financing into its operations or offerings. In fact, many companies across the globe have already adopted or are planning to adopt embedded finance in one form or another.

Here are a few examples of popular brands that have truly embraced and benefited from embedded finance:

  • Klarna – Klarna smoothens the online shopping experience by helping buyers find products, retailers, and shopping deals. It also has an integrated payment system for quick and convenient purchasing and a “buy now, pay later” service that lets customers buy goods on credit.
  • Uber – Uber and other rideshare services (Lyft, Bolt, and Gojek) manage transactions through embedded finance systems that allow for various payment and banking options depending on the user’s region or country.
  • Shopify – In addition to providing premium e-commerce tools for online entrepreneurs, Shopify offers robust payment systems to its customers through the Shopify Balance service. It also dabbles in business lending through what it calls Shopify Capital.
  • Amazon – Amazon is the biggest name in the online retail space. But besides shipping millions of packages daily, Amazon also provides financing to eligible US-based SMBs and easy monthly payments on select products.
  • PayPal – PayPal is best known as an online money transfer service. But it also offers business funding through an embedded lending solution — PayPal Business Loan.
  • Mindbody – Mindbody is a SaaS company that provides cloud-based enterprise management tools for businesses in the wellness and fitness industry. In 2022, the company launched Mindbody Capital, a co-branded commercial lending solution designed to help wellness businesses recover and thrive in the post-pandemic world.
Images by Loanspark

The benefits of embedded finance

While speaking at the 2019 a16z Summit, general a16z partner Angela Strange proclaimed, “Every company will be a fintech company.” Angela explained that given the current financial trends, such as waning trust in banks and the dire need for innovation and inclusion in the financial sector, embedded finance is the inevitable revolution that’s already taking root today. She added that every company should be thinking about implementing embedded finance in order to better serve and retain their customers and boost revenue.

To expound on that, here are the top five reasons why you might want to consider embedding financial services in your business:

Additional revenue

The money business is a lucrative venture. Adding a financial service to your portfolio can boost your revenue through fees and interest. You’ll also save on banking costs by handling financial transactions in-house.

Take Shopify, for example. Although its main business is hosted e-commerce services, it makes more money from embedded financial services (Shopify Payments and Shopify Capital) than cloud subscriptions. And it’s the same story with many other non-financial companies offering financial services on the side.

Expanded range of offerings

Embedded finance broadens your income streams. Instead of relying on just one source of revenue, which is inherently risky, you can make extra money from financial margins. Besides earning more, a diverse range of offerings strengthens your financial posture, making the business more resilient.

Increased customer loyalty and retention

Customer loyalty breeds repeat business while minimizing customer churn. These are essential ingredients for growth and stability in many enterprises, especially in B2B markets.

Embedded finance greatly benefits your customers too. Naturally, customers tend to stick with brands offering value-added services. Incorporating a financial service in your portfolio elevates your brand value in the eyes of the existing clientele; this improves customer experience and satisfaction — the building blocks of customer loyalty.

For instance, given a choice between two services, one with a built-in banking and payment system and another without, more customers will likely choose the former. This is because interacting with the first service will be more convenient and probably even cheaper from a fiscal standpoint.

Improved customer insight

The modern business landscape is highly dependent on data. The more data you gather on your customers and the market, the more you can streamline your business strategies. To that end, embedded finance increases your customer touchpoints, which in turn yields valuable insights into your client base and industry as a whole.

Financial data is a unique source of highly actionable information. Studying your customers’ spending, banking, and borrowing habits can help you to better understand the market. This will enable you to develop more relevant products/services that align with your customers' needs and help you anticipate any upcoming changes or challenges in industries you serve.

Funding conveniences for your customers

Many SMBs struggle to secure external funding — some more than others. Generally, most small businesses and start-ups are denied commercial loans in big banks for failing to meet stringent qualifying requirements. On the bright side, alternative business lending from non-financial organizations is quickly coming to the rescue of SMBs. All indicators point to a thriving alternative financing market as a growing number of entrepreneurs opt for more accessible funding solutions.

Offering a new lending product is a welcome effort in filling the financial gap between small entrepreneurs and business success.

Images by Loanspark

Do not miss out on this gold rush

Embedded finance is undoubtedly the newest gold rush in the financial industry. Many companies, including big brands, are already cashing in on this trend. In fact, some have been massively leveraging embedded finance for growth and profit for years now. So, it's a proven money-making concept that genuinely works. More importantly, embedded finance is not just another fleeting buzz; it's here to stay.

Now is the best time to get in on this action. Fortunately, you don't have to be as big as Amazon or Shopify to get started. Adding a new financial service to your offering is easy, fast, and inexpensive — you only have to team up with Loanspark. A partnership with Loanspark removes all entry barriers into the funding world, including costs and expertise.

Loanspark is the best co-branded B2B lending partner you can have if you’re hoping to really capitalize on embedded finance. We help B2B businesses design, launch, and manage new lending programs through our co-branded Business Lending as a Service (BLaaS) partnerships. With you leading the way, our fintech experts and suite of cutting-edge technologies will do all the delicate work of developing lending offerings that are not only lucrative but also perfectly suited to your customers.

All our partnerships are based on trust, collaboration, and results. We work hand in hand with our co-brand partners to ensure their new offerings check all the boxes before hitting the market. 

Our process is simple, taking only 14 days from contract signing to rollout.

We'd love to hear from you. Let’s talk about how you can profit from embedded finance while providing an essential lending service to help your customers grow.

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