Financial technology, or more commonly known as Fintech, refers to financial services and banking that is enabled by computer programming or other technologies. Fintech has made various aspects of finance more affordable and accessible.
Embedded finance is pairing financial services with non-financial services, products, and technologies. It allows organizations to build new ways to generate revenue by embedding services themselves instead of redirecting users to a third party. This way, the customers do not have to leave the ecosystem of a product or service to access the banking or financial services they need.
Baas and embedded finance
Banking-as-a-service (BaaS) providers help provide the technological infrastructure needed for third parties to build products that allows them to launch their own financial services. Using Baas, they are able to offer cards, payments, loans, and compliance-related services such as KYC and money laundering checks.
Seamless customer experience
Embedded finance improves customer experience by adding contextual finance products in the customer journey instead of redirecting customers to another business or bank for financial services such as lending cards and accounts. This way, customers will not have to contact the third party. Instead, all the work can be done on one platform. Improved customer experience means that the business will earn customers’ long-term loyalty and help grow their customer base.
Increased conversion rate
As mentioned, embedded finance can improve customer experience, which means businesses will be better able to convert potential customers to active customers. An example of embedded finance in actionften, is when companies provide the option of Buy Now, Pay Later (BNPL) services to their customers, which reduces the steps of payment and lending into a single click. By making the purchasing process more seamless, companies can attract new customers who then become loyal in time because of convenience.
Businesses can also obtain more information about customers through Open Banking initiatives such as Account Information Services and get an insight into their purchasing behaviour through the history of transactions, which enable them to improve their products further.
More to embedded finance
Embedded finance is not limited to payments; there are embedded insurance use cases as well. Embedded insurance programmes exclude the insurance agent or broker from the process of buying an insurance policy, and seamlessly offer insurance within contextual customer journeys, such as when someone purchases an item that needs to be insured.
By removing unnecessary intermediaries and embedding the presentation of an insurance product when it’s needed, businesses can improve customer experience whilst also finding new revenue streams.
Embedded finance is the next evolution in the fintech industry. Through embedded finance, not only customers benefit, but companies benefit too.
Many businesses around the world have already incorporated an embedded finance strategy into their business operations. Embedded finance has allowed them to reduce their costs, increase customer conversion, and grow their businesses by offering a better, more integrated experience.