Embedded Finance: The Next Big Disruption?

A look at how a host of brands are becoming fintech disruptors—and the questions all CEOs should be asking about embedded finance.

In 1992, Jim Snider and Terra Ziporyn published “Future Shop,” a book that imagined an innovative breed of retailers that “will use new technologies to help sift out better information and then synthesize and customize recommendations.”

Two years later, Jeff Bezos founded Amazon. Fast forward 27 years and he’s arguably the most successful entrepreneur in history, while Americans rely on “new technologies” to guide just about every purchase we make.

Embedded finance is about to revolutionize the consumer finance space in the same way e-commerce transformed retail. And it’s going to happen faster than you think.

Chief executives in the tech space — from fintech to healthtech, SaaS to e-commerce — are already seizing on embedded finance to build brand loyalty, open new revenue streams, and take control of their financial transactions.

Market analysts predict that embedded finance — which enables nonfinancial companies to offer financial products and services to their customers — will become a $7 trillion industry by 2030 and generate $230 billion in new revenue as soon as 2025. Embedded payments will take off first, but companies will eventually offer credit card debit card options, banking, insurance, credit, loans, and even asset management directly to their consumers.

Here are a few examples of how different industries are already leveraging embedded finance:

• Consumer tech and telecommunications companies offering digital wallets and branded virtual cards

• E-commerce and vertical software vendors offering buy now, pay later and payment services to their customers

• Ridesharing companies offering instant payouts and banking services to their drivers

• Fintechs adding services such as instant lending and debit cards

While Big Tech has predictably led the way on embedded finance (think Stripe, Shopify, and Uber), these early adopters are being watched closely by startups and disruptors across the tech and finance spaces.

Covid-19 has rapidly accelerated consumers’ migration toward digital platforms and payments. In the U.S., contactless payments are forecast to increase to $1.5 trillion in 2024, up from less than $100 billion pre-pandemic. In 2020, bank branches closed at nearly double the rate of 2019, as consumers turned to challenger banking apps such as Chime and Dave.

How brands become fintech disruptors.

CEOs should be asking themselves and their teams: Why not operate our own banking platform, set our own terms and stop sharing 100% of the proceeds with our bank or financial institution? Why not offer our own virtual cards and digital wallets, increase brand loyalty and open a new revenue stream?

For many companies, the main barriers right now are both technical and financial. The typical embedded finance solution requires a company to spend months doing complex coding to implement APIs, which allows their computer software to connect with banks and card companies electronically. There is also extensive and expensive insurance, compliance, and IT infrastructure needed.

But the fundamentals of embedded finance are changing. Companies will soon have access to no-code, simplified embedded finance solutions that bundle everything — code, software, insurance, compliance, and IT — in a single plug-and-play solution. No longer will companies need to incur the cost of hiring coders and developing APIs. No more months-long implementations.

Before long, embedded finance will be a reality, not only for large corporations, but across the small business spectrum, from wellness providers and services firms to even boutiques and food trucks.

Here are a few of the questions CEOs should be asking about embedded finance:

• What are the right use cases for my customers?

As with all aspects of your business, embedded finance should not be pursued just for the heck of it. Consider your customer profile — or what you want your customer profile to be — and how various embedded finance products would meet their wants or needs.

For Gen Zers, how can you make no-touch shopping easier, reward them for spending with you and start building brand loyalty? For millennials, how can you help streamline the insurance process, open credit lines, start building wealth and forge higher-value relationships?

Companies have access to invaluable troves of data about their customers. Understand who your customers are, what they want and then design embedded finance solutions based on their needs, not the terms and conditions set by a bank. 

• What operational changes do I need to make?

Not many, if you choose a no-code solution. Your most important question is how you’re going to use embedded finance once you plug it in. Look for banking-as-a-service solutions that take care of the coding, development, and upkeep on the back end.

Of course, you want to pull in leaders across departments to identify optimal uses of embedded finance for your company and determine how it will be integrated into your digital platforms and marketing campaigns.

• So how do I choose the right embedded finance product for my company?

Look for products that have the same financial, insurance, and compliance backbone as multi-billion dollar enterprises, including data encryption and cloud infrastructure.

Make sure all debit cards and bank accounts are FDIC insured. Choose an embedded finance solution that allows you to tell customers with confidence: Your money is as safe with us as it is with the major banks.

Checking these boxes with a custom-built solution is expensive. While that might be the right path for your company, it’s important to understand that costs add up quickly, not to mention the perpetual costs of updating and maintaining in-house systems.

No-code offerings can still be white labeled with a company’s logo, colors, and fonts. They cut the time to activation from six months to six hours and cut the cost by hundreds of thousands of dollars.

It may be hard to imagine, but thanks to embedded finance, banks have lost their monopoly on banking, and financial services firms have lost their exclusive hold on financing. As with many disruptions in the digital age, it’s great news for customers, and deeply worrying for incumbents.

For CEOs, embedded finance creates the opportunity to move from being consumers of financial products, to becoming producers of their own financial products. This shift allows CEOs to get their companies to participate in the revenue value chain, drive brand loyalty and differentiate their brands from those still watching from the sidelines.


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