Why and How You Should Capitalize on the Embedded Finance Wave

August 2023

Embedded finance has been sweeping financial services and disrupting the landscape. According to Bain & Company, this new solution accounted for $2.6 trillion, or nearly 5% of total U.S. financial transactions in 2021, and by 2026, it will exceed $7 trillion, or over 10% of total U.S. transaction value.

Defining Embedded

But what exactly is embedded finance? While this terminology encompasses a wide range of vertical markets, industries, and use cases, at its base level, it speaks to a financial product that serves as a piece of a non-financial customer experience or platform.

At its core, embedded finance offers a seamless user experience by enabling financial institutions of all sizes, fintech providers, businesses, and others to integrate financial solutions within a customer’s non-financial journey. Take, for example, a rideshare app like Uber. The payment is fully integrated within the service app, so the customer never needs to access an outside payment feature to support the transaction. The focus remains on finding a ride—not on making the payment—simplifying everything for the customer.   

Enabling a Frictionless Experience

And customer demand for this experience continues to rise: 82% indicate they are willing to share some type of personal data for more personalized service, according to a PwC Customer Loyalty Survey. Thus, it behooves companies to explore how embedded finance can streamline the journey toward a purchase.

And it’s not just the consumer who seeks this experience. Increasingly small and medium enterprises (SMEs) expect similar digital engagement. Accenture projects that embedded banking for SMEs could capture up to 26% of global SME banking revenue by 2025.

The Provider Opportunity

Yet, embedded finance benefits not only the customer; it also creates significant opportunities for the provider to:   

  1. Expand customer relationships. Companies that offer embedded finance reap the rewards: 88% report increased engagement, and 85% say it helps them acquire new customers.
  1. Drive revenue. Embedded finance reached $20 billion in revenues in the United States alone in 2021, and could double in size over the next three to five years, creating more options for businesses offering the service. For instance, 32% of consumers report spending more money when they receive a financial product from a non-financial brand.
  1.  Identify new product offerings. Data generated through embedded finance provides new insights for organizations to explore how to expand product offerings. McKinsey reports that many organizations begin by offering deposit and payment products and then extend their product range to lending products such as credit cards and merchant financing. In addition, they capture a larger share of embedded-finance revenues by expanding across the value chain.

Partnering for Success

The key to enabling this growth potential is to have the right partner offering technological solutions. For many businesses and financial institutions, APIs and technology facilitated through a third party enable embedded finance. Finding a technology partner that not only meets today’s needs but can respond to tomorrow’s shifts makes all the difference for any organization looking at embedded finance as an option. 

As Bain & Company concludes, “Demand will grow because the ‘better together’ proposition promises to improve customer experiences and financial access, along with providing cost reductions and risk benefits to companies.”

Even in today’s volatile environment, that’s a prediction you can bank on.

For more information on how Deserve can help you strengthen or build your embedded finance offerings, visit Deserve.com and book a demo.

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