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Embedded finance is changing the way businesses and customers interact with financial services. Today, businesses can seamlessly integrate financial services such as payment, lending, or insurance into their platform, thus creating a better experience for their customers.
Although this concept is not entirely new, it has often been limited to payment. Customers have been making payments online for decades but still have to manually enter their bank details and are redirected to a separate payment interface.
However, with embedded finance, a non-finance company can better engage its customers by providing access to financial services needed on the same platform.
Just as the name implies, embedded finance is the integration of financial services into a non-financial company’s infrastructure via application programming interfaces (APIs). In other words, embedded finance allows any business to integrate financial solutions such as payments, accounts, cards, and insurance into its ecosystem. For example, a transportation company could invite its drivers to open an account where they will have access to cards and wallets or even extra benefits such as personal loans.
Embedded finance is more common than people think. If you have ever made in-app payments when ordering a coffee via the Starbucks app or paying for an Uber, then you have already interacted with embedded finance in practice.
According to Forbes 88% of businesses have been “very successful” at increasing customer engagement by using embedded finance.
But the use case for embedded finance is beyond the convenience of in-app payments. Embedded finance is silently transforming how consumers access financial services by making it possible to complete transactions on a single platform.
According to Angela Strange of Andreessen Horowitz, "every company will become a fintech company." She further said that in the nearest future, “nearly every company will derive a significant portion of its revenue from financial services.”
Despite being a new trend, venture capital investment in embedded finance has increased to about €4.22 billion in 2021. Furthermore, embedded finance is expected to generate €228.82 billion in revenue by 2025, a 10x increase from €22.5 billion in 2020, and could increase to €7.16 trillion by 2030.
The potential of embedded finance is huge and this explains why many non-financial businesses are planning to integrate financial services into their infrastructure. But just a few years ago, offering financial services by a non-finance company required building a fintech company within the company - a process that requires a massive investment of money, time, and resources.
Building a financial service infrastructure is very complex which is why it has been left to banks and other financial institutions for years. The finance industry is highly regulated and it could take several years to get approval. But this is where embedded finance makes the integration of financial services easier than ever before. Through API integrations, any company can integrate financial services into their business in a matter of days.
In embedded finance, there are three major players:
A non-finance company such as a sports club, marketplace or transportation company that has a mobile app or website may want to offer financial services to its customers or employees. The next step is that they employ the service of an embedded finance infrastructure company like Kernolab. The company provides the necessary APIs to enable services like payments, wallets, and cards by connecting the non-finance company to a financial institution. In other words, the APIs serve as a bridge between a company, its customers, and a financial solution provider.
Embedded finance provides many exciting opportunities for non-finance companies and their customers or employees. By integrating services such as payments and wallets into your ecosystem, users can complete transactions easier and faster. For example, customers who want to pay for goods purchased won’t have to enter their payment details if your business offers a digital wallet and they can execute payments in seconds. A long payment or checkout process has been proven to be one of the factors that lead to a high cart abandonment rate.
When customers can access all the financial services from a single transaction interface, they are more eager to do business with a company. This leads to a higher Customer Life Time Value (CLTV) and more revenue for the company.
Additionally, embedded finance gives non-finance companies access to data that helps them understand their customers’ behavior and provides services that are tailored to them. For example, a sports franchise can have insight into data that helps them understand where their fans visit before a match, what they buy along the way and the time of arrival. This creates multiple cross-sell and upsell possibilities.
Today, businesses of all types – including sports franchises, logistics companies, marketplaces, eCommerce, and retailers – can benefit from embedded finance. For instance, HR can use embedded finance to automate the payroll process or offer salary advance payments and personal loans to workers. Another example is Tesla. Despite being a car manufacturing company, they offer customers insurance directly instead of paying higher rates to a third-party insurance provider.
Now that you know the importance of embedded finance to your business and customers, the next important step is knowing how to choose the right embedded finance provider.
But before you start considering any company, it is important to understand the type of financial service you want to integrate into your business. If you want to increase your customers’ engagement, you need a payment system that allows them to complete transactions without leaving your ecosystem. And if you want to create a personalized experience for your employees, you can provide accounts and offer cards to them. If you are a business that works with signing up customers and clients into their product, then you need an embedded system for seamless fast onboarding. Different businesses have different needs when looking at embedded systems and how it can help them grow and scale.
Here at Kernolab, we provide multiple solutions based on the needs of business including accounts, cards, payments, virtual wallets, onboarding systems, integrated banking features and more that are customized to fit into your existing businesses without the hurdles associated with traditional banking. You can launch your financial service in a matter of weeks instead of waiting for months by integrating multiple services using our APIs and white-labeled solutions.
Integrating financial services into your ecosystem through APIs helps you to focus on your business while our team of experts takes care of the technical aspect. Book a call with us to learn how we can grow your business revenue with Kernolab solutions.