Embedded Finance Is Unlocking New Opportunities for Brands: Here’s How

The rise of embedded finance has made it possible for brands to offer their customers a range of financial services. From Starbucks to Walmart, an increasing number of brands are now offering customers the ability to pay with points and rewards, access financing options like buy-now-pay-later plans, or even invest in stocks directly from within their apps.??

This shift towards embedding finance within existing products and services is transforming how businesses interact with consumers and creating new opportunities for both companies and customers alike. By leveraging the power of embedded finance, companies can create more value for their customers while also generating additional revenue streams through partnerships with financial service providers, and in today's blog post, we will discuss exactly that.?

What Is Embedded Finance??

Before we dive into the trenches and discover how brands are leveraging embedded finance to unlock new revenue opportunities, here's a refresher on this technology.?

Embedded finance is a rapidly growing trend that has become increasingly popular over the last few years. It allows companies to offer financial services such as payments, investments, and financing options directly within their existing products or services. This shift has had an enormous impact on how businesses interact with customers and create new opportunities for both parties. By leveraging the power of embedded finance, companies can generate additional revenue streams while providing their customers with more value-added services than ever before.?

However, it is easy to mistake this innovation as new. For decades, traditional brands have been partnering with banks and financial institutions to offer co-branded financial instruments. Right from co-branded credit cards like those on offer at Walmart or Starbucks to loyalty and reward cards, the partnership between brands and banks has survived the test of time.?

Although this arrangement has been in place for decades, one disadvantage of it is a majority of the control in this partnership lies with the financial institution and not the brand.??

For instance, if Target is partnering with Chase to offer co-branded credit cards, they have to abide by Chase's regulations to decide what these co-branded cards can and cannot do. A ripple effect of this is the decline in revenue share as well. Although brands earn good money through shared commissions, the bank stands to gain the most as it is not only acquiring a large mass of customers at low cost, but it also has the future opportunity of selling these customers other financial products, making way for new revenue streams.?

How Embedded Finance Is Changing This Partnership?

Leveraging embedded finance has enabled brands to shift the power dynamics in their partnerships with financial institutions. By utilizing embedded finance solutions, brands have the ability to freely choose between license providers, enablers and platforms when creating a co-branded financial product. This not only gives them more control over how they want to provide value-added services to customers, but it also helps them increase their revenue share significantly.?

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1. Facilitating Transactions?

For instance, a common vertical across which banks and financial institutions make money is by charging a commission on customer transactions. Banks charge a 1-3% commission on every transaction, irrespective of the fact that it is made through a debit card or a credit card. This fee is then divided among different parties involved in the transaction, such as the card issuer, the consumer's and merchant's bank and the network provider.?

However, by leveraging embedded finance for the above-mentioned scenario, the brand can itself become the card issuer and thus open up a new revenue stream for them. Becoming the card issuer will not only allow the bank to decide the amount of transaction fees they charge but also add additional features, such as in-app investing opportunities to nurture additional revenue streams.?

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2. Money Movement and International Payments?

Banks often charge customers money for everyday services such as ATM withdrawals, cash loading, out-of-network transfers and more. These fees can quickly add up and become a significant expense over time.??

Banks typically make their money off these fees by charging a percentage of the amount withdrawn or transferred. For example, they may charge a 3% fee on all out-of-network ATM transactions or 1% on all cash-loading transactions. Additionally, banks may also impose flat fees for certain services like international payments or wire transfers. All these charges are designed to increase revenue for the bank while making it increasingly difficult for customers to manage their finances efficiently.?

Similar to the earlier example, brands can leverage embedded finance to offer this whole suite of services to their consumers at a more affordable cost and with a more customized experience. For instance, by integrating an international payment component into their apps, brands can offer customers an easy and more affordable mode of international money transfers. Taking into account that service charges on average international transfers hover in the 4-5% range, it is no doubt a great opportunity for brands to claim a share of the pie, especially when they have ready access to customers who regularly participate in international transfers.?

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3. Embedded Lending?

Last but not least, brands can leverage embedded lending to empower customers with a seamless way of financing their transactions. Embedded lending allows brands to offer customers an alternative method of financing their purchases and provides them with flexibility when it comes to paying for their goods or services. With this kind of solution, brands can set up consumer-friendly repayment plans that make it easier for customers to manage their finances without needing to take out a loan or credit card.?

Furthermore, embedded lending can help brands build loyalty with their customers by providing them with an easy way to access financing. This could range from a simple "buy now, pay later" option that allows customers to purchase goods and services upfront and then pay off the total amount in instalments to providing customers with access to interest-free financing for a certain period of time.?

The Takeaway?

It is evident that embedded finance provides brands with an opportunity to offer their customers more customized experiences and a more affordable way to access funds. An increasing number of brands have already started leveraging this technology in order to claim a share of the revenue pie, and it's clear that many more are joining every day.??

With embedded financing solutions, companies can provide customers with everything from flexible financing options to seamless investment gateways, all the while building loyalty by delighting them at every interaction. Thus, it will come as no surprise if every brand of the future becomes a fintech brand, and in our opinion, we are heading closer to that every day.??

Looking to offer your B2B customers an embedded lending experience? Get in touch with us today to learn how we can help.??