Recognizing the Real Enablers of Embedded Finance

In recent years, embedded finance has emerged as a powerful tool for businesses to better serve their customers and increase their revenue. In a nutshell, embedded finance enables companies to provide financial services directly within their product offerings, allowing them to offer more personalized services and create new sources of income.

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With its growing popularity, many brands are now looking at embedded finance as the next step in further delighting their customers. However, it is crucial to note that in order to effectively utilize embedded finance for their benefit, brands must first identify the actual enablers of this process and how each of them contributes to the convenience this technology is known for.

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Thus, in today's blog post, we will take a deep dive into understanding the real enablers of embedded finance and how brands can start leveraging them today.

The Three Pillars

The embedded finance ecosystem is essentially supported by three main pillars: the license holders, the service providers, and the platforms.

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In the embedded finance ecosystem, license holders are mostly banks and Electronic Money Institutions (EMIs) that hold the necessary licenses to perform and regulate financial services.

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They play a critical role in enabling the embedded finance ecosystem as most financial processes, right from deposits and lending to payment processing and remittances, require appropriate licenses to be in place. Banks and EMIs have always been at the forefront of this requirement because it is extremely difficult and resource intensive for any new entrant to secure the appropriate licenses and build the required infrastructure. For this reason, banks have been instrumental in facilitating the adoption of embedded finance by partnering with the other two pillars, the service providers and the platforms.

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For example, Goldman Sachs recently partnered with Apple to launch the Apple Card, a credit card that integrates seamlessly with Apple Pay. Similarly, JPMorgan Chase, the largest bank in the US, partnered with fintech firm Marqeta to launch a virtual credit card that can be added to digital wallets, such as Apple Pay and Google Pay. These partnerships demonstrate how banks can leverage their expertise in banking and payments to offer innovative financial services that cater to the evolving needs of their customers.

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Next on the list are the service providers who offer the technology and infrastructure required for embedded finance, such as payment gateways, remittance solutions, anti-fraud measures, payroll and receivables and much more.

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Service providers are experts at individual components of the banking stack and play a crucial role in enabling the embedded finance ecosystem by designing and offering the required technology and infrastructure. For instance, if a brand wants to process all its customer payments within its platform, it will require a payment gateway along with anti-fraud measures to process transactions seamlessly and securely, and this is where a service provider steps in. This individualized expertise allows brands to focus on their core competencies and rely on service providers to handle specific components of the embedded finance ecosystem.

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In addition, service providers mostly offer customized solutions catering to the diverse needs of businesses, allowing them to target a specific segment of consumers. For example, a service provider specializing in payment processing for B2B transactions can collaborate with brands looking to offer embedded finance services to other businesses. Such collaboration allows the brand to access specific components of the embedded finance ecosystem and offer more personalized services to its customers.

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Moreover, partnering with a service provider also significantly reduces the time and cost involved in building an in-house infrastructure. This is especially helpful for small and medium-sized businesses which may not have the resources or expertise to build a complete financial ecosystem. By collaborating with service providers, these businesses can easily integrate financial services into their existing product offerings, expanding their revenue streams and enhancing the overall customer experience.

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The last pillar of the embedded finance ecosystem are the platform providers, who essentially act as a bridge between the brands, the service providers and the license holders. Platform providers are a crucial component of the embedded finance ecosystem as they have partnerships with multiple license holders and service providers, allowing brands to design their embedded finance ecosystem easily in a plug-and-play approach.

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Although examples of full-service embedded finance platforms are rare, there are examples available in niche domains such as payment processing.

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Take, for example, Stripe, a leader in online payment processing. Stripe has collaborations with numerous license-holding financial institutions and service providers across different categories, from payment processing and collections to fraud prevention and accounting. Due to this vast network of partnerships, a brand looking to process all customer's payments within their ecosystem simply needs to integrate Stripe into their ecosystem, and they will immediately have access to a complete, end-to-end financial infrastructure without the cost and expertise required to build it in-house.

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Another example is Payoneer, a B2B payment platform provider that caters to businesses of all sizes. Payoneer offers a range of financial services, including cross-border payments, working capital financing, and risk management, while partnering with numerous license holders and service providers. Brands can customize their financial service offerings by selecting the specific services they need, with Payoneer seamlessly handling all the backend integration.

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The plug-and-play approach of platform providers empowers brands to offer innovative financial services to their customers without the need to worry about regulatory compliance and infrastructure development. With simple API integrations, brands can add new financial services to their product offerings, expanding their revenue streams and enhancing their customers' experience.

The Takeaway?

Over the last couple of years, embedded finance has revolutionized the way businesses provide financial services to their customers. It has enabled brands to focus on their core competencies and rely on service providers for specific components of the embedded finance supply chain, thereby reducing cost and time significantly. Likewise, with the emergence of platform providers, brands are now easily able to customize their embedded finance offerings via plug-and-play integration and avoid the hassle of collaborating with multiple service providers and license holders.

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By leveraging these enablers of embedded finance, brands can now offer innovative financial solutions that are compliant with regulations while enhancing customer experience at the same time. With all its advantages, it is no wonder why more businesses have turned towards embedded finance in recent years!

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Looking to offer your business customers an embedded finance experience? Get in touch with us today to learn how we can help you delight your customers and nurture a new revenue stream with our end-to-end integrated embedded finance solution.