What is embedded finance?
Embedded finance is the incorporation of financial services into a business that is not a financial institution. Embedded finance services are appearing all over the market nowadays. From the automotive industry to B2B eCommerce marketplaces, the common goal of embedded finance is to offer customers access to credit or financing directly from the business itself. To do this, non-financial service companies often partner with banks or other financial institutions to offer embedded finance services to their customers.
There are a few different ways that businesses (including retailers and B2B companies) can offer embedded finance to their customers. One way is through a partnership with a financial institution such as a bank or a credit card company. With this, the business integrates the financial institution’s products and services directly into its system. Another approach to embed finance is when the business develops their own suite of financial products and services. This is often referred to as banking as a service (BaaS). With this, the businesses with a BaaS provider can offer financial products and services to their customers. Regardless of which approach a business takes toward embedded finance, businesses want to (and quite frankly, need to) make it easier for customers to access financial products and services without leaving the business’ network.
There are many benefits to using embedded finance for the business and its customers. Offering financial products and services helps the business find new customers, and naturally, generate additional revenue streams. What’s more, customers find it easier to access the financial services they need because of the added convenience of embedded finance.
Before this, consumers had to go through the process of applying for credit before they made a large purchase. With embedded finance, they can make a purchase and seek out credit at the same time—known as the point of service. Embedded finance is still in its early stages, but has the potential to revolutionize the way that people access financial products and services.
How fintech is changing the financial services landscape
Fintech is a broad term that refers to the use of technology to provide financial services. Fintech companies have grown rapidly in recent years, because of the innovative solutions and apis they offer to solve problems that come with traditional banking services.
This rise of fintech has made it easier for businesses to offer an ecosystem of financial products and services. Fintech and embedded finance have the potential to disrupt the traditional banking model by making financial services more accessible to a wider range of businesses and their customers.
Because of that, fintech and embedded finance are changing how businesses approach financial services. Now, customers can access finance services directly from a non-financial business, through embedded finance. Companies from Uber to Amazon and mobile apps and non-banking companies are embracing embedded finance solutions. This shift is driven by two main factors: the rise of fintech and the changing focus to customer service and user experience.
Customers want to access financial services from wherever they are, and need those services to be simple and convenient. Embedded finance meets these needs by making financial services more accessible and easier to use—something that traditional financing systems and banks can’t offer to everyone. When businesses start using embedded finance, it provides them with a new sources of revenue, and gives their customers convenient access to financial products and services in-house.
Resolve is an example of a fintech company changing the financial services landscape for B2B companies. Using Resolve’s unique digital net terms solution, a business can efficiently apply and receive discrete credit checks on customers (or potential customers) with no impact on their credit score.
Resolve uses this information to set credit limits and net terms for each customer. Once an invoice is issued, the customer then has 30, 60, or even 90 days to pay their invoice. Customers receive access to a company-branded online payment portal (Resolve offers a white label service) where they can access their invoices, credit limits, and make payments. On top of that, within day of the issued invoice, Resolve even has a feature to advance pay the business up to 90% of the invoice. To complete the workflow, when customers issue their payments, payment processing through the portal is integrated with the business’ accounting software.
This all-encompassing accounts receivables and financial solution that Resolve offers is a prime example of how embedded finance can empower a company to grow and reach new markets.
How embedded finance is impacting small businesses and BNPL
Embedded finance is disrupting every industry that relies on traditional forms of financing. Companies can manage cash flow more effectively. Small businesses can generate more working capital through automation. The rise in BNPL (buy now pay later solutions have led to a new industry with far more accessible financial systems. Embedded finance solutions can take many different forms, but they all have one feature in common: making it easier for businesses to offer financial services to their customers through digital platforms.
Small businesses benefit from through all the financial processes done in-house. Embedded finance gives businesses the ability to better monitor their cash flow and manage money. Unsurprisingly, BNPL is one of the most common forms of embedded finance. At its core, BNPL offers companies a new way of obtaining credit. BNPL gives customers access to financing so they can purchase more and pay the invoice over time without needing to engage with traditional financial services providers. BNPL is popular for eCommerce stores. Most people shop on eCommerce platforms through a credit card or debit card, but options only provide a short period of time to pay off purchases, which can be challenging. BNPL options offer longer payment installments, which means more time to pay for purchases without credit repercussions.
How companies are using embedded finance solutions
From integrated insurance services to fintech as a service (FaaS) and everything in between, there are numerous ways a business can use embedded finance solutions. Integrated insurance services are forms of insurance that are offered as parts of another product or service.
For example, a mobile phone company may offer insurance that covers the cost of repairs if the phone is damaged. Insurance is embedded in the product or service, which is charged along with other charges for the product or service. They generally factor this into pricing, and use cases are showing the popularity of such inclusions. Embedded insurance can be a convenient way for consumers to purchase insurance, as they don’t need to shop around for a separate policy, even though they tend to pay more for embedded coverage.
FaaS is a new category of financial technology that enables even small businesses and SMEs to offer financial services using technology. Fintech startups and providers offer a range of tools that can be used to provide a variety of financial services, such as lending, embedded payments, and investments on platforms that look and feel like typical digital banking platforms. With fintech’s focus on elevating the customer experience, embedded services are a great way to elevate the buyer experience.
Going forward, more business models will include some sort of embedded finance solutions. The advantages to a company’s customer base, as well as the business itself, may likely make embedded finance essential to the success of many companies.
If you’re looking for an embedded finance solution that can help your business grow by covering all steps in the end-to-end accounts receivables workflow, learn more about Resolve.