In September 2020, Alex Lazarow, a venture capitalist and Forbes senior contributor, wrote that “one of the most transformative trends in fintech taking shape today is embedded finance.” More than a year later, the current market value of the embedded finance market is $43 billion — and is anticipated to grow by more than $95 billion to the tune of $138 billion by 2026.
What’s driving that immense growth is the ability for embedded finance solutions to be an enabler between financial services, non-financial businesses and the customers they serve. Embedded finance is transforming how brands conduct business by allowing them to offer what customers want from their digital transactions: to be simple, fast and secure.
The key driver behind the rise of the embedded finance market is the advancement of payments technologies, such as digital payments advancements and open APIs, that allow non-financial brands to have a direct role in their customer’s payment experiences. Below we explore why non-financial businesses should embrace embedded finance to create richer payment solutions in order to drive higher revenues, while boosting customer loyalty and engagement.
Embedded Finance Opportunities for Non-Financial Brands
At its core, embedded finance creates a payment experience that allows customers to complete the transaction without the hassle of entering any payment credentials. This Banking-as-a-Service (BaaS) model allows non-financial brands to integrate financial services via open APIs in a way that embeds payments deeper into their business’ infrastructure.
What makes embedded payments such a powerful tool for non-financial brands is the ability to deliver friction-free customer interactions through one of the most critical aspects of a customer interaction: how they pay. But eliminating that friction is about more than just integrating payments into an app. Brands that embed payments deep into the customer journey through their own branded ecosystem have an opportunity to make the transaction fast, simple and — most importantly — invisible.
Embedded finance also allows non-financial businesses a simpler path into the digital payments world. As digital payments continue to gain greater market share, embedded finance offers businesses the tools necessary to deliver rich, differentiated and customized digital banking and commerce experiences. Likewise, businesses can use that same digital channel to deliver tailored rewards that align with what those customers value.
Understanding how customers pay is also a key component of understanding what they care about. Research from Visa indicates that contactless payment usage in the U.S. grew 150% from March 2019 to March 2020, driven in large part by a rapid change in how consumers chose to pay at the start of the pandemic. However, today's trends suggest that an affinity for contactless and digital payments are sticking. In 2021, more than four out of 10 U.S. smartphone users had used a contactless payment at least once.
Embedded finance also presents value-added tools for businesses. Whether it be through digital banking services, digital wallets, dynamic payment accounts, P2P payments, rewards or branded card programs embedded finance solutions provide businesses a streamlined way to turn payment services into a revenue-generating tool. Another value-add of embedded payments is the ability to gather insights to optimize customer experiences while they’re interacting with your brand. These on-demand insights help businesses learn more about their customers, streamline operations and can be another way to boost spend and drive loyalty.
The Power of Partnerships Behind Embedded Payment Experiences
Thanks to partnerships that allow businesses to leverage cloud-based technology to drive payment technology innovation, there are more opportunities than ever for brands to own their customers' payment experiences. Data suggests 74% of consumers are at least somewhat likely to buy based on experiences alone. Taking the complexities out of payments is a component of that experience.
Powered by the advancement of digital payments technology, partnerships across the payments ecosystem have paved a path for non-financial brands to play a more direct role in every aspect of their customer’s experience with their brand — payments included. This allows businesses to deepen their role in their customer’s financial choices without having the burden of being a financial services provider. This means not having to worry about ever-changing payments regulations, fraud management, technology and the related payments infrastructure.
Finding a successful partner to onboard an embedded finance solution is about the tools and technology they offer. By using, for example, open APIs from Netspend, non-financial brands can offer customers digital banking services and digital wallets that help drive business and create new revenue streams. Collectively, these options also allow payments to be directly integrated into a business’ app, which helps brands tailor solutions to their specific customer base.
After all, the point of embedded finance is to simplify the payments equation. How businesses integrate that solution should be seamless for both the business and their end users. It’s important to find a partner that can manage all the capabilities and relationships in one place so businesses can focus on what matters most: delivering exceptional customer experiences.
Managing payments complexities can’t, and shouldn’t, be tackled alone. The technology and partnerships that exist today allow for greater synergies between businesses, financial services and the customers that benefit from the rise of integrated payments technology. For brands looking to do more than just impact the customer experience, embedded finance takes that relationship to the next level by helping businesses achieve one core goal: owning the payments experience in a way that translates to greater customer loyalty, engagement and greater spend.
About the Author: Walt Granville serves as Netspend’s Senior Vice President, Business Development. Walt leads a team of experts that are responsible for working with partners to unlock growth through payments and digital banking innovation. His Netspend partnership team has developed card programs, employer payment solutions and BaaS offerings across multiple industries including; Technology, Gaming, Ecommerce, Lending, Fintech, Healthcare, Retail and Alternative Financial Services. An industry veteran with over 20 years of experience in the US and European financial services and payment industry, Walt has held roles managing strategic partnerships and product innovation teams for payment networks, processors, issuers and technology innovators. Prior to joining Netspend, Walt held various roles with Visa, First Data, Affinion Loyalty Group, and Monitise.
1. Forbes, One-Button Fintech? Where And How Embedded Finance Will Work, September 20, https://www.forbes.com/sites/alexlazarow/2020/09/27/one-button-fintech-where-and-how-embedded-finance-will-work
2. Juniper Research, Embedded Finance Market Value to Exceed $138 Billion in 2026, July 2021, https://www.juniperresearch.com/press/press-releases/embedded-finance-market-value-to-exceed-138bn
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4. Visa, Merchants and Consumers turn to ap and pay as part of new daily routines, April 2020, https://usa.visa.com/visa-everywhere/blog/bdp/2020/04/30/merchants-and-consumers-1588276426783.html
5. Statista, Mobile payments in the United States, August 2021, https://www.statista.com/topics/982/mobile-payments/
6. Forbes / Arm Treasure Data, Forbes Insights Report: The Clear Path to Personalization, May 2019, https://www.forbes.com/sites/insights-treasuredata/2019/05/01/the-path-to-personalization