Embedded Finance for FinTechs

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For FinTechs, embedded finance will add enough value for the next financial revolution. The driving factor is rapidly changing customer expectations.

Embedded finance offerings mean seamless integration of financial services into customers’ everyday lives. Many customers and businesses benefit from integrating financial services into a connected customer journey instead of offering them as separate interactions.

According to a EY report on Embedded Finance,

94% of the more than 20 global financial technology leaders recently contacted by EY teams believe that a financial product’s ability to address customers’ real-time needs is the key to its success (note that many current financial products are not real-time).

In turn, non-financial and financial institutions are increasingly interested in developing embedded propositions, creating opportunities for both parties to achieve significant growth.”

They also provide options for banks to strategize on new products for embedded offerings. Delivering such unique customer offers adds value to their marketing strategy. These fresh platforms and business models allow banks and FinTech to access untapped distribution channels.

What Is Embedded Finance? 

According to McKinsey and Company’s definition of Embedded Finance,

“Embedded finance places a financial product in a non-financial customer experience, journey, or platform. Nonbanks have offered financial services via private-label credit cards at retail chains, supermarkets, and airlines for decades. Other common forms of embedded finance include sales financing at appliance retailers and auto loans at dealerships. Arrangements like these are a channel for the banks behind them to reach end customers.”

In embedded finance, financial services are added to non-financial platforms or cards. This can include accepting payments and offering financing options such as buy now, pay later, loyalty cards, or points.

B2B financing is crucial to business-to-business transactions. Buyers rely on credit lines to handle the large average orders that are typical in B2B transactions that they must make.

According to the Global Newswire Embedded Finance report

Global Newswire Embedded Finance report

However, as business trade becomes digital and more complex, embedded financing solutions become increasingly important to the B2B finance ecosystem. But, the advantages go beyond business-to-consumer transactions.

For instance, options like BNPL and trade credit insurance are more accessible, affordable, and efficient than legacy solutions.

Starting the embedded finance Journey

A B2B embedded finance product’s successful integration into the platform depends on careful planning and a systematic process. Before starting this journey, businesses should consider the following factors:

  •  Describe the goals and plan.
  • Establish embedded finance solutions in detail.
  • Consider how it fits with the overall business objectives and strategy.
  • Establish the precise results teams hope to achieve.

After this basic planning, the next steps are:

1. Identifying client requirements

This step is essential for creating customized financial services that satisfy clients’ needs.

  • Know the financial needs and concerns of the customers
  • get direct feedback from the target market by participating in focus groups, interviews, or surveys
  • Determine the areas where embedded finance solutions can add value and successfully address customer pain points.

2. Carry out market analysis

  •  Investigate the market in depth to learn about market dynamics, consumer preferences, and industry trends.
  • Determine which financial services are most important to the target market.
  • To identify best practices and potential gaps, examine the embedded finance solutions offered by competitors.

3. Evaluate your capabilities

  •  Analyze the resources available to support the implementation of embedded finance.
  • Evaluate the current technology and infrastructure.
  • Determine if teams have the necessary expertise or need additional talent, partners, or external support.
  • Determine any obstacles or gaps that should be closed before implementation.

4. Choose a service partner

Assess potential partners who can help the embedded finance initiatives and products. These could be FinTech firms, payment processors, or financial institutions.

Consider their knowledge, history, technological prowess, security measures, and suitability for the company’s needs. Before making a choice, establish precise criteria for partner selection and conduct exhaustive research.

5. Create a road map

Organize the steps, deadlines, and resources needed to integrate embedded finance solutions in a detailed implementation roadmap.

  • Establish benchmarks and key performance indicators (KPIs) to monitor development and RoI.
  • Ensure it aligns with the overall business strategy, as per future growth opportunities and roadmaps.

6. Ensure security and compliance

To ensure data and product security, firms must:

  •  Learn about industry-specific compliance requirements, data protection, and privacy laws.
  • Employ strong security measures to protect customer data from fraud and unauthorized access.

7. Educate and train employees

Companies must set up an entire chain of IPs and information for every new product line or solution. These steps will ensure the successful implementation of new embedded financial offerings:

  • Thoroughly instruct and train the resources about embedded finance solutions the firm is implementing.
  • Make sure they understand the advantages, features, and procedures involved.

Also Read: Key Embedded Finance Trends Reshaping B2B Transactions

Develop Efficiencies to measure performance

Following the implementation of the embedded financial solution, firms must set up a system of constantly assessing the performance of the product. They can create some key metrics that can help with measurements of effectiveness. Here are a few metrics that could help:

  • Creating measurable metrics to study the impact of the product
  • Monitoring these key metrics, analyze user feedback, and collect data to identify optimization opportunities.
  • Regular market analysis of the product and improving the products in light of customer feedback and shifting market dynamics.

Embedded finance is shattering barriers and democratizing access to credit across various banking segments. FinTechs are leading the charge, being the early adopters of technology in the market.

It is changing how users manage their money. FinTechs and other brands are developing and offering new embedded products to the market.

In conclusion, the disruptive force of embedded finance is reshaping the future of banking.

Swapnil Mishra
Swapnil Mishrahttps://talkfintech.com/
Swapnil Mishra is a global news correspondent at TalkCMO, with over six years of experience in the field. Specializing in marketing technologies, Swapnil has established herself as a trusted voice in the industry. Having collaborated with various media outlets, she has honed her skills in content strategy, executive leadership, business strategy, industry insights, best practices, and thought leadership. As a journalism graduate, Swapnil possesses a keen eye for editorial detail and a mastery of language, enabling her to deliver compelling and informative news stories. She has a keen eye for detail and a knack for breaking down complex technical concepts into easy-to-understand language.

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