Behind the unstoppable rise of embedded finance

Sophia Sanders, Head of Partnerships, Chetwood Financial

Today, embedded finance is everywhere – from online marketplaces to lending services and food delivery platforms. With more new integrated financial products and services appearing all the time, a growing number of businesses are realising the revenue opportunities and brand-building prospects at their disposal.

So great is the current market demand for embedded finance, that over the next ten years it is expected to reach a global market value of over $7 trillion – nearly double the market value of the world’s largest 30 banks today. It’s therefore impossible to understate the reach and impact that embedded financial services will have in the near future, as more organisations throw their hats into the ring to solve crucial consumer problems.

Even those outside the financial services industry are likely to have heard of the term, but what is driving this extraordinary growth in the market? And more importantly, how do consumers stand to benefit from the embedded finance boom?

Open banking and embedded finance: the perfect partnership?

Open Banking has been a watchword in the fintech world for quite some time now, allowing banks and fintechs to share users’ data (with their permission), opening the doors for personalised offerings, cardless payments, and a single view of a user’s accounts from one destination. The embedded finance opportunity is a natural continuation of this technology.

In short, embedded finance has built upon open banking, adding APIs into the mix. This means that businesses can do more than just share data between separate journeys – with embedded finance, they can expand the use cases of open banking to combine the user experience (UX) in one place. The combined power of open banking and embedded finance means consumers stand to benefit from ultra-personalised and secure lending options, amongst a plethora of other bespoke services.

Why embedded finance?

For the most part, the customer is at the heart of this explosion in the market.

Undoubtedly, consumer behaviour has changed radically in recent years, thanks to the growth of eCommerce, with online shopping becoming the norm and people having a much greater choice when it comes to products available on the market. With competition in the retail sector on the uptick, brands need a strong retention strategy in place to hold onto their customers, and embedded finance is proving itself to be a worthy solution.

Removing friction from the customer journey is one way of meeting this goal. As embedded financial products can be integrated directly into a brand’s existing ecosystem thanks to novel APIs, businesses can build a seamless UX for their customers. In practice, this means they won’t need to be re-directed onto a third-party website to complete a transaction or pause in the middle of the checkout process to look for a loan if they need one, which can often be a barrier to following through with purchases.

Boosting brand identity

Beyond this, perhaps one of the greatest gifts of embedded finance is that it allows non-financial companies to extend their offering and become a one-stop-shop for all their customers’ needs, financial or otherwise. This essentially means that consumers can bank with their favourite brands, whatever their line of business is – like a sports team launching a credit card for example. 

As well as boosting brand loyalty, this allows companies to deliver unique financial products to under or unserved market segments, solidifying their appeal in a very overcrowded space and reaching a more economically diverse portion of society. Ultimately, brands that develop financial products around the specific needs of their target markets are the ones most likely to stand the test of time – as consumers recognise that shopping with a particular brand allows them to enhance their spending power, they are more likely to continue shopping with them.

Using data for good

Consumers can naturally be a little cautious when they hear that their data is being used. With increased data breaches on the rise within the Big Tech arena, this is hardly surprising. However, embedded finance poses a genuine opportunity for revenue diversification and harnessing data for good.

By gaining insights about consumers’ financial behaviour – where they tend to drop off along the checkout journey, for example – businesses can craft targeted financial products based on the specific needs of their customers to serve them more effectively. With personalised and curated financial services at their disposal, customers can spread the cost of an essential product (often under interest-free terms) that might otherwise be prohibitively expensive and boost their spending power. This capability is crucial in today’s economic climate. For others, who drop off the checkout journey at the last hurdle because they don’t trust third-party payment providers, embedded finance provides a compelling solution.

From a business development perspective, access to spending data can help firms gain a much clearer picture of their projected cash flow and take seasonality into account – some businesses might be heavily reliant on Black Friday or the Christmas period for their annual takings. With data at their side, businesses can make more informed and secure decisions about the development of new products, as well as other expansion opportunities and the hiring of new staff, allowing them to plan for the future.

As more companies and ecosystems begin to integrate financial services into their customer journeys, the embedded finance opportunity is just hitting its stride. Businesses and financial institutions should therefore strike while the iron is hot to capitalise on increased customer demand and an exciting opportunity to expand their horizons.

As Head of Partnerships, Sophia is focussed on finding new, and maximising existing, relationships to help both Chetwood and its partners achieve the best customer and commercial outcomes. Sophia is responsible for how Chetwood distributes it’s own products in the market by working with market leading aggregators such as ClearScore, Experian and MoneySuperMarket. Sophia also leads the Banking and Software as a Service team, and is passionate about finding new opportunities to create financial services products to help other organisations achieve their strategic goals. Prior to joining Chetwood, Sophia spent the majority of her career at Lloyds Banking Group, where she spent five years taking their Digital team from start up to having hundreds of colleagues, focussing on both Current Account products and Retail Business Banking.