Embedded Finance Boom Continues to Reshape Financial Ecosystems

Direct-to-consumer offers have long been a mainstay of finance. But embedded finance is reshaping what it means for banks, businesses and FinTechs to interact, in real time, with customers, generating new revenue and giving end users a broad range of payments options that fit their needs.

Broadly defined, embedded finance moves banking, payments and lending into the non-financial realm, where apps and online interactions with firms can — and do — include buy now, pay later (BNPL) and other options at the point of sale.

The smartphone and the tablet become gateways — along with the firms’ own apps and platforms — to commerce ecosystems that keep consumers engaged and transacting, while improving the cash flows of the firms (and by extension, banks and FinTechs) with which they do business.

Personalized Lending’s Appeal

There is particular appeal for lenders (where embedded lending is category of embedded finance), as they are able to reach new customers and expand financial inclusion, while leveraging data to help tailor offers that boost conversion rates.

In the report “Embedded Lending: From the Lender’s Perspective,” a collaboration between Visa and PYMNTS Intelligence, we found a growing recognition of the value for embedded lending options. The data show that, across the globe, spanning six countries surveyed, 47% of lenders offer only embedded lending; a further 31% offer some combination of embedded and other (traditional) types of lending. That means that only 12% of firms are not offering embedded options.

But there’s a bit of bifurcation in the mix, as 83% of lenders that lend to consumers offer at least one embedded lending product; the corresponding share for small to medium-sized businesses (SMBs) is 55%. At the same time, 37% of SMBs indicate that they’d be “highly interested” in switching to providers that offer embedded lending. The inclination to move to those forward thinking providers, we note, may deepen amid sticky inflation and concerns over access to capital as SMBs navigate the uncertainty of trade wars and tariffs and wish to keep strong supplier relationships in place.

On the consumer-facing side of the equation, and as detailed in PYMNTS Intelligence’s work with Carat from Fiserv, “Platform Business Survey: The Rise of Embedded Payments,” we found that adding payment features to services has enabled independent software vendors and marketplaces to generate revenue by bring payments more prominently to the forefront of the commerce experience. Data suggests that 65% of ISVs and marketplaces that do not currently offer payment capabilities plan to add embedded financial products for payment acceptance. Those initiatives include options that touch on everything from digital wallets to branded cards and of course BNPL. Within the marketplace ecosystems, there’s the ability for consumers to see several lending offers in a centralized location within the platform.

What Comes Next

The ways in which open banking will take shape more fully in the United States are yet to be determined — rules and regulations are still in flux, particularly with Section 1033, governing data sharing.

But the data sharing that includes banking, transaction and consumer-level information — because it’s consumer permissioned — lets bank-FinTech partnerships personalize embedded finance opportunities across channels, boosting working capital for SMBs and incentivizing consumers to go ahead with the sale without having to leave an app or navigate through separate loan applications.

For all PYMNTS B2B coverage, subscribe to the daily B2B Newsletter.