54% of Consumers With Unstable Cash Flow Prefer Providers Offering Embedded Lending

Embedded lending, the integration of credit offerings into platforms where consumers and microbusinesses (MSBs) can apply for credit directly during a transaction, is gaining traction across major global markets.

According to the PYMNTS Intelligence report “The Embedded Lending Opportunity: Global State of Play,” consumers and MSBs are adopting embedded lending products, but challenges remain, particularly in the application process. The report examined the landscape of embedded lending in six major economies, focusing on consumers and MSBs.

Increasing Popularity Across Consumer and Business Segments

Embedded lending is becoming a popular option for consumers and MSBs, with adoption rates in several countries. According to the report, 15% of consumers globally used embedded lending in the past 90 days, led by the United States at 17%. Younger generations, particularly Generation Z, are most inclined to use it, with 19% opting for embedded credit, highlighting its appeal among individuals new to credit.

Among MSBs, 18% used embedded lending in the last year, with India seeing the highest adoption at 37%. The report also showed that businesses with unstable cash flows are drawn to embedded lending, with 32% of these businesses using it in the past year, higher than the average 18% adoption rate among all MSBs.

Friction in the Application Process Hinders Full Potential

Despite its popularity, embedded lending faces user friction, particularly during the application phase. The report revealed that 88% of consumers and 93% of MSBs experienced at least one pain point when applying for embedded loans. For many, the application process is the primary source of frustration, with 37% of consumers and 58% of MSBs citing difficulties like unclear terms and complex eligibility requirements.

Additionally, 46% of consumers and 31% of MSBs reported frustration with irrelevant offers, indicating issues with targeted marketing. To unlock the potential of embedded lending, addressing user experience challenges is critical for increasing satisfaction and engagement.

Rising Consumer and Business Demand for Embedded Lending

Most consumers and MSBs now prefer financial service providers that offer embedded lending options. According to the report, 43% of consumers and 39% of MSBs indicated they are very or extremely likely to switch to providers offering such services. The appeal of embedded lending is particularly strong among those with unstable cash flows, as 54% of consumers and 55% of MSBs facing cash flow challenges said they would be highly likely to switch.

Trust is key to the adoption of embedded lending, with consumers favoring established financial entities like Visa and primary banks, the report said. In the U.S., 46% of consumers trust Visa, while 38% trust their primary banks for embedded credit. Only 22% of lenders are interested in launching new embedded lending products in the next two years, indicating hesitation due to challenges such as technology integration and operational issues.