Behind the embedded finance boom

Today, embedded finance represents one of the most exciting opportunities for merchants and legacy financial institutions alike. It has an addressable market value of over $7 trillion - roughly twice the market value of the world’s top 30 banks today.

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In effect, this means that an increasing number of non-financial companies are bringing their own financial services to market, from innovative buy now pay later (BNPL) offerings and lending solutions to novel digital wallets and bank accounts. For consumers, the appeal is clear: with a raft of new products to choose from, digitally native consumers are empowered with much greater choice, more seamless shopping experiences and increased flexibility. 

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As such, companies of all types and all levels of maturity are tapping into the growth potential of embedded finance and putting plans in place to launch their own financial services so that they can serve new businesses and customer segments. 

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Given that embedded finance and BaaS startups have already amassed large amounts of funding in the last year - ranging from $0.3B to $3.1B - it’s time to get to know why embedded finance is the next big thing if you’re not already acquainted. With this in mind, we have pulled together a short guide that sheds light on some of the key drivers underlying the BaaS boom.

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A seamless customer experience

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One of the biggest motivating factors for businesses looking to build embedded services into their offering is the fact that these products allow them to serve their customers at the point of need with much greater personalisation. 

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For example, while short-term financing options are not anything new, a fundamental difference is the fact that these products can be directly integrated into the partner platform. In short, this enables a smoother and more cohesive journey, as the need to apply for credit through a legacy bank is removed entirely – instead, it can be sourced directly from the retailer. Like most things in business, convenience is key, so removing common consumer pain points means that they are more likely to remain loyal to their favourite brands.

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While financial institutions can gain a better handle on context and data and improve their product distribution, non-financial businesses can boost their customer stickiness – this means that they are far better-equipped to attract and retain users, and thereafter, open new revenue streams.

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‍Improved customer insights

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‍As we have already touched upon, embedded finance can help brands gain a better understanding of their customers. 

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Over time, these products can serve as powerful tools, allowing companies to gain crucial insights into customer demographics, their spending habits and financial requirements. Later down the line, brands can then apply analytics to this data, using the insights gained to deliver hyper-personalised solutions to their customers, ensuring that they are always well-served and that interactions are increasingly contextual. Particularly, as advances in open banking ramp up, this could result in the creation of new and novel embedded products that take an individual’s specific financial situation into account – for example, product suggestions and finance options that consider the end-user’s complete financial profile to improve affordability and repayment timelines.

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A broad range of spheres

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While embedded finance is still in its infancy, it is certainly beginning to gain momentum. The range of services that businesses can bring to customers is incredibly broad – so how do firms choose which are best to offer?

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Ultimately, deciding on the embedded services that your business plans to offer rests entirely on what your business does, and what your customers specifically want from you. But beginning with the needs of your consumers is always the best place to start.

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With our fully flexible cloud-native infrastructure and a range of APIs to choose from, businesses can rest assured that Yobota’s Banking-as-a-Service (BaaS) solution is well-equipped to meet all your customer requirements – no matter how niche they are. 

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If you’d like to learn more about our BaaS offering, reach out to a member of the team today.