Embedded Finance: What It Takes to Prosper in the New Value Chain Bain & Company

Studies show customers spend a little extra at checkout through BNPL, and platforms benefit through increased conversion with bigger basket sizes. Platforms may in time begin to renege on the current model, in which BNPL payers charge merchants and assume the risk of collection. Traditional institutions face the threats of shifting economics and adverse selection with this new value chain. Yet they can also tap tremendous growth potential, especially if they identify where to play across specific vertical segments. Investing in the right capabilities will ultimately lead to opportunities to serve the new value chain in multiple ways.

• For instance, In December 2019, JCB, a Japanese business to business payments firm, in partnership with Keychain a Singapore based blockchain technology provider, announced the collaboration for utilizing blockchain in payment processes.
• Let’s take a closer look at this opportunity and why everyone is talking about…
• This is especially important as more B2B buyers and suppliers expect to buy and get paid online.
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• Using one login, bills are able to be paid and reconciliation can occur easily as the automated bank feeds can be accessed directly from the ERP, thus bringing the corporate user more information and allows for auto-reconciliation.
• Offering connectivity with traditional banking systems, platforms like PayPal and Google Wallet act as intermediaries between users and their banks.
• Moreover, customers expect e-commerce platforms to provide a smooth buying experience.

It connects third-party organizations to bank infrastructure, allowing them to see a customer’s account balance, transactions, and credit card information. The data allows the creation of consumer and SMB applications in areas like payments, online lending, PFM, robot advisors, customer onboarding, insurance, investment services, P2P marketplaces, and cryptocurrencies. Developer of payment management and financial risk management solutions for financial institutions and businesses. It features a solution for payments including card solutions, enterprise payment platforms, payment networks, and more. It offers solutions for accounts processing, credit, and debt management, customer and channel management, financial performance, risk management, fraud risk, and AML compliance management. Veteran embedded banking solution providers, such as Railsbank are enabling businesses to use financial services as their primary target.

Pave the way to embedded finance

Customers are looking for convenient, seamless experiences, and fintechs are leveraging their strengths to create the products customers are asking for. Here at FISPAN, we’re in the business of embedded banking and have built a two-way solution between the bank and the ERP, crafting a differentiated banking experience for end users. The use of embedded banking is already in motion, so there is some experience to explore.

In the move to digital-first interactions, instant decisioning is essential and can be a make it or break it feature in the sales process. It’s likely that merchants will find that their business customers prefer to purchase using trade credit and spend more with a business when they have a dedicated financial relationship and credit line. Research shows that the majority (63%) of salespeople’s time is focused on activities other than selling —meaning only 37% of a sales team’s time is bringing in new business.

Digitisation can deliver transformational benefits across a merchant’s business. “Consumers are now demanding online experiences, happily virtual, wanting seamless digital procurement and provisioning, and wanting everything at the click of a button. The delta between B2C buyers and B2B buyers has collapsed during the pandemic.

A trend that’s rarely been out of the spotlight and continues to drive billions in investments, embedded finance has become the fintech buzzword of the last 12 months. In this four-part series, we look deeper into the opportunity and applications for this mega trend and what brands should consider when they Best Upcoming Embedded Payment Trends embark on their embedded finance journey. Taken together, these findings suggest that sectors like health are still very early on their journey when it comes to embedded finance. But what’s exciting is that they also show a lot of promise — these sectors have been accelerating digital transformation.

The benefits of embedded lending systems

This is still significant, especially when compared with the transaction returns of BNPL, but PoS has higher servicing costs as a consequence of the business model. With the lifting of lockdown restrictions across European countries, the hospitality industry is ready to thrive again. Market players are planning to regain their positions in the market by providing add-on services to the clients. Given the growing prioritization of ESG happening more broadly, there will likely be increasing interest in fintechs with ESG capabilities, including companies focused on climate change, decarbonization, and the circular economy. Online creators have different needs than traditional corporate or commercial-banking customers.

The small and mid-sized organizations segment is expected to record sales at a CAGR of 23.4% during forecast period. Small and mid-sized organizations are adopting embedded banking solutions and services to cope with rising demand for efficient banking services. The right contextual moment while reducing resistance and opening new customer engagement possibilities.

The next big payments disruptors may surprise you

As more fintechs such as FISPAN join the push to revolutionize the customer experience, finance teams are finding a large amount of value in these products, which is bringing FISPAN one step closer to our vision. From the elimination of redundant tasks, better data visibility, and streamlined payment and reconciliation processes, FISPAN is forging onward in our journey to revolutionize accounting as we know it. FISPAN’s integrations allow banking products and services to be directly embedded into the platforms you use in a secure and user-friendly way, helping you remove friction in multiple touchpoints. Instead of using both your ERP and Bank to perform cash management, accounts payable, and accounts receivable activities, you can do it all through one portal, as our integration sends all the relevant information to your bank. Depending on the ERP and Accounting Software you might use, the solution can look a little bit different.

Embedded finance began as technology to merge software and commerce business models. Today, the use cases continue to expand, from Shopify’s embedded banking offering, Shopify Balance, to a myriad of buy now, pay later options at online checkout. We expect the projections in this report to persist despite the current macroeconomic volatility and near-term recession risk. Our projections cover a five-year horizon that looks beyond short-term economic turmoil, including a recession that would chiefly affect the prospects for embedded payments over the next 18 months. We would expect accelerated growth coming out of any future recession, resulting in broadly the same outcomes over a five-year horizon. While all market projections come with risks, our forecasts reflect a sensible central projection of the growth trends in this market.

Consumer payments, or merchant acquiring, enables merchants to accept payment from their customers across payment channels and methods . For most software programs focused on small and midsize businesses , consumer payments are typically one of the first financial services to be embedded, given the friction those customers face in setting up payment acceptance. Most of these services have a financial core, such as banking, payments, lending, or insurance. Other categories have recently emerged, including compliance , human capital management , and procurement within marketplaces. Embedded finance enables customers to have a new type of relationship with financial providers, giving them access to services as a by-product of the software they use and the goods they consume. While some companies will hesitate and possibly miss out on the opportunities, others will take the lead and figure out how to reap the benefits.

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An integrated customer typically stays for four to five years, while a non-integrated one typically starts shopping around for another solution in about 15 to 18 months. Garza said the company was looking for a platform with executive expertise, the ability to execute quickly and an intense vertical focus. Software Developers Simplified connectivity to extend the value of your software solution. 3DS 2 Integration New technical standards required for payment authentication. You’ll also be able to choose your preferred newsletter and report subscriptions.

The transaction value of embedded finance also will surge from $2.6 trillion to $7 trillion in 2026. “What will drive this change will be the collaboration between those brands that want to provide embedded payment solutions and the technology companies that can help build them. The market is quickly being established and we’re already seeing the appetite from businesses and consumers – the time is now for brands to leverage embedded payments,” added Dimitrova. There’s little doubt that embedded finance has had more headway in these kinds of consumer applications to date.

The Strategies for Embedded Payments into your Vertical SaaS solution 👨‍💻

South Asia & Pacific is projected to register strong growth in the market, exhibiting a CAGR of nearly 27.1% during the forecast period with market share of around 11.5% in 2022. As you may see from this example, there are many steps that must take place just to make a payment, and FISPAN can automate this process for you. Instead of navigating between portals, FISPAN comes in and sends that information to the bank once the payment is made within your ERP. By eliminating redundant steps within processes such as payables, FISPAN can give your finance team their time back so they can spend it on more strategic tasks, demonstrating how it can also lead to increased productivity. The aim of the study was to probe consumers to determine the degree of acceptance for embedded finance versus preference for keeping things separated. Indirect auto finance has relied on a structure where the dealer is in the forefront for both sales and finance, and the bank is in the background.

Vertical SaaS solutions that have opted for this can use a large transaction volume to negotiate with their PSP. They can also offer to carry out transactions via other payment methods on the platform. It’s time for change to occur for accounting and treasury management teams, who have always struggled to automate time-consuming processes and reduce manual errors. These customers require innovative banking products and services, which can be only made possible through embedded banking. In a 2022 PYMNTS & FISPAN report, data shows that 9 out of 10 financial institutions are pursuing or planning to pursue embedded finance solutions to address these frictions experienced by banking customers. Embedded payments is a necessary first step before progressing to embedded finance, which also has huge potential gains.

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Issue your own virtual or physical cards to users and they’ll enjoy same-day settlement at no extra cost. This could even be scaled to business employees, giving them debit or prepaid cards they can use to make purchases. That’s because many small businesses used the lull induced by lockdowns to digitise. This was partly driven by the short-term need for survival; many having to pivot to online services to stay afloat.

2021 Embedded Banking Market Historic Outlook Compared to 2022-2032 Forecast

To ensure the most secure and best overall experience on our website we recommend the latest versions of Chrome, Edge, Firefox, or Safari. Insights into Opportunity by end-use sectors – Get market dynamics https://globalcloudteam.com/ by end-use sectors to assess emerging opportunity across various end-use sectors. Embedded Payment industry is expected to grow by 40.4% on annual basis to reach US$124,755.7 million in 2022.

For B2B embedded card payments, as with consumer payments, we expect enabler take rates to face some pressure over the next few years. Platform take rates will rise slightly, leading to a 2026 revenue split of $1.5 billion for platforms and $0.8 billion for enablers, which reflects the overall increase in embedded B2B card payment growth. For this report, we define embedded finance as a nonfinancial software platform providing an adjacent financial service, for which it takes some degree of economic ownership. This allows the platform’s customers to take advantage of a value-added offering within the native customer journey. The COVID-19 pandemic has significantly accelerated the volume and value of digital payments, in 2022 we will see the next phase of digital payments as alternative payment methods become the norm. By embedding payments into your platform, you’ll be able to provide seamless cashflow that’s hard to replicate by a third-party.

Additionally, Embedded payment platforms providers are making strategies to tap the prospects in the hospitality industry through partnerships. With the Singapore government’s expanding support for fintech businesses, the country is anticipated to see an influx of new product launches and technological development in payment platforms in the next few quarters. “Incumbents are reacting to these challengers, and we’re seeing a new cohort of B2B fintech companies powering the digital transformation of how legacy financial institutions service their corporate clients,” Shriner said. In the world of business-to-business money movement, there are specializations like payroll, bill pay, credit and lending, and expense management. Over the years, startups have picked one core competency to build a digital, data-forward version. As consumer crypto applications mature, such as those around gaming and NFTs, businesses will be forced to adopt the rails that support such digital payments, she added.

Post pandemic, the number of users opting for digital payments and digital banking has grown drastically, thereby driving the demand for digital banking solutions and services. Though the domain of embedded finance expands by the day and draws in more financial offerings, we focus here on the key segments of embedded payments, lending, banking, and cards within the US. These segments lead other products in terms of digital maturity, revenue generation, and use cases currently served. Prior to the advent of embedded finance, consumers were required to take out loans or use credit cards in order to borrow money, taking on the financial burden of high interest rates. Embedded lending provides far more favourable terms, though–offering weekly or monthly interest-free repayments–increasing buying flexibility during the checkout process. The idea of built-in lending is inherently linked to open banking–a system in which users permit third-party financial services access to their personal financial data.