In recent years, there has been a convergence between the financial and non-financial sectors, as the traditionally distinct boundaries which have separated financial services from non-financial industries become increasingly blurred.
Businesses have now become empowered to provide payments, lending, brokerage, and insurance delivered as services through a method known as embedded finance.
What is embedded finance?
By definition, embedded finance is the ability to integrate a financial service with a traditionally non-financial service, product, or technology.
But what does it mean in practical terms? What are some real-world examples and how can you take advantage of this emerging trend?
“Every single company out there can embed financial services in their main lines of business and have a completely new, differentiated and seamless value proposition.” – Rivo Uibo, CBO and Co-founder of Tuum
The benefits of embedded finance
Embedded finance offers the ability for just about any company to operate as a fintech company. This, in turn, opens up a myriad of opportunities for brands to reshape their relationship with their customers.
As you can imagine, there are a number of potential benefits:
1. Improved customer loyalty & satisfaction
Embedded finance offers greater control for companies as it allows for the possibility of cutting the middleman (banks and other financial institutions) out of the payment process.
As customers are no longer bounced around to third parties in order to complete a transaction, they benefit from an improved experience and your business better positions itself to generate actionable insights based on your customers’ payment habits.
Embedded finance also opens up the possibility of alternative payment methods, such as Buy Now, Pay Later. A notable example of this is Amazon Pay Later, which offers Amazon customers a hassle-free way to get instant credit.
2. Higher Revenues
Integrating financial products and services into your offering opens up the ability to generate new revenue streams without having to invest in additional customer acquisition.
For example, if a business can offer credit to its customers, it can generate revenue in the form of interest payments. Buy Now, Pay Later (BNPL), which offers customers credit at the point of sale, is also a clear illustration of this.
Additionally, customers who can access credit at the point of sale are more likely to have a higher average order volume, thus resulting in an upscale of revenue. Finally, this improved consumer experience is likely to attract new customers.
3. Reduced Costs
In essence, embedded finance is about removing middlemen from the payment process. Naturally, with a reduction in the amount of third parties your business must deal with (card networks, payment providers).
How to get started?
The advent of embedded finance has been led by new breeds of banking service and software providers which are leveraging API-first technologies to seamlessly integrate financial services into traditionally non-financial businesses. These technology providers are breaking down the barriers that have traditionally restricted businesses from offering their own financial solutions. Flexible financing, loans, e-wallets, and more; all of these capabilities can now be brought in-house.
As a technology provider, Tuum enables you to easily begin rolling out such financial services to your customers. Tuum’s platform is composed of individual modules for specific functions, e.g. lending, payments, cards, etc. Each of these modules is independent and can be deployed separately, allowing you to integrate only the required capabilities to step your business into the world of financial services.
Our approach allows you to keep all earned revenue from your financial services activities and introduce tailored, advanced offerings. As a trusted partner, we can also ensure your technological infrastructure is scalable and digitally integrated with your core business.
A Real-World Example
Our client is a classical B2B marketplace whose business model involves bringing together purchasers and sellers. This client has been facing increasing demand for a more seamless payment experience; currently, eCommerce payments for corporate transactions are still characterised by old and inefficient structures, as customers are billed with separate invoices per each supplier used.
To improve customer experience, the company aims to transition to a Single-Creditor-Model: one creditor, as many suppliers as you want. Under this model, singular invoices would be generated per order, as the marketplace collects the payment and then distributes it amongst the suppliers.
By providing a Tier 1 core banking solution with digital wallets, as well as a payment processing engine integrated with the client’s bank of choice, Tuum is supporting this client in implementing simple and standardised electronic payment solutions. As a result, the client can satisfy corporate demand for a more seamless, efficient payment experience and improve on their operational efficiency.
Find out how Tuum can help you roll out exciting new financial products & services. Contact us to learn more.