What is Embedded Finance?
Embedded finance is an emerging trend in the finance industry, it consists of integrating financial services directly into applications and platforms. This integration is possible thanks to APIs, it allows users to access financial services without leaving the application or platform they are using.
Embedded finance made financial service providers rethink their offer. Originally, financial services were provided by banks and financial institutions. With embedded finance, companies become financial service providers by integrating features such as payment, professional and personal loans, or bank account management directly into their applications.
For example, October, a specialist in instant loans for SMEs, has partnered with Quonto in an embedded finance approach.
The Benefits of Embedded Finance
To understand, embedded finance is a service provided to a partner company who then provides it to its users. Embedded finance offers many benefits to users and companies. For users, it means a smoother and more convenient experience because they can access financial services without leaving the application or platform they are using. To understand that embedded finance is a service provided to a partner company who then provides it to its users.
For companies, it means they can provide additional financial services to their customers without having to create their own financial structure. This allows companies to focus on their core business and offer a more complete experience to their customers.
In addition, embedded finance allows companies to collect financial data on their customers, which can help them better understand their needs and offer more tailored products and services.
Different Uses of Embedded Finance
Payment and Embedded Finance
It is probably the most common example of embedded finance. Several applications in your daily life use embedded finance. When you want to pay an order from a mobile application and you choose to pay via Apple Pay or GooglePay, you are facing embedded finance. Another example, and probably the most well-known of all: food delivery. You order food via UberEats, you pay Uber, the driver, and the restaurant in a single payment: you are facing another case of embedded finance!
Insurance and Embedded Finance
Have you ever seen the option to subscribe to an insurance policy on a booking application or website? This is very common in the travel or rental industry. It allows you to insure your vacation, rental car, or professional equipment through an insurer like Axa, without ever leaving the booking site. This is called embedded insurance.
Embedded finance and insurance are also emerging in the finance and fintech industries: some lending platforms offer to insure your loans through partner insurers without leaving the platform. Again, you are facing embedded finance/insurance.
Loans or Lending Platforms and Embedded Finance
Beyond payments and insurance, embedded finance is growing strongly in the SME market thanks to financial actors like October, that is what we call embedded lending. As mentioned earlier, October is a specialist in instant loans for SMEs. Considering this point and to facilitate traditional loan application, October partners with actors like the FinTech Qonto, this is allowing October to finance businesses directly from external applications. This is what Patrick de Nonneville, co-founder and CEO of October reminds us : “With its integrated offering with the Qonto app, October has made affordable long-term loans available to small and medium-sized businesses in just a few clicks. We are proud to have already financed many Qonto customers in France and Italy, and this is just the beginning!”
Banking Services and Embedded Finance
Embedded finance is an interesting lever to facilitate distribution of banking services. What we would call embedded banking, can take different forms such as bank account opening or loan simulation, all without ever leaving the banking ecosystem the customer is using.
The Future of Embedded Finance
Embedded finance is a growing trend, driven by technologies such as DSP2 & Open Banking and APIs (application programming interfaces). Companies from all industries are looking to integrate financial services into their applications and platforms to offer a complete experience to their customers directly in the same environment and avoid them leaving the process of sales, subscription or else.
In addition, many actors are turning to embedded finance to capitalize on the growth potential offered by this trend and improve their conversion funnel. This is the case with Kandbaz, a company domiciliation solution that October partnered to offer Kandbaz customers a financing solution directly integrated into their application.
What to keep in mind about Embedded Finance?
In conclusion, embedded finance is a the new standard that is reshaping the financial landscape by allowing companies to provide financial services directly from their applications or platforms. Embedded finance offers many benefits to users and SMEs companies, but also requires special attention to financial security and data protection.
A tip? Switch to embedded finance with October to improve the customer journey and boost your revenue!