How embedded finance works?
05/10/2023
Embedded finance refers to the integration of financial solutions into ecosystems that are not originally financial. It brings advantages such as a broader offering of solutions for customers and greater independence in the process of acquiring these services.
According to a Grand View Research report, the embedded finance market should reach US$ 232.4 billion by 2030, with a compound annual growth rate (CAGR) of 32.2%, which shows that this market is growing strongly and has the potential to revolutionize the way how financial services are offered.
Want to learn more about embedded finance? Follow these topics:
- What types of products can be “embedded” or integrated?
- What are the advantages of embedded finance?
- What factors are driving the trend of embedded finance?
And discover how Bexs can offer you an excellent Payment Service Provider (PSP) solution to enter the world of embedded finance and make the most of the opportunities it offers!
Learn more about payment solutions: Payment Service Provider (PSP): what should I consider while choosing it
What types of products can be “embedded” or integrated?
Embedded finance products usually come from the following areas:
- Banks: bank accounts, and debit and credit cards. For example, the Mercado Pago financial platform is offered by Mercado Livre, which enables users to obtain a card and pay with the money they have in their account, on both Mercado Livre and other platforms and stores. Credit cards are also offered by numerous physical retail stores.
- Loans: widely known in Brazil as “crediários” (installment plans), these are payments in installments or made on a fixed date at the stores, and also allow consumers to pay for their purchases over several monthly instalments.
- Insurance: solutions that facilitate the acquisition of insurance for a product purchased recently, without the need to seek an insurance company or an insurance agent separately. For example, when completing the online purchase of air tickets from airlines or travel agencies, usually a travel insurance offer is sent by the company’s partners for the period of travel.
- Payments: solutions that make purchases and the payment stage simpler. For example, providers that are integrated with e-commerce checkouts and offer diverse payment methods that are suited to the local culture. This enables consumers to make their purchases in just a few seconds and in the same interface, since embedded payment providers can have the same visual identity as the e-commerce store itself.
What are the advantages of embedded finance?
A Capterra study showed that 94% of the companies that use embedded finance report an increase in their earnings. However, what are the advantages that make the embedded finance something truly possible? Here are some of them:
Cost reduction
By using embedded finance, companies avoid the costs and hassles of building and maintaining their own financial infrastructure. This can save them a lot of money and help them avoid the complexities of complying with the regulations of countries where they operate.
Higher customer trust
A platform that offers diverse financial solutions, such as insurance, financing, bank accounts and multiple and accessible payment methods is more attractive to customers than a platform that does not offer these options. Customers prefer purchasing from companies that already have all they need in one place, which saves time and effort; it could also increase the purchasing power of customers, which could increase sales conversions.
Reclaim control over cash management
Traditional payment processing is fragmented and expensive. A Fintech Magazine survey shows that 70% of payments and treasury leaders from different companies believe this to be the reason behind many cash flow problems.
Embedded finance solutions offer companies a way to integrate payment processing and financing into all their operations, which could provide a better view and control of cash flows while also helping to reduce costs and time.
What factors are driving the trend of embedded finance?
Evolution of regulation and Open Finance
The financial market has transformed rapidly in recent years, driven by the emergence of new financial service providers and technological advances (which are other factors that will be discussed here). This transformation has demanded an evolution of market regulations to guarantee protection and greater autonomy for consumers and the stability of the financial system.
This is the underlying concept of Open Banking, with the term now extended to Open Finance, as it includes diverse sectors of this ecosystem. It refers to the sharing of data among institutions via API to offer tailored offerings and other types of customization that optimize the customer journey. The system is constantly evolving and has tremendous potential, though there exist regulatory challenges in several countries for its large-scale deployment.
Emergence of new financial service providers
The emergence of companies specializing in finance and technology has revolutionized the industry as these offer financial services in a way that could not have been imagined earlier, and are driving competition across the market. In fact, many traditional financial institutions have been forced to adjust their practices and adopt the technology to be able to reach an audience that is in need of increasingly accessible and modern options.
Accessibility of technology
Technological advances have facilitated the offering of financial services. Now, companies from diverse sectors can offer financial products to their customers without having to invest large amounts of time and money. This has democratized access to these services and made them available to a broader audience.
Take embedded finance to the next level with Bexs’ PSP solution!
Now that you are familiar with embedded finance and all the benefits it can offer your business, how about making the best use of it?
Bexs’ PSP solution facilitates sales anywhere in the world. You can accept the local payment methods, including Pix and Boleto, and receive your sales proceeds anywhere, since the prices of products are converted into local currency, which makes purchases more seamless and reliable. You can also choose how to integrate the solution with your platform and run all your operations with operational and regulatory security. Contact us to learn more!