Embedded finance is not a concept for the future, but a sector already benefiting users and businesses.
A lot of the content around embedded finance focuses on the future of the industry and ‘what could be’, but there is already a lot happening now. Let’s look at some of the best existing use cases of embedded finance, that demonstrate just how exciting this industry is.
This is the most widely used form of embedded finance; in fact, the term ‘embedded finance’ is often conflated with examples of embedded payments.
A few years ago, paying for goods on an app was a very different story to today. Users may be redirected to another provider and would have to manually input their card details. Today, users can complete a payment transaction all within the same app, and their details are recalled to process the transaction within seconds.
Uber is often mentioned when discussing embedded finance. The taxi industry largely depended on cash to pay for journeys, long after cash was going out of fashion. Uber could have digitalised the payment process to gain an advantage on traditional taxis but went beyond to embedding payments. This completely disrupted the industry and brought a simplicity to ride-hailing services that has been widely adopted by competitors.
More recently, payment-as-a-service providers such as Square and Stripe have allowed non-financial companies to offer embedded payment options to improve the user experience. 96% of businesses are planning to offer embedded payment over the next five years, according to OpenPayd’s survey of European brands, making arduous card payments a thing of the past.
This is another form of embedded finance that has rapidly gained popularity. The most commonly used example is Buy Now Pay Later (BNPL) that allows users to split or delay payments at checkout, but there are other innovative examples serving consumers and businesses alike.
Klarna is the largest BNPL provider with a valuation of $46bn. Klarna was founded in 2005 with the idea that buy now pay later would massively benefit users, but banks would never think to offer it as a service (although banks have started looking into this area, such as Monzo Flex). 17 years later, they have completely disrupted the retail industry, propelled by the pandemic, to offer users a seamless alternative to traditional checkout options. Getting a loan for a purchase is not a new concept, but the BNPL edge comes from the simplicity and flexibility for users which was not available before.
One of mmob’s partners, iwoca, offers loans to small-medium enterprises (SMEs). Finance has often been difficult for SMEs to gain due to legacy processes, increased risk and lack of understanding of SME needs from traditional lenders. iwoca jumped on the embedded finance train early due to the additional distribution opportunities and access for SMEs, and now receive 30% of all loan applications through embedded finance channels. The data-sharing and transparency associated with embedded credit is allowing more users and businesses to access finance through their own channels.
One of the newer kids on the embedded finance block is embedded insurance. Insurance is required for a lot of purchases and products, yet the user needs to go to a separate provider, re-enter personal and product information before purchasing the cover. Embedded insurance is changing this.
Tesla is a well-known example of a company offering embedded insurance. The vehicle manufacturer offers insurance to all drivers purchasing a car, eliminating the need to explore other providers or duplicate efforts as Tesla already has details about the vehicle and driver. As manufacturers of the cars they insure, Tesla has been able to optimise the insurance product by fitting all vehicles with the technology required (rather than needing an additional ‘black box’ like other providers) and using driving behaviour to determine the insurance premiums.
Another innovative example of embedded insurance comes from Cybersmart and mmob partner, Superscript. When businesses achieve their Cyber Essentials certification, they can opt-in for cyber insurance to cover against threats, even those resulting from violating privacy policies. This solution not only encourages companies to complete thorough cyber security training, but also improves access to cyber insurance for start-ups unable to pay for premiums.
Embedded finance is a great way to improve the user experience through increased access to financial products, and quick and easy user journeys. Both the known and lesser-known use cases above help illustrate the simplicity and opportunity of embedded finance across a range of verticals. Embedded finance brings services as close to the perfect consumer as possible. After all, you can’t drive a car without insurance, so why not empower the car manufacturer to offer it as part of a seamless checkout?
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