Embedded finance is revolutionising the way consumers and businesses make payments, as a growing number of brands incorporate financial products into their core offering.By Ivo Gueorguiev, Co-founder and Executive Chairman at Paynetics (Pictured)

Embedded finance allows consumers to access the services they need when and where they need them, and pay for them without extra steps. For example, it’s possible to order an Uber, apply a promotion, split the fare and seamlessly pay one’s share with a few simple clicks – all without leaving the app.

This payment solution brings the bank to the consumer, rather than the consumer having to go to the bank, as it has been for centuries. This paves the way for businesses to form stronger relationships with customers, which is essential to preserving loyalty in the face of increasing choice and competition, as well as developing new revenue streams.

What makes this solution particularly exciting is that we’re only at the start. In the next few years, embedded finance will be integral to how businesses transact with customers – and this is a paradigm shift and very significant for investors, consumers and businesses alike.

A lucrative investment opportunity

Embedded finance is set to disrupt the entire payment ecosystem. The total European payments market is worth over EUR 400 billion in revenue, with the majority of it now reserved to specialised financial institutions, mostly banks. What embedded finance will do is shift a large part of this revenue to non-financial players as they start embedding payment solutions within their own ecosystem. That is why it is such an attractive prospect for investors, the growth potential is huge.

For instance, instead of outsourcing the payment to banks or acquirers, merchants can embed the payment within their flow and be part of it. They would still need to work with a financial services provider for the actual building blocks but they would control the flow and share the revenue.

Improving the customer shopping experience

Today’s consumers want innovative products that make their shopping experience simple and convenient, whether that’s online or in-store. Applications such as Deliveroo allow customers to buy their favourite takeaway without once having to leave the app. Consumers are therefore able to seamlessly go through the entire purchasing journey on one single platform.

Additionally, embedded finance is reshaping business models – for example, to a lot of customers, BNPL is viewed as a simple and low cost form of credit that allows them to accelerate the purchase of goods and services. It is essentially the digital equivalent to store cards ten years ago. Having a BNPL option at the checkout stage mitigates the risk of checkout abandonment, as they no longer have to go through multiple checkout steps and end up on a third party interface. In turn, this enables businesses to maximise revenue and provide customers with a seamless buying experience.

Embedded finance for businesses

Up to now, embedded finance has focused on the retail consumer market. However, over the next few years, we will see it used more commonly in the corporate world as well, particularly in business-to-business transactions. This will be particularly true for SMEs where inefficiencies prevent them from accessing higher value-added services. Embedded finance will change that. There are over 50 thousand companies in Europe that provide various services to SME merchants, soon they will all be able to bundle payments and banking as part of their offering. This will result in improved access to capital as new lending products become available to SME-type businesses. 

Embedded finance is also a perfect instrument for companies with a large client base as it allows them to better leverage customer relationships, enrich it, grow loyalty, reduce churn, and design new revenue streams. Sectors ripe to embrace embedded finance include utilities, telecoms, and hospitality – especially large chains with a strong regional or global presence.

Other sectors to be impacted by the possibilities offered by embedded finance include businesses with models where there is substantial use of cash. This is very much the case with the home care industry where we have a growing sector relying almost entirely on cash payments, creating a lot of logistical, security, and reporting issues. By adopting embedded finance, industries like home care are able to make funds available in real-time, manage spend to ensure it is appropriate, and provide access to both on-line and in-store retailers.

Enabling frictionless financial services 

The demand for embedded finance is growing as businesses start to recognise the benefits of incorporating financial products into their product offering. With companies such as  Delivery Hero and UberEats paving the way, we’ll see accelerated growth come from other large scale platforms connecting consumers with merchants. 

It must be noted that any new technological developments will inevitably come with some roadblocks on the path to adoption. For example, tighter regulatory controls are likely to be put in place to limit the ease of access to specific products such as BNPL, which have been subject to scrutiny due to the debt that can be generated from them.

However, regulatory changes within the market present an opportunity as much as a challenge. In the longer term, organisations will come to appreciate the ease of incorporating technology built by established regulated fintechs rather than attempting to develop their own in-house capabilities and dealing with the regulatory headaches that come with this.

Embedded finance will soon allow every company to seamlessly offer fintech products for both consumers and companies to reap the benefits. Frictionless financial services are the future of payments.