Embedded Finance is fintech’s ‘golden goose’

We have seen a surge of innovation in financial services over the past few decades, which has brought us to the current boom in the embedded fintech market. Embedded fintech is the integration of financial services with non-financial business infrastructures, without the need to redirect customers to traditional financial institutions. The technology can be used for everything from payment cards to insurance to create greater efficiency for companies.

The embedded finance market is growing rapidly to a total revenue of $22 billion. The vast majority of B2B software companies now offer some form of embedded finance solution, signaling that this next wave of fintech is here to stay and adoption will accelerate.

Embedded fintech as a core strategy

Embedded fintech has quickly become a core business strategy. According to Bain and Company, the total revenue of the embedded fintech market will double by 2026. Embedded finance is predicted to account for 10% of all payment transactions over the next three years, taking significant market share away from traditional payment methods. This begs the question: What’s next for a space that has already shown such significant growth?

Embedded lending, such as popular buy-now-pay-later (BNPL) services used by businesses, are showing significant growth in the embedded fintech space and are rapidly being adopted. Built-in lending enables businesses to offer customers loans directly, without the need for contact points with high-cost financial institutions.

This is not just a moment in time; it is the way forward because of its simplicity and effectiveness. Merchants simply access embedded lending products directly from the software systems they use to run their business, creating a sticky business model that scales quickly. With flexible APIs enabling seamless integrations, embedded lending can now propel the future of fintech into areas that have historically not had much access to modern financial products.

The future of embedded lending

BNPL has reached almost ubiquity in e-commerce, laying the foundation for the built-in loan model to thrive in other areas.

We will see the introduction of embedded lending by personal service providers – think home service companies, vets’ offices and car repair shops. Personal services have been overlooked by leading embedded lending fintechs for years, creating a gap.

E-commerce is no longer the mainstay of embedded lending, in large part because personal service providers are increasingly adopting software to drive their sales experience. The tide is turning as the personal service businesses see an opportunity to expand their customer base and grow revenue faster by offering customers flexible loan payments built into the sales process.

It is impossible to predict when you will need an emergency root canal or when your car will need an expensive repair, which can put consumers in a tough situation financially. Now, however, personal service companies can embed technology directly into their operating systems that offer flexible loan options with just a few clicks, providing consumers with better customer service and much-needed support.

The dollar value of such transactions averages $4,000 each – exponentially more than the BNPL transactions on the e-commerce site at an average of $104 each.

With larger transaction sizes, embedded lending is a win-win for B2B businesses, SMBs and consumers. It is fast becoming fintech’s golden goose and is revolutionizing the way businesses can drive revenue and customer growth.

Bobby Tzekin is the co-founder and CEO of Wisetackthe leading pay over time platform for personal services.