Hidden Value in Sight: The Potential of Embedded Finance

At a time when businesses are under pressure to do more with less, diversify revenue streams and offer financial services to their customers, embedded finance has been a growing trend in the B2B payments space.

According to recent analysis, this is only the tip of the iceberg as revenue opportunities from embedded finance are estimated to more than double from $21 billion in 2021 to $51 billion in 2026, and transaction value is set to increase to $7 trillion by 2026, accounting for 10 percent of US financial transactions.

As embedded finance gains popularity across industries, it is important to understand its potential impact on the financial sector and why businesses should pay close attention to the opportunities it may present to them.

Although embedded finance was not on the radar of many companies back in 2017, Bring Arbabi was among the first to recognize it as the future of payments, which led him to build VoPay platform in a way that allows any company to integrate financial services into their existing applications, products or services through a simple, scalable API.

Now the platform’s managing director, Arbabi, conveys the various opportunities and challenges of extracting value from embedded finance:

Hidden value in sight: The potential of embedded finance

Some believe embedded finance is still in its infancy or just a concept waiting to be realized; the rest of us know it’s already here.

1.91 trillion dollars. That’s the number the embedded financial payments market is expected to reach over the next five years. For companies, this is the time for start-up. Embedded economy will be the norm. The link between this growth and the massive boom in a development API economics is undeniable. Non-financial companies have started the race to integrate the technology into their offerings.

Let’s dispel the belief that embedded finance is only for fintech startups or financial institutions. Truth be told, it is for any organization with an audience in need of financial services. In other words, it is for every company, regardless of industry or size.

Embedded Finance gets a new look

Activities and strategies around embedded finance are not that new. Airlines and retailers have been doing it since the 80s. The private-label and co-branded credit cards many of us have come to associate with work in similar ways.

The question would be asked, ‘what can be monetized and how do we get a bigger piece of the pie?’ In this case, financial institutions could gain access to wider distribution, while retailers and airlines gained a new revenue stream.

With the enormous power of technology behind that, today’s embedded finance takes it further than one step further; it takes us to a future that is not yet imagined. Embedded finance is, at its core, the “horizontal integration” of a financial experience to fit seamlessly into a consumer’s existing digital behavior flow. It means providing customers with financial services – once only available through banks or a specific fintech company – within the services they already use every day.

No one demonstrates this better than some of our favorite gig economy platforms, such as Uber and DoorDash. Already recognized for eliminating friction when it comes to payments, Uber is delving deeper into embedded financing options by offering its drivers debit card. By doing this and doing it well, Uber is adding a new revenue stream to its core product, implementing a worker retention strategy, and improving the gig worker experience.

The platformification of finance

In accordance Andreessen Horowitz, embedded finance has the potential to increase revenue by five times per customer. It has become the expectation. The digitization of finance and the various changes in consumer behavior that have affected it are deeply intertwined with the platformification of finance and the growing shift towards a more service-based approach in business model innovation. Customer experience is fast becoming a core focus – now, more than ever; it’s all about giving customers a seamless user experience.

Every activity is an opportunity, and any business that connects users to products and services, such as payments, budgeting and credit from across the financial ecosystem, has a chance to capitalize on this opportunity. Companies that offer tailored financial services to the customer’s needs offer a user-friendly omnichannel experience and retain customers for a long time.

Embedded payments are part of a larger trend towards the unification of all technology, transforming how organizations interact with their customers. Businesses are increasingly taking advantage of embedded payments in an effort to scale their business. By pooling the resources of a financial partner like VoPay infrastructurecompanies can harness the power of embedded technology to create more efficient and cost-effective financial solutions.

Call it plug and play, an embedded economy or a world of embedded everything, new technologies are merging into one integrated system.

Extracting value from embedded finance

Embedded finance is not only the future, but the present. It is the new way of offering financial services to customers. As the technology continues to evolve, we expect to see more businesses and industries adopt embedded finance and unlock its full potential:

• Creates customer adaptation and new revenue streams

For example, John Deere, the world’s largest agricultural equipment manufacturer, already offers customers financing, leasing and insurance for their equipment. This allows farmers to focus on their core business, farming, and not have to worry about the financial aspect of the equipment.

• Outdo the competition

Financial services are an essential part of the modern market, and they have become even more so with the use of digital payment systems. Businesses control the payment process from start to finish to handle all aspects of a transaction, from initial request to receipt of goods or services, in one place.

By building financial services into their products, companies gather valuable information about their customers to better understand their buying patterns, making lending and underwriting more efficient. This streamlined experience provides the valuable insights organizations need to provide more targeted services; a win for the company and a win for the consumer.

Embedded Finance is a powerful tool for reaching new customers. It is particularly effective in engaging the underbanked or unbanked population. By incorporating financial services into products and services that these people already use, such as mobile apps or e-commerce platforms, embedded finance can make it easier for them to access the financial services they need. Strategies like these will push us further towards achievement financial inclusion.

The potential is right in front of us

Embedded economy has enormous potential for all of us, and it is here to stay. It has the potential to revolutionize the way we access and use financial services, making them more convenient, personalized and accessible. As technology advances and the lines between industries blur, we expect to see more embedded financing solutions in our everyday lives.

Ultimately, embedded finance is no longer a concept but a reality. It’s the key to unlocking value – the potential of embedded finance is right in front of us.