Did you know that around two in five UK adults either considered or applied for at least one financial services product in the past year? That’s approximately 23 million people.
So it’s no wonder that, as consumer demand for financial products continues to grow, embedded finance is projected to see enormous growth in coming years too.
We might have heard a lot about the macro view on embedded finance, and the ways it will shape finance in years to come, but how much do we know about the impact for businesses today?
In this guide, we’ll be shedding light on 16 real advantages of embedded finance for businesses, financial institutions, and their customers right now.
Before we get into that, let’s cover off some of the basics.
What is embedded finance?
Embedded finance is the practice of incorporating third-party data, technology, or services into a business.
In other words, if a business is looking to add a specific financial service into its offering, it can do this by embedding that capability from an external platform or provider.
Embedded finance enables businesses to access new revenue streams by offering new products to their existing customers, amongst many other benefits and use cases.
There are many types of embedded finance, reflecting the broad nature of financial services, but common examples include embedded lending, embedded payments, and embedded insurance.
Who benefits from embedded finance?
The brilliant thing about embedded finance is that everybody has something to gain from it, either directly or indirectly.
In particular, there are three main groups to consider: businesses, financial institutions, and the end users of these services.
Any business that isn’t inherently a financial service provider would fall under this category. Whether a major retailer, a utility provider, a communications company, or anything else, all can benefit from offering tailored finance products to their customers.
On the other end of the scale, existing financial institutions have a huge amount to gain from embedding external technology and services. Not only can embedded finance help to access new areas of the market, like previously uncatered for credit profiles, it can also provide access to rich data sources.
End users and customers
Of course, none of this growth would be possible if it wasn’t for end users also benefiting from the experience. And with new FCA consumer duty rules set to change in July 2023, requiring all finance companies to deliver “good customer outcomes”, the benefits of embedded finance for customers couldn’t be coming at a better time.
What are the advantages of embedded finance?
In this section, you’ll find a comprehensive breakdown of the benefits of embedded finance for businesses, financial institutions, and their customers.
Benefits for businesses
The primary benefits of embedded finance for businesses come down to a few key elements—providing more services to customers, improving their satisfaction, and scaling at pace.
New revenue streams
With an embedded finance solution, a business can start offering its customers personal credit solutions 24-7 – product and services that it otherwise couldn’t offer without significant investment. A major retailer, for example, could use an embedded finance platform to offer its customers tailored lending products to fit their customer profile.
From the customer’s perspective, the loans in this example are provided by the retailer, therefore offering them a familiar and comfortable experience.
Increase conversions and conversion value
Embedded finance solutions could also enable businesses to insert finance products into high-value customer journeys.
For example, if an insurance customer is looking to renew their car insurance on a particularly old vehicle, the insurer could offer car finance through an embedded provider. This would enable the business to make a profit on the finance, along with an insurance policy on a newer and potentially more valuable car.
Access new customer data
A major benefit of embedded finance technology is the access to advanced systems and the data that they return.
With increased visibility into your customers’ transactions or circumstances, accessed through an embedded fintech solution, you can better understand how to serve their needs.
Leverage existing customer data
Just as embedded finance technology can improve the data you get about your customers, your existing customer data can be fed into embedded systems too.
A retailer with an established loyalty card scheme, for example, will have a comprehensive set of data about customers’ spending habits. By feeding this data into an embedded lending platform, the retailer can suggest lending products that are tailored to that customer’s profile, increasing the likelihood of conversion.
Improve customer experience and trust
Embedded finance allows businesses to offer more products and cater to more customer needs, all from within a familiar experience that the customer already trusts.
As a result, businesses are able to further improve their customers’ experience and increase their trust in its services.
Go to market fast, and at lower cost
Developing a new finance product offering is a huge investment for a business, often requiring a lengthy set up period before launching.
With embedded finance, you’re able to plug an existing platform or service into your offering, negating a lot of the initial investment and setup time.
Not only is this beneficial in bringing new revenue streams to market faster, it also helps businesses to test new services without the huge upfront investment.
Avoid regulatory hurdles and certification
Financial services are heavily regulated, making it challenging for newcomers to offer new finance products without meeting regulatory requirements.
With embedded finance, businesses can incorporate systems that are already approved for operation.
Adaptable to your business’ needs
Embedded finance technology is largely API-based, meaning you can access the parts that make sense for your business and leave the rest.
As a result, businesses benefit from tailored versions of the embedded technology to suit their preferred use case.
Benefits for consumers and end users
While consumers may not necessarily be aware of the impact or presence of embedded finance, they stand to benefit from it greatly.
As FCA Consumer Duty rules continue to evolve and enforce providing “good consumer outcomes”, as opposed to the former “fair outcomes”, there will be an increased focus on customer experience across the board.
Embedded finance is perfectly positioned to facilitate this evolution, as it inherently improves customer satisfaction by enabling businesses to offer better experiences.
Greater wealth of options
Users will enjoy a wider variety of options when looking for finance products and providers. This covers a broad range of topics, from having more ways to pay for purchases, through to being able to apply for credit from a wider array of familiar businesses, like retailers.
Convenience and speed
Simply put—with more options, which are easier to access, customers are able to complete their journeys faster and more conveniently.
Accessibility and user experience
Embedded finance makes it easier for customers to find products that meet their needs, and provides them with a more comfortable experience engaging with those products.
With embedded finance’s ability to make use of existing customer data—and provide additional data—it’s easy for businesses to tailor options for customers.
This benefits consumers by suggesting products that are likely to suit their needs.
Benefits for financial institutions
While financial institutions—such as banks or retail finance providers—will already have their own financial product offering, embedded finance can help them to expand further.
Offering additional finance products
Financial companies can use embedded finance solutions to bring additional finance products alongside their own. This is particularly effective when introducing financial products that customers would expect the business to provide, but it currently doesn’t.
Boost brand satisfaction
By referring customers to a trusted partner to help them find finance products outside of their business’ risk appetite, for example, financial institutions can turn a previously-negative experience into a positive outcome.
Embedded finance enables financial companies to better nurture customers they would have traditionally declined. Instead of a simple no, referring them to a regulated and trustworthy platform can help ensure good customer outcomes rather than leaving them to search for finance on the open market.
Customer data collection
An embedded finance provider can gather and share a wealth of insights into a brand’s customers as they use their platform. This provides access to a rich additional source of consumer data, which can be used to tailor products at a micro level, or better plan offerings at a macro level.
How can Aro support your business?
Our embedded finance platform provides businesses with access to the largest digital borrowing marketplace in the UK.
As a result, your customers benefit from a wide selection of products and providers when seeking borrowing services, as well as tailored solutions for most credit profiles. What’s more, you can configure our lending panel to cater for your customer and business needs.
It isn’t just about access to a wider array of products. Businesses need the speed and scalability to bring new revenue streams to market, fast.
With our APIs, our technology is quick to implement and easy to customise for any use case. By integrating our enhanced decisioning platform into your online journey, it’s easy to create a seamless experience for your customers.
Here are some other unique ways our platform can help you to provide good customer outcomes, making use of customer data:
- If a customer has already provided you with their personal details—we can pre-populate these into our application form, saving your customers time and providing a better overall experience, or even return a success message in your own environment before the customer is prompted to come to Aro
- If all of a customer’s required details are captured in your platform—APIs allow us to drop them straight into a results environment when applying for a lending product
By embedding the services that customers can access through Aro, they will benefit from a more rounded experience and range of products, all within your own ecosystem and customer journeys.
Explore your embedded finance opportunity today
As you can see, the potential upside of incorporating an embedded finance solution is huge for businesses, financial institutions, and their customers alike.
Ready to get started? Reach out to our team and they’ll be happy to run through our embedded finance solutions.