Embedded finance is changing the way users interact with financial services and creating new opportunities for businesses, financial and non-financial companies. According to forecasts of Juniper Research, by 2028 the global embedded finance market will exceed $228 billion.
Embedded finance is the idea of providing access to financial services and tools not only through traditional financial institutions, but also through a variety of platforms and services. Getting a loan at the time of making a purchase in an online store, being able to open an account for a small business through an accounting platform – these are all examples of opportunities provided by embedded financing.
In accordance with forecasts According to McKinsey, revenues from embedded financing could exceed 100 billion euros in Europe by the end of the current decade. Financial services and products provided by non-core organizations are becoming increasingly popular, as customers seek to make instant and seamless payments at the most convenient time. Built-in finance provides them with just such an opportunity.
In 2023, the embedded financing market in Europe will be between 20 and 30 billion euros, which is approximately 3% of the total revenues of the banking sector. Already by 2030, this indicator may increase to 10-15%. Businesses polled by analysts expect that consumer lending, as well as factoring and other types of business financing, will gradually migrate to embedded financing.
Growth drivers
Embedded finance solutions are gaining popularity, because consumers want to get the necessary financial services “here and now”. For example, a McKinsey survey in 2023 found that 40% of consumers already prefer online channels to finance a car purchase. They want instant access to financial services like loans and insurance without having to switch to other platforms.
Small and medium-sized businesses have similar expectations – surveyed entrepreneurs said they would buy more from supplier platforms if different financing options were available to them at the time of purchase.
For merchants, embedded finance allows them to expand their range of services, increase sales through increased conversions, and increase customer loyalty by creating long-term value for them.
Tools such as open APIs, which allow instant and secure data exchange between different companies, programs and registries, have contributed to the growth in popularity of embedded finance solutions in recent years. Future regulatory changes in Europe, such as the proposed Financial Data Access Framework (FIDA) and the third European Payment Services Directive (PSD3), will further promote embedded finance.
Examples of embedded finance
BNPL (Buy Now, Pay Later) is one of the most popular embedded financing tools. It allows users to split the purchase amount at the time of payment into several payments without additional fees. Unlike many traditional lending methods (such as credit cards), BNPL often does not involve lengthy credit checks on the customer.
Over 7 years, from 2016 to 2023, BNPL’s share of e-commerce sales in seven European markets has grown from 2% to 10%. In Nordic countries, direct-to-market loans, including BNPL, grew by 8-10% per year from 2016 to 2022, while bank loans and other retail lending products grew by 4-5% per year.
According to a research report by RBC Capital Markets, BNPL solutions increase conversion by 20-30%. However, they should be comfortable.
Built-in insurance is another example of built-in finance, which allows you to reduce insurance costs and arrange this service at the time of purchase, for example, of a car or real estate. Amazon is an example of a platform that offers such services. Travel insurance at the time of payment is also popular.
Built-in investments allow you to invest in stocks, bonds, exchange-traded funds, etc. without the need to use a separate investment platform or service.
Embedded finance: cases and perspectives
Today, the concept of integrated finance is becoming one of the trends that transforms the interaction between business and consumers, he believes Angela KashperukVice President for Business Development of Mastercard in Ukraine and Moldova. According to her, the integration of financial products into non-financial platforms and services with the help of API allows to create a complete and intuitive experience for the user.
Angela Kashperuk also noted that for businesses, embedded finance is a way to expand the offer, increase customer loyalty, and develop business through the provision of a more comprehensive product. Research says that 47% of non-bank online and ecommerce platforms plan to integrate integrated finance to provide the most complete cycle of products and services for customers.
Mastercard notes that the creation of complex and flexible ecosystems is a necessary condition for ensuring a convenient and secure customer experience, including in the aspect of payments. So one of the company’s solutions is a processing platform with integrated functionality of tokenization, support for mobile wallets, authentication and fraud prevention solutions Mastercard Gateway. This B2B platform provides a number of opportunities for market participants such as acquirers, retailers, payment providers, etc. It allows businesses to provide users with a wide range of payment solutions without the need to create complex technological add-ons. Mastercard Gateway uses artificial intelligence and machine learning technologies to ensure a high level of transaction security.
According to Anzhela Kashperuk, for the Ukrainian consumer, embedded finance is an organic continuation of his digital choice and adaptability to new technological solutions.
About the fact that built-in finance is becoming more and more relevant in Ukraine, he says Oleksiy RubanNovaPay’s Chief Innovation Officer. “First of all, it is about convenience for customers – because it simplifies the processes of payment, lending or insurance. Secondly, about increasing the efficiency of companies and their sales,” the expert added.
According to Oleksiy, for NovaPay, built-in finance is an important tool for improving the customer experience. Initially, the company integrated financial services into the New Mail application. And last year, NovaPay already presented its own mobile application, in which, in addition to traditional financial services, users can send transfers from the card to the branch, receive loans for parcels, issue installments and pay for postal services with a 50% profit.
“Given the rapid development of fintech in Ukraine, I think that investments in integrated finance can significantly increase competitiveness and help to enter new markets,” – notes NovaPay’s innovation director.
He told us about the relevance of the Embedded Finance trend in Ukraine Oleksandr LapkoCEO RozetkaPay. According to him, there are already companies that are building an ecosystem of services to offer the user the maximum number of services in one application. That is, to make, for example, a marketplace, a digital wallet, a loyalty program, and the ability to take out a loan. This is a chance for the business to retain the user.
“Previously, it was necessary to go to the bank, take out a loan, then solve the logistics issue, but what if all this can be done in a few clicks? And without leaving home. I am sure that next year we will see such ecosystem products on the Ukrainian market. Thanks to them, the field of e-commerce will also develop,” Oleksandr says.
RozetkaPay is currently developing a loan product for marketplaces in partnership with banks. The main idea is to make online lending as fast and convenient as offline. Simplify the process as much as possible, notes Oleksandr Lapko. According to him, banks have a financial resource, and RozetkaPay, for its part, understands user behavior online and can predict it. The company predicts that the new tool will increase the number of purchases by 10-15%, as well as make life easier for the seller, because the latter will be able to manage their finances in one place, without the need to communicate with the bank every time.
So, as we can see, the trend of embedded finance continues to gain momentum, which brings a number of advantages for both businesses and consumers. More and more companies and industries are realizing the potential of this technology, so expect new products on the market that will change the payment landscape.
