Top Use Cases For Embedded Finance

While Embedded Finance can be the most recent FinTech trend that is significantly rising in popularity, it can still be confusing to understand what it is, what it’s for, and why companies should adopt it. 

Bartosz Sajewski

While Embedded Finance can be the most recent FinTech trend that is significantly rising in popularity, it can still be confusing to understand what it is, what it’s for, and why companies should adopt it. 

In this article, we will touch on the most important use cases of embedded finance, explaining the different concepts and benefits of this framework.

There are many benefits to using embedded finance services for both customers and companies. Today will help you understand how you can use them to benefit your business. 

What is Embedded finance?

Embedded finance refers to the use of financial services by non-financial companies. This could include lending, insurance and "Buy Now, Pay Later" options that companies adopt to streamline financial processes and improve customer experience.

Only physical banks could offer credit and provide businesses with loans for big purchases in the past. Thanks to technological advancements and integration, your creditworthiness can be checked in one place - the point-of-service - and much faster than traditional banks.

Thanks to the embedded finance framework, more services are available in different industries, which improves the customer experience and helps business development. Being the point-of-service increases brand loyalty and allows you to collect data on customers to make more informed decisions in the future.

Buy now, pay later Concept

Buy Now, Pay Later (BNPL) is an embedded finance service that allows customers to pay for a purchase in instalments. It is essentially an instalment loan, where a customer pays a small amount at the check-out, and the rest of the amount is split into equal payments at later dates.

It is increasingly popular on different retail sites, where at the check-out, the customer is offered a BNPL plan. Different payment plans are available, and it is possible to go through a (soft) credit check on the retailer’s page.

A bonus of this is that even people with bad credit or no credit could be eligible for BNPL plans, although the approval criteria vary by company. An important thing to note is the interest rates and late fees that might be applicable for any payment plan. 

Top Use Cases for Embedded Finance 

As embedded finance allows non-financial companies to offer some financial services, there are many industries that benefit from it. Here is an overview of some of the use cases for embedded finance:

  • Education

  • Educational loans are often a necessity for students in degree programs. With the build-up of costs and loans, the students may no longer have the capacity to repay and often end up in a lot of debt by the time they graduate. 

    Embedded finance platforms allow for an in-depth analysis of the student’s income and payment capacity. Various data on the student can be used to determine their potential and ensure that they are not borrowing more than they can afford. 

  • Insurance

  • Nowadays, insurance companies can automate their workflows and improve customer experience by incorporating embedded finance services. The process is made faster and easier for both the company and the consumer.

    Using embedded finance solutions makes processing payments and managing insurance options claims easier. It also improves operational efficiency. There are various options for paying deductibles, coinsurance and premiums, improving customer experience. 

  • Automotive

  • The automotive industry has used embedded finance solutions for a long time - leases and loans are regular. However, with embedded finance now, car dealerships can offer financing options in-house without third-party cuts. 

    Finance and insurance are very important parts of the automotive industry, and offering those services themselves, rather than using third-party providers, is a great way to increase profits. It also increases brand loyalty thanks to better customer relationships. 

  • Real Estate

  • Embedded finance has many use cases in real estate. We all know how tedious the process of buying a property can be, but with embedded finance services, the documentation process can be integrated into the lending process.

    Thanks to embedded finance, a buyer can decrease costs by eliminating the need for a real estate agent, getting affordable insurance for property owners, and using embedded lending, transforming the mortgage market.

  • Gig Economy

  • The gig economy is expanding in countries all over the world, with embedded finance being a big part of it. Embedded finance services allow a customer to pay for work at the point of purchase.

    Very popular examples of this are ride-sharing apps like Uber and Bolt, which offer end-to-end experience in their app. Similar examples are food delivery apps like UberEats and Wolt or even platforms for hiring freelance workers, like Upwork. 

  • Agriculture

  • Agriculture is an excellent example of the need for embedded finance services. For instance, if the farmer knows that the demand for certain products will go up, they need loans to increase their supply before selling the products.

    This is where embedded finance comes in. This framework can help farmers and agriculture companies manage and minimize the risks and offer custom financing options that benefit the agricultural process. 

  • Digital Wallets

  • Digital wallets are a very convenient service for customers. Mobile apps that have digital versions of your debit and credit cards and allow you to pay at contactless terminals with your phone.

    These apps do not contain sensitive information or your actual account numbers, but they allow you to pay directly through the app. You can use these at store checkouts, ATMs and online retailers, with the most known companies being Google Pay and Apple Pay.

  • Purchases via QR Code

  • Another new service enabled by embedded finance is using a QR code to pay for services. It can be set up with minimal overhead costs for the merchants and is another way to speed up the digital payment process. 

    The customer can scan the QR code, which contains a piece of information such as the recipient's bank details, and pay without any additional trouble.

  • Credit Score

  • Credit scores play an important role for consumers since their creditworthiness affects what kind of loans and payment options they are eligible for. It is then natural that consumers want a way to keep an eye on their credit score.

    Banking websites can offer free credit score calculators thanks to embedded finance and offer a way for customers to make the right decision when making purchases and see how they will affect their credit score. 

    Benefits of Embedded Finance

    As we can see, there are different solutions that embedded finance offers, and many industries where embedded finance services can find use. It is important to stay competitive in a market with so many options for the customer to choose from. 

    Using embedded finance solutions is beneficial for both the business and the customer, and here’s why:

    • Improved customer experience

    Embedded finance services are generally easy to use and improve customer experience. This helps the business attract new clients, but it is also important to develop brand loyalty and ensure that the client will use the same service again.

    • Increased profits

    Embedded finance solutions help a business increase and diversify their revenue streams. If a company offers various easy-to-use payment options, the customer is more likely to make more purchases. If the business has built-in finance options, it can also make profits off of that.

    • More customer data

    As customers usually need to enter data about themselves when using embedded finance, it gives the company access to it. In turn, that data can be analyzed to understand better the customers’ spending habits and needs, which helps build a better service. 

    Getting Help With Embedded Financial Systems for Your Business

    No matter what industry your business is in, you can most likely make use of some embedded finance solution. Whether it’s the automotive industry, real estate or agriculture, it is important to improve the customer experience and stay competitive in the market.

    Today, customers want fast and easy-to-use services, which is why you should incorporate embedded financial systems in your business. You can attract more customers, make profits off their payments and collect data to make changes according to the needs of your customers. 

    Here at TransactionLink, we build a one-stop shop to help you build FinTech solutions. We offer an open banking solution that allows you to confirm your users’ identities and learn their personal information.

    We help you confirm that your users have bank accounts and get information on all of their transactions from the past three months. You can later access this data through our API and use it to create your products and services.

    Have a look at our AppStore and learn more about the products we offer to fuel innovation and assist in creating innovative solutions in the ever-growing FinTech industry. 

    Table of content

    • What is Embedded finance?
    • Buy now, pay later Concept
    • Top Use Cases for Embedded Finance 
    • Benefits of Embedded Finance
    • Getting Help With Embedded Financial Systems for Your Business
    Bartosz Sajewski