As one of the hottest trends in payments, embedded finance has emerged as a compelling credit proposition for consumers and businesses.
The execution demands an intricate web of collaboration and technology and might even intersect with another hot concept: open banking.
As Tribh Grewal, head of FinTech partnerships at Discover Global Network, told PYMNTS for the “What’s Next in Payments“ series on “embedded everything,” embedded finance strives to meet consumers’ financial and payment needs at the points of various interactions. Consumers have become cautious of challenges with transactions, or when authentication stops a payment dead in its tracks.
At a more technical level, embedded finance revolves around how data-sharing and open banking are delivered to consumers, Grewal said. Open banking is where the data is shared. It’s not just your payment data or banking data, but the data about you so that new use cases can be developed.
Those use cases will be critical in financial services, Grewal said, adding that the consumer appetite for new experiences is on the rise. The age of eCommerce and rideshare has embedded payments into the background, and the technology, through APIs, is in place to deliver those programming interfaces and integrate various services.
Collaborations Are Key
FinTechs are providing different “parts” for those transactions across a broad range of platforms, or through security and customer-facing convenience, he said.
“People expect to make those payments without any friction,” Grewal said, and to have choice in the mix, such as when gig economy workers embrace earned wage access.
Along the way — to enable those experiences — there’s been a rise in bank/FinTech and non-financial brands collaborating to meet consumers where they want to meet. For example, technology companies are also providing payment services through collaborations with banks.
Also driving embedded finance has been banking-as-a-service, where banks have been able to offer their expertise to FinTechs and drive new business that they would otherwise lose. All of it translates into broader financial inclusion.
“From the bank’s point of view, they want to have that customer relationship,” and so they must innovate and invest in their digital transformations, offering credit lines and lending facilities to FinTechs and platforms, Grewal said.
The joint efforts between banks and FinTechs — and assistance from companies like Discover on aligning “right” providers and programs — can enable a personalized movement of embedded finance, offering customers installment plans or buy now, pay later options at the point of sale, as the platforms use the connections and data on hand to make instantaneous decisions, Grewal said.
The platforms are marked by transparency and the total costs of various payment options, and they “can offer the products and the services that you need [in the moment], rather than just bombarding you with offers that may not be relevant,” he said.
The SMB Benefits
The same benefits enjoyed by individual retail consumers are accruing to small- to medium-sized businesses (SMBs) as embedded finance gains traction around the globe, Grewal said. In an environment where working capital and lending have been tight, the platforms can step in and offer credit from the same company that’s providing merchant acquiring services, based on the transaction data of that smaller firm.
“Embedded finance is about providing those consumers and businesses access to the required financial services … without leaving the app or the portal,” he said.
Looking ahead, there is growth potential as embedded finance is the starting point, Grewal said. With developments toward open banking and data, there is potential to expand across sectors and other verticals like real estate, utilities, healthcare and insurance, for example.
