This is a guest post written by Shannon Flynn, managing editor at ReHack.com.
Embedded finance has taken the financial industry by storm. What started from banking-as-a-service (BaaS) has now developed into a full-blown feature that enterprises of all kinds are integrating.
The term embedded finance refers to companies that have historically been separate from financial services that now integrate them within a platform or app. During this integration, the company still retains control over the customer experience. It could be something as simple as paying a bill or something more complex, like full-fledged credit cards.
These trends are coming on strong. While they originated with banking services, embedded finance could end up becoming a bigger industry on its own. The reason for this growth can be seen in the following sectors.
The retail world has evolved and adapted to many historic changes, from e-commerce to new payment methods. Most recently, the COVID-19 pandemic has put the spotlight on online shopping. Apps are now using embedded finance.
Delivery apps adapted as food takeout skyrocketed into popularity throughout the pandemic. Users can now save their credit or debit card information to apps like Doordash and Grubhub. Specific apps for restaurants also offer embedded finance options.
Similar things are happening elsewhere in the retail world. Shopify has connected businesses and customers quickly and efficiently with new embedded tech channels. Financial information is saved for customers so payments are a breeze. On the other side of the transaction, the embedded financial tech includes a dashboard for retailers to view and manage profits and individual orders.
These kinds of integrations cut out the need for a bank or other financial institution. Instead, consumers can do it all themselves.
The automotive industry has always done business through banks. When someone buys or leases a vehicle, dealers will contact a financial institution to better understand someone’s standing and credit. The industry is shifting, though.
Tesla is a key example of how embedded tech trends are impacting the automotive field. Shoppers can already use car sites and apps to pay their leases, but Tesla goes a step further and offers car insurance. It monopolizes on the opportunity to provide discounts.
Ridesharing has become a massive field. Through apps like Uber and Lyft, customers can call a car in minutes. These apps have evolved over time and now offer embedded financial services where customers can pay right from the app immediately after the driver drops them off.
This form of payment adds an extra layer of convenience that other services like taxis don’t offer.
In the past several years, big tech companies have gone from prominent to all-encompassing. Notably, Google and Apple have stepped up their financial services in a short period, offering things like Apple Pay and Google Pay. Customers can also use their Apple or Google wallets to store credit and debit cards. Moreover, Apple rolled out its first credit card in 2019.
These advancements mark a shift in the big tech world. Big companies are slowly separating from financial institutions and taking on those roles themselves. For instance, if you use your Apple Card from your Apple Wallet to pay for items, none of that interaction ever leaves the company’s control.
Embedded finance changes are happening on smaller scales in the tech world, too. Data and analytics companies may use tools like machine learning to adapt to consumer behavior when making purchases. They can then better enable companies in all industries to provide more embedded tech.
What the Embedded Finance Trends Mean
These three industries are pillars of innovation around the world. Banking-as-a-service has catapulted financial technology to the forefront of these fields, and embedded finance trends have become the norm. It may even outshine BaaS soon.
Physical branch locations decreased by 7% from 2015 through 2020 due to the rise in online banking. The turn to virtual resources is slowly taking over, which seems to be the natural progression of these industries — especially as the pandemic enforces the use of remote tech.
Embedded finance allows companies and consumers to operate independently from banks and financial institutions. This dynamic gives more agency to the industries themselves, helping to boost engagement and profits.
From here, more mobile apps and websites will directly incorporate financial resources into their dynamics. Big tech companies like Apple and Google are already pushing the boundaries of what embedded tech can do. Others are likely to follow suit.
The Convenience Factor
Embedding financial resources into industries that haven’t historically worked in finance is more than just a way for companies to engage consumers. They’re also a win for customers. After all, people tend to look for the most convenient ways to do things. Having everything in one place is a financial tech trend that is only going to grow from here.
Shannon Flynn is a technology and culture writer with two plus years of experience writing about consumer trends and tech news.