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Embedded Finance: threat or opportunity for incumbents?

Mark Lusted

March 1, 2021

Mark Lusted is chief executive of Dock9

Embedded finance is a hot topic in 2021, with many predicting this growing trend represents the future of financial services.

But what does the term really mean, and what are the implications for incumbent financial institutions?

What is embedded finance? Embedded finance is the seamless integration of financial services, including payment processing, lending and insurance directly within the products and services of non-financial service businesses.

Below are some examples of embedded finance in action today.

Embedded lending. Platforms such as Klarna can be embedded directly within the sales experience of e-commerce websites, enabling the customer to apply for and set up a loan or monthly instalment plan without ever leaving the checkout process.

Embedded insurance. Amazon offers the purchase of accidental damage insurance from ProtectYourBubble.com for electrical items directly in their shopping basket.

Embedded payments. Uber has embedded payments directly into its app meaning payment is taken automatically as soon as a ride is complete with no need for the customer to take separate steps to pay for their ride.

Embedded banking. Shopify offers merchants using their platform a fast, simple, and integrated way to manage their funds using their Shopify Balance feature.

Built on top of the Stripe Treasury platform, Shopify Balance enables merchants to obtain critical financial products and oversee their finances without leaving within Shopify.

The promised benefits to consumers are clear, improved user experience and frictionless financial experiences.

For digital brands and merchants embracing embedded finance this can drive higher conversion rates while at the same time creating new revenue opportunities at very low marginal cost.

If we take Shopify as an example again, the company now makes significant revenue offering financial services to its merchants and is projected to be an increasingly lucrative addition to their core business.

What does this mean for incumbent players? The rise of embedded finance highlights an uncomfortable truth for incumbents that perhaps won’t be news to many: non-financial brands, and particularly the consumer-facing technology companies could now be capable of offering real competition in the financial space.

Many could take on more of the financial role themselves, eliminating the need for banks and other incumbent financial organisations in the customer journey.

We’ve already seen this happen with Tesla offering their own bespoke insurance plans, and this could be the beginning across the broader technology landscape.

While Apple has partnered with Goldman Sachs for the Apple Card, they certainly have the scale (with a market cap of $2trn) to consider operating their own financial arm, and tie it in with all other services, such as financing on Apple products.

While some non-financial brands may be tempted to build out their own financial services offerings in-house, the true driving force behind the growth of embedded finance has been a new wave of Fintechs which enable non-financial brands to embed new value in their end user digital experiences.

So the rise of embedded finance offers both threats and opportunities for incumbents, both to develop and offer services themselves or utilising them to enhance their products, and the eagle eyed in the market will be carefully watching this new trend which looks set to accelerate in 2021.


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