Exploring Consumer Lending in Embedded Finance

What is embedded finance?

Embedded finance is the integration of banking and other financial services into nonfinancial apps, platforms and offerings. It is revolutionizing traditional banking as we know it by allowing any company to be a fintech company.

The surge in embedded financing is propelling exponential market growth, indicating a significant shift in consumer preferences towards frictionless financial interactions. Digitally savvy consumers are demanding seamless ways to pay, carving out new opportunities for businesses.

In this article, we’ll explore embedded finance trends in more detail.

Uncovering value in embedded finance

The rapid expansion and diverse scope of embedded finance span a variety of applications and services. This includes embedded finance lending, payments, insurance and investing. Market projections estimate fivefold growth by 2032, underscoring the substantial impact that embedded finance will have on the wider consumer lending landscape.

This kind of growth reveals transformative potential to reshape how people access and use financial services and products. It points to a paradigm shift towards greater connectivity between industries and markets.

To illustrate this, it is helpful to look at the rise of online marketplaces and the transformative effect they have had on retail and eCommerce. The rise of aggregators in other sectors, including embedded finance, may prove similarly transformative.

How embedded finance expands the banking business model

Collaboration will become key for banks to remain competitive and viable in this fast-changing market. Embracing innovation and engaging in new partnerships will become crucial as the embedded finance trend becomes more pervasive.

Banks should aim to meet customers' expectations of seamless digital experiences by rethinking their business model. Some traditional banks are already adapting to embedded finance solutions by forming strategic alliances with non-banking entities, and we can expect to see more of this in the future.

Essentially, banks have the opportunity to leverage embedded finance to sustain growth if they re-strategize their current business model. This approach aligns well with banks’ strategies of cost-effective customer acquisition and opportunistic deployment of deposits. Partnering with an orchestrator like Finastra, rather than building the stack organically, provides immediate benefits and reduces implementation risk.

Adopting embedded finance solutions can assist with growing their distribution footprint, driving long-term innovation and lowering overhead. Plus, this could also mean replacing ageing technology that blocks growth opportunities.

How embedded finance is challenging traditional consumer lending trends

Embedded finance lending is challenging several long-standing assumptions within the banking industry. For example, non-financial businesses may assume that traditional banks dominate payments and infrastructure services and may therefore be reluctant to pursue banking licences.

In reality, customers prefer in-context lending (i.e., embedded lending) over the traditional, disjointed process of finding something to finance, then applying through a financial institution. To provide a seamless experience, banks must meet customers where they are by partnering with new organizations and adopting technology that addresses these needs.

To harness the amazing growth opportunity that embedded finance presents, there is a need for a fundamental shift in mindset. There is a need for more education on what embedded lending is in order to capitalize on the growth opportunities.

Flexible finance for consumers at point of sale

Finastra's Embedded Consumer Lending offers innovative solutions that cater to various stakeholders, including:

• Financial institutions
• Distributors
• Merchants
• Consumers

The key features of our solution include flexible point-of-sale financing, increased access to loan capital, and streamlined loan origination processes.

These benefits work together to facilitate seamless financial transactions, enhancing consumer convenience at the point of sale and increasing access to loan capital.

What’s more, our solution is versatile, enabling us to customize it to the needs of lenders and merchants. We can help banks identify the right target customers while staying aligned with their risk strategy. Check out our Embedded Consumer Lending Brochure to find out more.

Tapping into Finastra's embedded consumer lending network

Businesses exploring embedded financing for the first time may benefit from our open banking expertise. This 'many-to-many' lending platform connects diverse stakeholders within the financial ecosystem, enabling seamless loan processing and improved access to loan capital.

This network exemplifies the essence of embedded finance by leveraging technology to integrate financial services into non-financial platforms, thereby enhancing operational efficiency and accessibility across the ecosystem.

This interconnectedness embodies the spirit of embedded finance and best of all, it boasts a secure and compliant infrastructure that supports error-free processing and automation.

Discover seamless finance integration for growth and convenience with Finastra’s embedded lending solutions

To explore the transformative impact of embedded lending further, visit our Embedded Consumer Lending web page. Here, you can learn more about how our solutions are reshaping the financial services landscape and driving growth and convenience through innovative financial integrations.

Ready to power your business with Finastra? Get in touch for more information.