Tapping into new revenue sources with embedded finance

Millions of customers and businesses have changed the way they think about payments and credits. The advent of neobanks, digital-only banks and FinTechs has shaken up the market of financial services in a big way. Service providers that are embedding financial services into their nonfinancial offering are not only delivering more value to their customers, they are also opening up new revenue streams to complement their current revenue model.

As we explained in our previous blog, embedded finance should be on every company’s radar. Organizations that are building digital ecosystems often turn to financial services first when they consider adding extra services to their portfolio. The modern consumer wants access to their financial information at any time of the day. They do not care much about what platforms these services are channeled through, as long as they are delivered securely and seamlessly. Last year, research from Juniper suggested that the embedded finance market will reach USD 138 billion by 2026.

The sky is the limit in generating revenue through embedded finance

Both financial services companies and platform companies reselling embedded finance stand to gain.

For financial services providers, partners that facilitate payment or lending systems make up an extra digital channel, alongside their traditional channels such as branches or their own digital apps. Indirectly, they will acquire new customers. In developing countries where many layers in society don’t have access to traditional banking services, they may even reach an audience they could previously not serve. As a recent report by Accenture states, financial services firms should not ignore embedded finance as a means of continuing to cater to the needs of small and medium businesses, who are turning to platform players for their finances. According to the report, banks risk missing out on USD 32 billion if they don’t address SMEs through platforms offering embedded finance. If they do partner with non-financial operators, on the other hand, they can expect an uplift of USD 92 billion in extra revenue.

Non-financial service providers who embed financial services into their platforms can expect a percentage of that extra revenue. They can either enter into a reseller agreement with financial institutions and get a margin on the services they offer. Or they can bundle the services into an attractive package with their own services. Or they can ask their customers for a small transaction fee. At the same time, organizations can reduce costs, for instance by embedding international payments into their apps, and allowing on-the-spot transactions rather than having to perform manual transactions to pay external partners.

A recent study by Cornerstone Advisors showed that consumers actually ask for embedded finance. Gamers want seamless in-app purchases, fitness fans want to procure health insurance from the brands behind fitness devices such as Polar or FitBit, and fitness aficionados want to invest in the stock of their coveted brands. Embedded finance will not only allow these brands to get a piece of the financial services pie, it also enables them to gather extra data on their customers. Data that can be used to get to know the customer and drive upselling. The study calls this the ‘flywheel effect of embedded finance’.

Seamless and secure financial services

Setting up partnerships between traditional banks and other service providers is not new, of course. Car dealers, for instance, have cooperated with banks or insurance companies to provide financing or insurance to their customers, mainly by recommending their partners. In embedded finance, the consumer is offered a single transaction interface to buy the product and the financial services to pay for or provide the insurance. This requires companies to pay heed to both the network security of the financial services they offer, and to the customer experience they offer.

As the research we performed together with Forrester showed, concerns about cybersecurity is the main roadblock for companies in building digital ecosystems. This also applies to embedding finance into platforms. This is where Identity and Access Management (IAM) steps in, delivering the right authentication and authorization mechanisms to combine a seamless customer experience with airtight security.

Contact us to find out how TrustBuilder can help you attract new customers and new revenue streams.


Frank Hamerlinck

Frank Hamerlinck

As co-founder of global trade management leader Porthus, customer experience platform NGDATA, and strategic consulting services company innacco, Frank embodies the entrepreneurial mindset. His 20+ years of ICT experience is complemented by his position as ‘Entrepreneur in Residence’ at iMinds and coach at Netwerk Ondernemen.

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