Advantages of Embedded Finance for sellers

Advantages of Embedded Finance for sellers

“Finance is not a mathematical puzzle,” wrote economist John Kay in his post-financial crisis book, Other People’s Money. Instead, Kay reminds us that “finance exists to serve households and businesses”.

The point may sound obvious or prosaic, but it is something the financial sector would do well to remind itself of. Embedded finance, and what it represents in relation to the partnership between fintechs and the real economy, has advantages for several groups – not least merchants. Let’s talk about how to define embedded finance, why it’s on the rise and how sellers can take advantage of the value it creates against the backdrop of challenging economic times.

What even is embedded finance?

Basically, embedded finance refers to integrating financial services and products into non-financial products and services, such as mobile apps, social media platforms and e-commerce websites. This allows companies in non-financial sectors to offer financial services to their customers without having to build a financial infrastructure from scratch.

For consumers, this should result in faster and easier payment methods that don’t compromise their security, as well as new revenue streams and customer engagement opportunities for these companies, while making financial services more accessible to customers.

Why is embedded finance on the rise?

The embedded finance sector is expected to be worth US$7.2 billion globally by 2030 with revenues of US$121 billion by 2029 in the UK and Europe, an increase of 187% from 2022. This explosion comes as consumers are no longer tied to banks for financial products , and are increasingly looking to brands they trust. Sectors such as online travel, marketplaces and digital banking are using payments to stay at the heart of customers’ financial lives.

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What are the benefits of built-in finance for sellers?

Let’s find two advantages that help businesses thrive through today’s market adversity.

1. Cut costs and unlock new revenue streams

Through embedded finance, companies avoid the costs and complexity of building and maintaining their own financial infrastructure. It also creates new revenue streams, which sellers can take a share of, which would otherwise go to traditional financial institutions, as a cost to the business. Merchants can also increase customer engagement by offering financial services such as payments, lending and insurance directly from their website or app, creating additional revenue streams through this avenue.

2. Take back control over cash handling

70% of payments and finance leaders report that due to disjointed technology and transaction data, there is a disconnect between their payments, finance and disbursement functions. By integrating payment processing and financing into their products, services and back-end operations, businesses gain new levels of visibility and control over their cash flow while reducing the time and costs associated with traditional payment processing. This is important in times of economic uncertainty, as supply chain disruptions and rising interest rates make managing cash flow more difficult, but even more important.

Activation of built-in finances using cards

Card issuance is an example of how embedded finance can enable merchants to offer seamless purchasing experiences. Let’s take a closer look at programs for issuing payment cards.

Physical, virtual or hybrid payment cards issued by a business in cooperation with an issuing supplier will replace traditional business cards and legacy software for expenses.

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Embedded cards reduce transaction costs by removing interchange fee costs for businesses, and actively allow merchants to take a cut of the interchange fee on each transaction.

Partnering with card issuers that offer payment collection services also helps merchants take back control of your cash management, as they can remove the need for bulky pre-financing, by transferring purchased funds directly to issued cards in real time.

In addition, embedded cards create a one-stop issuing shop for merchants. Launching a card program with an issuing provider means merchants can achieve faster and optimized performance as they can provide issuing, processing, administration, compliance and reporting functions all integrated through a single API.

Manage your income for the future

With the modern, impatient consumer, non-financial businesses should look to streamline the customer journey with integrated finance solutions. By embedding financial services into accessible platforms that individuals, SMEs and micro-entrepreneurs can easily access, merchants provide a viable and friendly alternative to the traditional banking system, unlocking a range of customers and by extension revenue streams.

Today’s challenging economic climate requires companies to drive their revenue for the real economy, and embedded finance does just that.

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