What is embedded finance?
Implementing advanced payment solutions sounds like something complicated, but it can be explained in an accessible way. We will do this in several points.
First: embedded finance is integrated financial products, which are then made available in various locations. Their creators are factoring companies, banks or insurers, while their users are online stores, marketplace portals (e.g. Allegro) and service providers, i.e. companies unrelated to the financial industry.
Second: if a store, cafe or marketplace uses embedded finance solutions, its customer can easily use the financial product. Here are some examples of using embedded payments:
Example
The bookstore in Otwock already has embedded finance services implemented. This allows its customers to pay with a single click while shopping at the bookstore’s online store.
Example
The private clinic from Krakow uses embedded finance – this makes it possible for patients to choose a deferred payment option and pay for the procedures with a 30-day delay.
Example
The consumer electronics store has implemented embedded payments throughout its network, in partnership with Poland’s factoring market leader. As a result, its customers can take installments on the product they are buying directly on the store’s website – without having to go to the service provider’s site. All you have to do is fill out an application and wait a short while for a decision.
Third: embedded finance is how financial products become available to customers – it’s the development of a tight integration between the environment of the product provider (e.g., a lender) and its recipient (usually a store).
Fourth: embedded finance solutions help entrepreneurs meet customer expectations. In addition, they make it possible to expand payment offerings and develop or maintain a competitive advantage. Customers who are interested in taking advantage of BNPL’s services or buying on installments are more likely to choose a store that allows them to do so without taking extra steps.
Embedded finance we have at home…
…i.e., in our smartphones and computers – and have been for a long time! Any ability to pay for an order in the app (for example, through the ability to plug in a payment card) is also an example of embedded finance, as are the very popular ApplePay and GooglePay services we use every day, for example, on our cell phones.
Another option for using embedded payments is available to Orlen gas station customers – thanks to an app provided by the corporation, drivers can pay for gasoline, diesel and gas without entering a store.
Not just embedded payments
The embedded finance segment does not end with payments made from within the app. Depending on the division we choose to adopt, we can delineate between four and seven elements, belonging to a set called “embedded finance.” These will include:
- embedded lending (lending services),
- embedded insurance (insurance services),
- embedded investing (investment services),
- FaaS – Fintech as a Service
Embedded lending
The built-in loan services expand the already wide range of financial products available to customers. These include BNPL‘s services.
The acronym BNPL, or Buy Now, Pay Later, stands for nothing more than deferred payments, or services that allow consumers to purchase products and services without having to pay for them immediately. Depending on the institution that finances the deferred payment, the periods by which the payment date can be postponed vary. In the case of services offered by PragmaGO, such as deferred payment for business, the buyer can postpone the deadline by 14, 21, 30, 45 or 60 days, or pay in installments – up to 36 months.
Deferred payment is a great solution for those buyers who don’t currently have the funds (or don’t want to release reserves), but have observed an attractive offer. With BNPL, they don’t have to give it up and count on the favorable price to return at a more opportune time. Instead, they can simply order the products they need, and pay at a more convenient time.
Speaking of built-in loan services, we are also talking about other installment solutions, such as trade credit and 0% installments.
Embedded insurance
Built-in insurance services mean you can conveniently purchase additional insurance or warranties as you complete your purchases. A great example of this are online home appliances stores, which offer extended warranties, insurance (e.g. against flooding or mechanical damage – often offered when buying smartphones) when buying kitchen appliances or TVs.
Taking advantage of such an option is nothing more than launching an insurance contract, made possible precisely by embedded insurance solutions.
We will use the same model when renting a car – for example, for a vacation. With the insurance services “sewn” into the structure of the site, we can choose the insurance package that best suits our needs, while being able to think in peace about which option will be best. This is what many consumers value most in embedded finance services – the lack of contact with a consultant-salesman attempting to make a dossier on products and services.
Embedded investing
Investing – thanks to embedded investing – is easier than ever before. Many payment apps (such as Venmo, which is popular in the United States) offer at least the ability to trade cryptocurrencies or buy shares of companies.
FaaS – Fintech as a Service
We talk about FaaS when fintechs create financial products for companies outside the financial sector. In a sense, FaaS is the essence of embedded finance – without companies that can write the right software, there would be none of the solutions described today.
An example of the use of FaaS is Uber’s app, which not only allows you to pay for a car ride, but also collect and manage funds.
Another situation where Fintech as a Service has been used is the example of Allegro. The nationwide marketplace uses, among other things, financial solutions produced by PragmaGO. Thanks to them, customers of stores selling their products on Allegro can take advantage of Deferred Payments for Business or Installments for Business.
Summary
Embedded finance is a vast collection that houses many modern solutions. What they have in common is a goal: to make financial products more accessible – for both companies and consumers. It is worth remembering that the term goes far beyond mere payments, installment purchases or lending – it is also an opportunity to invest and take advantage of insurance companies. The embedded finance market is growing steadily – some forecasts expect it to grow as much as fifteenfold over the next few years – and that’s another reason to keep an eye on the trend.
