The concept of embedded finance or embedded banking refers to the seamless integration of financial services into traditional non-financial services. Financial services can be ’embedded’ into customer-facing digital platforms or ‘anchor platforms’ by using embedded finance infrastructure.
In most cases, embedded services involve financial services such as banking, equipment/auto finance, leasing/lending, payments, and insurance. Several other categories have recently developed, including compliance (tax, accounting), human capital management (payroll, benefits), and procurement within marketplaces. The goal is to provide customers with easy access to financial services. Rather than requiring buyers to arrange for financing or defer purchasing, businesses can receive payment promptly.
Any company that embeds emerging financial technologies can gain several advantages, including:
- Increasing revenue streams: Offering embedded financial services allows your company to create new revenue streams.
- A user-friendly interface will help your customers have a positive experience with your product, which will increase product loyalty and stickiness among your customers.
- You can increase conversion rates by improving the convenience of transactions on your website.
- By getting more visibility into the transactions of your customers, you will be able to better understand how to serve them.
Embedded finance is a game changer for auto and equipment finance companies alike. For example, conventional manufacturers of automobiles and equipment might offer a ‘Finance Now’ option on their websites. A service like this eliminates lengthy loan or lease applications, credit checks, and lengthy waiting periods for approval for customers. They could instead get financing for vehicles or equipment they need in just a few clicks in a simple and fast process that benefits them, the manufacturer or retailer, and the lessor.
Embedded finance calls for digital transformations
The impact of embedded finance on the leasing/lending market is promising. There is a caveat though. Onboarding the embedded finance bus is not going to happen on a legacy technology stack.
Businesses cannot integrate innovative financial services with their products or services with rigid, inflexible equipment finance solutions at the backend.
For successful embedded finance, businesses need an equipment finance solution that is scalable, flexible, and backed by a proven cloud platform built on a modern technology stack. The solution must offer seamless integration with third-party applications and the existing IT infrastructure, along with a simplified approach to enabling web services and APIs (Application Programming Interfaces).
By partnering across the new value chain, organizations can deliver multiple benefits to customers and differentiate their core services. In doing so, not only will they be able to provide customers with best-in-class can boost sales in their core business. Integrating payments into the native invoicing workflow. For instance, helps merchants reduce time spent reconciling payments and invoices, as it integrates payments into the native invoicing workflow.
Trends that equipment finance companies should be looking out for
While the markets and tech-savvy organizations explore and experiment with the concept of equipment finance, we see six clear overall trends emerging. It is imperative for companies who wish to work with embedded finance to understand and monitor these trends. This will enable them to identify potential opportunities and avoid potential problems.
The increasing need for holistic services
The multiproduct customer experience, known as an ecosystem, is a favorite among digitally savvy customers today. Your customers expect hassle-free, comprehensive, embedded, and highly personalized experiences. This means a seamless, integrated, seamless, and personalized experience regardless of where your customers are, across a device and platform of their choice. Customers today need holistic solutions- like payment options on the same customer portal from which they access their leases/loans.
Rise of open banking
In response to regulatory trends like European Union’s Second Payment Services Directive (PSD2) and open banking. Banking APIs are being developed and universal access to banking services is being facilitated. To recoup costs and take advantage of technology builds. Some banks are considering expanding or creating new BaaS (Banking as a Service) business models in response to these new requirements. Aside from regulation, aggregators are changing customer expectations for data and account information portability, which is resulting in an increase in IT modernization and cloud computing.
The emergence of new business and revenue models
Financial institutions are actively exploring alternative sources of revenue and product growth considering the projected declines in banking revenues, market uncertainties, and overall profitability. The most advantageous sources are those with scalable business models and fixed IT investments (e.g., distribution models).
Adoption of technological capabilities
With increased digitization, including automation and APIs, financial institutions can scale BaaS faster, making embedded finance more accessible to more companies. Meanwhile, companies seeking to embed financial services see their digital experiences as modules that are built by others. It is often because they focus on software engineering as their core competency, seeing payments, lending, or deposit and checking accounts as simply one more product capability to offer.
The Value of Embedded Finance is Increasing Due to Data and Analytics
There is more to embedded finance than convenience. Effectively deployed, it can be a powerful tool for gaining a better understanding of customer habits and needs.
As customers’ digital footprints change, banks are designing. It is customized embedded financial products around their online behaviors, social media patterns, and buying habits. As a result of these data points, institutions across the value chain can identify which features of their embedded finance products are most attractive to certain consumers. This in turn helps them improve their offerings.
A successful embedded finance model also requires the ability to engage customers across channels. Embedded products must be available in the right place at the right time to increase their adoption. By combining effective analytics and visualization tools, companies can enhance their understanding of product-market fit and offer more effective product-value trade-offs.
About Odessa
The Odessa Platform is an end-to-end equipment finance solution, delivering comprehensive functionality that enables self-service, automation, and business agility. Odessa’s platform-philosophy means reduced cost and complexity associated with traditional upgrades and legacy providers. By delivering 4x annual platform releases, customers can easily adapt, go to market faster with new products, and remain nimble.
Headquartered in Philadelphia, USA, Odessa is the largest leasing-focused technology company in the world. With a highly specialized team of professionals across North America, Europe and Asia Pacific, Odessa has a 2-decade track record of excellence in providing industry-leading Equipment Finance technology.