Embedded finance is the idea of integrating financial products directly into the workflow stream of a non-financial product. Typically this is achieved through the insertion of a third party’s financial product such as a bank account or wallet, lending products or payment products.
If you are a founder of a startup that does not provide financial products, you should consider where it may make sense to embed financial solutions for your customers.
Advantages of Embedded Finance
- Higher conversion rates: customers who are offered ancillary products that complement a core offering typically convert at a higher rate. One trend currently being observed is the embedding of BNPL products into the checkout process for many ecommerce brands. There are a number of different BNPL offerings each tailored for different price points and types of goods. Choosing the most complementary BNPL offering is key.
- Increase a customer’s Lifetime Value (LTV): acquiring and retaining customers is key to building a durable business and increasing the lifetime revenue received per customer will help expand the gross margins of your business and expand the addressable customer cohort.
- More interaction with your customers: becoming a more vertically integrated offering might increase your interactions with customers. This could lead to increased LTV and conversion over time. Everything builds on top of each other!
- Buy vs build: as a startup founder you will often have to ask yourself if it makes sense to buy or build a particular service or offering. With the proliferation of companies specializing in building great financial products, it’s easier, quicker and cheaper than ever to integrate other company’s offerings into your customer’s experience.
Disadvantages of Embedded Finance
Poor experiences with another service provider could negatively affect your relationship with a customer. When choosing what offerings to embed, it’s important to first understand if your customers really want and need this additional product or service and second, trust that the embedded offering delivers a customer experience that is aligned with your own. The integration of a poor product that no customer actually wants could end up having real consequences for your business and brand.
