Embedded Finance: Why Invisible Banks are the Future

Back in 2010, the fastest way to get money on the same day from New York to London was to fly it there yourself. Now payments can be made securely in seconds, to anywhere in the world at virtually no cost. J.P Morgan’s POWER+ framework captures five mega themes, that are driving the payment revolution. Platforms, online, wallets, embedded, real time plus value added services.

Best Upcoming Embedded Payment Trends

BNPL is threatening the traditional credit card payment models and forces banks to either launch their own BNPL service or partner with an existing provider to maintain a direct relationship with their own customers. Almost half the merchants surveyed by Omdia stated that the biggest improvement to reduce friction in digital payments would be improving integration with their payment gateway. This could be achieved through embedding payments in the checkout journey on a universal level, similar to the user experience that is expected when ordering through Uber or Deliveroo. Embedding the payment is about not just ensuring a seamless user experience but also about harnessing customer data to present the consumer with relevant, personalized financing options at the point of purchase to reduce friction. Yet, large banks typically do not have the flexibility to meet their needs.

The Future Of Embedded Payments: What The Consumer-Centric Approach Means For Banks And Businesses

The concept of bringing your banking activities directly into non-financial services is made possible through technology, leading to enhanced user experiences. For you, this could mean eliminating several pain points by streamlining your banking capabilities into your everyday work. Secondly, and from the consumer perspective, the less complicated the better. Using a service which is natively branded and seamlessly integrated to the software provider, we believe is a key component of embedding financial services generally. The proliferation of this kind of branded financial infrastructure within a retailer or within a platform is still very nascent. But there are a growing number of examples, especially in the UK and the US.

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Fifth Third provides embedded credit and payment services to both small businesses and retail platforms. It has doubled down on the healthcare industry, acquiring the Provide platform to participate in distribution and enablement. For B2B embedded card payments, as with consumer payments, we expect enabler take rates to face some pressure over the next few years. Platform take rates will rise slightly, leading to a 2026 revenue split of $1.5 billion for platforms and $0.8 billion for enablers, which reflects the overall increase in embedded B2B card payment growth. Platforms are partnering across the new value chain to deliver these benefits to customers and differentiate their core services.

Embedded Banking’s Top 5 Benefits for Finance Teams

Many companies get caught up looking for the perfect solution, only to dedicate an exorbitant number of resources to implementing something that ultimately doesn’t work. My advice would be to run small pilots with the solution or service before fully embedding it into your processes or committing the resources. Once your team feels confident in its value, you can begin to scale while simultaneously iterating on your processes to work out the kinks and ensure success.

Most European countries have been on the list of top tourist destinations and have a massive hospitality industry. With the Singapore government’s expanding support for fintech businesses, the country is anticipated to see an influx of new product launches and technological development in payment platforms in the next few quarters. Best Upcoming Embedded Payment Trends And as consumers adopt digital currencies in their everyday lives, the use of crypto is likely to percolate into their creator and business lives, too, von Tobel said. The knock-on effect will open up a whole new set of services aimed at crypto and blockchain that didn’t exist in even the traditional commercial banking dynamic.

We’ve seen strong growth in ecommerce, food and delivery models, as well as mobility providers. We’ve also seen embedded finance touch gaming, construction, shipping, sports, transportation – from the delivery of financial products and the use of underlying capabilities. The rocketing adoption is because fully digital journeys have been enabled through better tech and integration development. In fact, our definition is very much that it’s a digital end-to-end seamless process. Small and mid-sized businesses need all the help they can get from smarter solutions that reduce friction, remove guesswork, and automate tasks for business owners.

Morgan”, “JPMorgan”, “JPMorgan Chase” and “Chase” if and as used herein include as applicable all such employees or officers and/or entities irrespective of marketing name used. Nothing in this material is a solicitation by JPMC of any product or service which would be unlawful under applicable laws or regulations. With over 50,000 technologists across 21 Global Technology Centers, globally, we design, build and deploy technology that enable solutions that are transforming the financial services industry and beyond.

Four Ways to Maximize Return on Innovation

The embedded finance market is slated to exceed $138 billion in 2026, up from $43 billion in 2021 per Juniper Research. Providing these options through embedded payments will unlock trillions of dollars of credit card payments for SMBs. As of 2021, US consumers and businesses spent $3.60 trillion on their debit cards and $3.55 trillion on their credit cards. Between 3% and 4% of these transactions for debit cards, and less than 1% for credit cards, were conducted using embedded banking offerings. By 2026, the nonfinancial services market penetration for debit cards will increase potentially fivefold to around 15%, while we see the start of credit card SaaS models adapted for embedded finance. The embedded payments industry is growing at a rapid pace, with revenues expected to grow from $43 billion in 2021 to $138 billion in 2026.

Best Upcoming Embedded Payment Trends

Our report suggests a revenue growth rate of 2.5x over the next five years and a 3x growth in embedded value transacted over financed pipes. Take, for example, gig workers across the U.S. who don’t currently have access to virtual cards. Virtual, single-use cards could make a huge difference to speeding up payments and reducing the cost of payroll , weaning off a reliance on checks.

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The Covid-19 pandemic has hastened the expansion of the e-commerce sector in Japan, and as more Japanese people embrace online buying, electronic payments are becoming increasingly popular. With the growing demand for seamless payment options in Japan, the competition is growing intense among market players to provide an enhanced customer experience. Moreover, market players are launching new products to acquire more clients in Japan and tap the attractive opportunity. Business-to-business payment fintechs will likely expand into other financial software offerings, such as HR, bill-pay solutions to control the flow of payments, offering credit to businesses, or company cards for specific industries, Lerner said. Embedded finance enables customers to have a new type of relationship with financial providers, giving them access to services as a by-product of the software they use and the goods they consume. While some companies will hesitate and possibly miss out on the opportunities, others will take the lead and figure out how to reap the benefits.

Best Upcoming Embedded Payment Trends

Historically, merchants signed up for payment services via independent sales organizations to be approved by an acquiring bank—an arduous process that could take months. Over the past 15 years, new software-centric firms have created a function in the value chain, the payment facilitator, that underwrites merchants on the acquiring bank’s behalf and streamlines the delivery of payment acceptance capabilities. Our sizing focuses on the largest embedded finance markets today, namely payments, lending, and banking, as well as the subcategories within them. We expect the US market to more than double from $22 billion in 2021 revenue to $51 billion by 2026 across those three markets—a 19% compound annual growth rate . Embedded finance began as technology to merge software and commerce business models.

By 2026, we expect both levels to rise based on higher volume of embedded transactions by nonfinancial institutions. This should cause revenues to reach just over $4 billion for platforms and $1.3 billion for enablers. In the same period, we expect enabler SaaS fees to scale proportionally, growing to over $5 billion. By 2026, we expect B2B payments to reach $33.3 trillion, with embedded payments taking a considerably higher share as buyers shift to eCheck, virtual cards, and value-added ACH to streamline operations and simplify AP/AR reconciliation. During this time, the B2B embedded payments market will nearly quadruple from $0.7 trillion to $2.6 trillion, with revenues growing proportionally from $1.9 billion to $6.7 billion . We expect the projections in this report to persist despite the current macroeconomic volatility and near-term recession risk.

Transforming the payment process

By aggregating demand from alike business customers, fintechs could also leverage scale for more favorable pricing, she added. Embedded B2B lending encompasses loans provided by a platform to a business within that platform. For this research, we’ve also included loans, even if the true lender is a bank.

  • Eligibility for particular products and services is subject to final determination by JPMC and or its affiliates.
  • Demand for so-called „crypto as a service“ is growing among asset managers and retail brokerages looking for technology that provides seamless access to digital assets for their end users, Trautmann said.
  • In this article, we’ll explore what embedded finance is and how both banks and tech companies are adapting to changing consumer preferences and tech advancements.
  • There will also be a change in the way products are potentially manufactured, not just distributed which goes hand in hand with the role that banks play and where incumbents sit in the value chain going forward.
  • One example of this technology is Zelle, which has partnered with several banks like Huntington.
  • But there are a growing number of examples, especially in the UK and the US.

End users increasingly prefer the convenience of using payments, lending, insurance, and other financial services embedded in their day-to-day software, rather than accessing standalone services from traditional financial institutions. More than ever, non-bank companies are providing embedded financial solutions such as deposit accounts, payments products and lending tools to increase customer engagement and provide additional revenue opportunities. Often, these services are supported by banking as a service offerings from traditional banks and credit unions, enabling virtually any company to become both a customer and a fintech competitor. In fact, according to a new Finastra research study, almost 85% of respondents are already implementing or planning to implement BaaS over the next months.

Garza said the company was looking for a platform with executive expertise, the ability to execute quickly and an intense vertical focus. We’re always on the lookout for opportunities to partner with innovators and disruptors. Software Developers Simplified connectivity to extend the value of your software solution.

Embedded Finance: what’s behind fintech’s hottest trend?

About Bain Capital Bain Capital is one of the world’s leading private investment firms with approximately $160 billion in assets under management. We pioneered the value-added approach to investing and have invested at the forefront of the technology industry in more than 370 companies since our founding in 1984. In the US, B2B payments accounted for $27.5 trillion in transaction value in 2021, with accounts payable and accounts receivable (AP/AR) services representing around 90% of the value. B2B embedded payments have not penetrated as deeply as consumer embedded payments, in part because of a heavy reliance on checks and ACH payments relative to other payment methods, such as eCheck and virtual cards.

Portugal is thinking of taxing crypto. The crypto millionaires aren’t happy

As more fintechs such as FISPAN join the push to revolutionize the customer experience, finance teams are finding a large amount of value in these products, which is bringing FISPAN one step closer to our vision. From the elimination of redundant tasks, better data visibility, and streamlined payment and reconciliation processes, FISPAN is forging onward in our journey to revolutionize accounting as we know it. Embedded finance can consist of embedded payments, embedded lending, embedded insurance, and embedded banking, which we’ll be discussing more throughout this article. Embedded finance is reshaping the distribution model for financial services and creating new income streams for tech companies. What we’ve seen in the market and through our research is that customers have an inherent trust in their preferred software provider to offer them financial services. The COVID-19 pandemic has shone a light on the need for digital payments, and the industry is preparing for an oncoming wave of immense growth in the next decade.

Embedded Finance and Consumer Trends

In November 2020, Brazil-based fintech company EBANX and ride-hailing app Uber announced a partnership on PIX (a payment system launched by the Brazilian government. The region has several diverse factors driving the market growth, including a vast economy, a large young population, and an abundant skilled workforce. As a result, the region has enormous potential to grow its fintech industry in 2022 and beyond. Additionally, Embedded payment platforms providers are making strategies to tap the prospects in the hospitality industry through partnerships.

Fortunately, fintech has created a new opportunity for banks looking to modernize their offerings. Let’s face it, data visibility is incredibly valuable for all organizations, allowing teams to make more informed decisions, https://globalcloudteam.com/ identify risks, and answer questions more quickly and efficiently. Data visibility refers to both the ease of access to data as well its accuracy, helping companies monitor and display data from different sources.

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