The digital transformation has brought a tsunami of change in the payments and financial services industry, and it’s still pounding the commerce ecosystem. Embedded finance and banking are the latest technological waves, and large corporations from across all industries are realizing that these tools are a must-have in today’s customer-driven world.
Large powerhouse brands like McDonald's, Nike, Target, Tesla, and Walmart now have the ability to offer the same financial services as traditional banks and financial institutions. By partnering with embedded finance solution providers, these companies can offer new, innovative services that can improve customer retention and grow market share.
In this article, you’ll learn about the various ways embedded finance platforms are helping large enterprise companies meet financial goals and deepen customer relationships. Here’s a look at some of the more widely adopted embedded finance services.
1. Embedded banking
Embedded banking is the latest technological innovation in the fintech and banking-as-a-service (BaaS) industry. An increasing number of big brands are eagerly offering their customers new banking services that make paying bills and buying products more convenient. By partnering with embedded finance solution providers, large companies are now able to meet customer demand and attract huge swaths of the market.
To highlight the growing popularity, Walmart has recently partnered with investor Ribbit to extend its already full offering of retail banking services, and IKEA is purchasing 50% of its partner Ikano Bank.
2. Instant payments
Embedded finance APIs allow companies to make instant electronic payments, including electronic fund transfers (EFT) applied to a bank account or card, account clearinghouse (ACH) payroll processing, direct deposits, and bill paying. Instant payment technology verifies funds and pushes them to a bank, business, or debit card.
For large companies, instant salary payments free up cash that can otherwise get caught up in traditional payment systems. Paying employees through a traditional bank or payroll service provider requires extended lead time, which hampers cash flow if you have millions of dollars to pay in salaries every two weeks.
3. Branded cards and digital rewards
Branded debit, gift, and prepaid cards are a valuable way for brands to connect with customers through loyalty and reward programs while providing new revenue streams. Each card transaction is a touchpoint and an opportunity to build the customer relationship. It’s also a way that companies can collect valuable customer data in real-time to further understand spending habits and enhance the customer experience.
In addition, cards offer a unique opportunity for large brands to drive entirely new streams of revenue through interchange. Interchange fees typically go to the card issuing bank (Chase, Wells Fargo), however, through embedded finance, companies remove the need for the banks, adding interchange fees to their revenue.
In addition, according to a recent study of 205 business leaders in the US, the most popular services involve some form of card. Over half of our embedded banking subscribers offer a debit, credit, or gift card, and just over 40% offer prepaid cards.
4. Global payments
Making international payments seamlessly and without exorbitant fees is becoming increasingly crucial in a global economy. With embedded finance, global money transfers payments can be done online through digital platforms — and they avoid the high fees charged by traditional banks.
Large enterprise companies lower their transaction fees when making payments to partners, suppliers, contractors and their distributed workforce. Companies can also empower their customers and employees to remit money internationally.
In addition to saving money, using international payments through an integrated embedded finance platform allows funds to move much faster than using a traditional bank. Without all the layers of a bank, payments can be sent and received in less time and without all the hoops to jump through, making embedded international payments a fast and economical way to send and receive money all over the world.
Embedded finance providers like Alviere provide the technology and take care of all the compliance and regulatory protocols, so companies can focus on growing their core business with more efficient and streamlined payments.
5. Embedded insurance
Embedded insurance is a way for companies to offer insurance products directly to customers without them having to turn to a third-party insurance company. Now, companies can embed policies into a purchase, revolutionizing operating models while expanding their revenue streams and bottom lines.
Whether it’s Tesla offering auto insurance with car purchases, or Best Buy offering protection plans for a new laptop purchase, offering these plans is often cheaper than insurance from a traditional insurance provider.
Embedded insurance has also paved the way for real estate companies, rental marketplaces, mortgage originators, and other businesses to offer home insurance and streamlined client service through an application programming interface (API) on their platform.
6. Save Now, Buy Later
Buy Now, Pay Later (BNPL) solutions offer financing options to buyers at the point of sale or when checking out. For instance, e-commerce sites such as Walmart and Target offer BNPL payment options to their millions of monthly shoppers.
Businesses like Walmart and Target are lining up to offer BNPL options because shoppers are more likely to make a purchase – especially large purchases – if they can leverage financing options.
Alternatively, businesses can offer an account or wallet for consumers to save for their next big purchase, removing excessive interest rates and fees, while securing future revenue. We call this Save Now, Buy Later, addressing consumer debt-aversion while facilitating large purchases via regular installments.
7. Artificial intelligence (AI) and predictive analytics
One of the most significant applications of AI technology is ensuring data security, secure transactions, and preventing fraud. Data breaches are a huge risk for large companies, and the average cost of a cyberattack is now over $4 million.
AI and predictive analytic technology use low-cost, built-in algorithms that work 24/7. This technology monitors activity and looks for patterns that might indicate fraud or money laundering. Solutions automatically block access by hackers or unauthorized parties.
Industry standards apply to solution providers — Alviere offers PCI-DSS (Payment Card Industry Data Security Standard) and SOC compliance to manage digital risk while you focus on your core business needs.
8. Native integrations
Embedded banking and finance rely on application programming interfaces (APIs). APIs are the pipelines through which businesses open up their core systems to embedded banking tools. Cloud technology completes the ecosystem to support the digital infrastructure ranging from online marketplaces to e-commerce to fintech apps.
Integrations with existing systems, payment and security providers and consumers should not become a network resembling spaghetti. Advances in API-first integrations, create a simpler model for access to powerful financial products.
Better business with innovative financial solutions
These are some of the digital innovations that have emerged over recent years as more large enterprises offer financial services to their customers. Through API-based solutions, these large non-fintech companies can offer the experience that today’s consumers expect, whether it’s instant digital payments, branded cards, or global payments.
Those that don’t embrace these new business models will find themselves without a competitive advantage in existing and emerging markets. Find out how Alviere can help you adopt innovative digital solutions that improve revenue and deepen customer relationships.
