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 guide, you’ll learn more 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 clearing house (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 a three-day 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 all the 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 the interchange. Interchange fees typically go to the issuing bank (Chase, Wells Fargo), however, since brands can remove the need for the banks, these interchange fees can now be added as their own 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. International Payments
Making international payments seamlessly and without exorbitant fees is becoming increasingly crucial in our global economy. With the help of embedded finance, international payments can now be done online through digital platforms — and they avoid the high fees charged by traditional banks.
Large enterprise companies increase their international footprint with embedded international payments because they lower transaction fees when sending money all over the world. And they can offer the same services to their customers who might need to send money to family in different countries.
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 without having to worry about making sure they can make and receive payments on a global scale.
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. Buy Now, Pay Later
The customer experience has been enhanced by the advent of Buy Now, Pay Later (BNPL) solutions that 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.
As a bonus, the vendor does not have to take on the risk that the buyer will not pay because of their partnership with their embedded finance provider. Offering BNPL options also seems to be a boon for businesses, as they have seen a 20% annual repeat purchase rate.
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 products offer full PCI (Payment Card Industry Data Security Standard) and Soc 1 & Soc 2 (System & Organization Controls) certification so they can successfully manage digital risk while you focus on your core business needs.
8. Cloud Technology
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. But it is cloud technology that creates an API-rich layer of digital infrastructure ranging from online marketplaces to e-commerce to fintech apps.
Big businesses can exploit the cloud to build even more sophisticated embedded finance tools, streamline the customer experience, and build a stronger client base.
The adoption of cloud services through the internet, such as data storage, networking, and databases, was slow — largely because of digital risk and user cybersecurity concerns within a financial services ecosystem. But the cloud proved that it can check credentials and store enormous amounts of data securely.
Moreover, a recent survey by Harvard Business Review Analytics found that over 80% of survey respondents consider the cloud integral to their organization’s future digital strategy and growth.
Innovative Financial Solutions Help You Do Business Better
The above list explores just some of the digital innovations that have emerged over recent years as more large enterprise companies start to offer financial services to their customers. Through API-based solutions, these large non-fintech companies can now 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.