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3 Ways Embedded Finance Drives Increased Profits for SMBs

3 Mins read

Embedded finance—often defined as non-financial organizations offering financial products within their own services—has become a rising buzzword in the financial field.

Why is this topic so hot right now? Essentially, the pandemic changed how consumers want to interact with businesses. They now prefer digital experiences that are seamlessly integrated into their platforms, whether it be in-person or online.

Small and midsize businesses (SMBs) that offer a form of embedded finance have seen benefits that range from an improved customer experience to increased loyalty and more. In fact, according to Capterra’s Embedded Finance Survey, 94% of SMBs that use embedded finance report higher revenue, and half plan to invest further in these solutions in 2023.

Before diving into how embedded finance can increase your profits, it’s important to understand that embedded finance is an umbrella term. There are five notable forms of embedded finance:

  • Embedded banking: in-person banking services like company-driven credit-cards or debit cards (with rewards).
  • Embedded payments: payment services integrated into a company’s online checkout or in-person POS, like digital wallets.
  • Embedded lending: financing options like buy now pay later (BNPL) for smaller purchases and loans for larger purchases.
  • Embedded insurance: insurance offered for goods purchased, such as electronics or kitchenware.
  • Embedded investments: options for stock or NFT trading without having to interact with an investment advisor.

There’s a reason why embedded finance is one of the top tech trends of 2023. Our research found that 56% of businesses already offer at least one form of embedded finance, giving customers numerous options to either pay for or finance their purchases. The top solutions businesses use include embedded payments (28%), embedded banking (27%), and embedded investments (19%). Each form of finance technology can be customized for an organization’s needs.

With this ROI in mind, here are three ways implementing embedded finance can drive profits, customer engagement, and loyalty for your growing business:

1. More options at checkout offers consumers payment flexibility and credit-building opportunities

Businesses that offer options like buy now, pay later (BNPL) give customers the flexibility to cover large purchases and even build credit. Not only are shoppers more likely to use this form of payment during the holiday season or during a recession, but it is a great way to attract and retain younger customers.

When customers are faced with rainy day scenarios like having to replace an HVAC or cover costly repairs to a car, businesses that offer BNPL options can help them out. Consumers are especially fond of using BNPL to purchase electronics and appliances, apparel and clothing, and personal hygiene products. What’s more, BNPL lends itself well to eCommerce, as apps are seamlessly integrated at checkout.

2. Near field communication (NFC) technology and QR codes make in-person shopping frictionless

Ever leave your wallet at home, but have your smartphone with you? E-wallets conveniently store credit cards and debit cards on your device. Stores that are compatible with NFC checkouts make for happier (and safer) customers. Oftentimes, customers don’t even have to directly touch their phones on the credit card reader. This tap-and-go process takes less than a second.

Major retailers like Walmart are taking this technology to the next level by offering seamless QR code payment at checkout. The QR codes are also being implemented in pricier sections of the store, such as electronics and furniture, so consumers can finance their purchases and directly set up delivery without standing in line at checkout.

3. Offering insurance options for purchases can help increase loyalty

Customer loyalty is one of the biggest hurdles a growing business must face to stay afloat, and embedded finance can help foster this connection in newfound ways.

Using data from purchases (with customers’ consent) businesses can provide customers with personalized insurance offerings. By bundling protections per customers’ needs, an eCommerce company can offer product insurance at the point of checkout, preventing them from having to shop around with other providers, while also being cost-effective.

Embedded finance is booming and can help you grow your business

Navigating the hype of embedded finance isn’t easy, and requires you to thoughtfully consider which options are the best fit for your business.

To see increased profits, better customer experience, and more loyal customers, it’s best to think big and start small—develop one embedded finance product and move on from there. Don’t forget to communicate with your customers, letting them know you now offer BNPL and that they can gain discounts or loyalty points when spending in this new way.

As the year marches forward, it’s best to keep embedded finance on your radar. The technology will continue to shape the financial landscape in a variety of ways, and tactful implementation of its many forms can benefit your businesses—and your customers—throughout 2023.

Max Lillard is a senior analyst at Capterra, covering accounting and finance. His research explores the rise of digital commerce alongside advanced customer support solutions for businesses.

Embedded finance stock image by panuwat phimpha/Shutterstock

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