Embedded Finance is the Future of Online Shopping
Payment aggregators and embedded finance improve financial accessibility for customers and drive better economics for service providers and merchants.
From Ford Motor Company’s launch of a credit company in 1926 to the frictionless payment experiences in Uber, aggregated payment and embedded finance keep evolving. The ability to mitigate purchases through in-house or third-party finance services helps business unlock unrealized cash flow and drive results. These tools giving consumers additional purchasing power and, in doing so, increasing customer lifetime value in an increasingly omni-channel world.
While the principles of embedded finance haven’t changed, the methods of enabling commerce have taken a quantum leap. The ever-growing adoption of smartphones gave rise to a faster-paced, more tailored commercial landscape. Access to financial products—like payments, banking, lending, or insurance—has become so seamless and contextually relevant that current users may not even consider that a transaction has taken place.
The “invisible banking” era, which was made possible by aggregated payment, has quietly transformed how products are distributed and accessed. Now, there’s greater potential to gain an advantage in today’s highly competitive economy through more comprehensive banking-as-a-service solutions.
Aggregated Payment and The Emerging Fintech Paradigm
In recent years, fintechs have leveraged tools enabled by the API economy to unbundle financial services and provide greater transparency and customization for a new wave of digitally native customers. Initially, payment aggregators and neobank operating models were straightforward, focusing on improved user experiences and relying largely on debit interchange for revenue. As more neobanks launched, this model quickly became table stakes. Then, a changing rate environment forced many financial institutions, including neobanks, to evaluate their business models and look hard at sustainable differentiation.
From this environment, a new operating model is emerging. Integrating banking, issuing, and acquiring through embedded finance builds on what made neobanks attractive, evolving into a sustainable business model that aggregates relevant stores of value (e.g., credit, debit, prepaid, loyalty) to deliver timely purchasing power. Aggregating these disparate services helps solve cash flow priorities for retail and business customers while enabling a better commerce experience.
Payment Aggregators Evolve the Checkout Experience
Embedded finance is more than digitizing payment. Fintechs and SaaS have the potential to help customers access much-needed but difficult-to-obtain credit. Aggregated payment services give customers more visibility and control over their cash flow and the ability to tap liquidity more easily and quickly.
The shared ability to provide timely purchasing power can boost conversion rates for both customer-facing brands and banks. Future payment infrastructure will facilitate split tender transactions, which will enable transactions based on preferred tender and transaction-type. This next evolution of embedded finance will help businesses thoughtfully aggregate the many funding and payment options available to customers today–creating a more rewarding commerce journey while lowering processing expenses.
Seamless Payment Integration for any Operating System
Aggregated payment and embedded finance in B2C receives most of headlines, but higher growth rates are emerging in the B2B and B2B2C spaces. SMBs and their customers are increasingly accustomed to frictionless banking and payment experiences. In turn, vertical SaaS platforms looking to serve small-to-medium businesses will benefit from embedding a digital-first payments experience, complete with full accounts receivable and payment capabilities, along with relevant credit options for the SMB and potentially their customers.
Today, many vertical SaaS platforms have enabled payment processing by becoming or working with a payment facilitator. While their customers appreciate the lower processing fees, many SaaS platforms have found that the incremental revenue does not offset the tech investment and administrative expense of becoming a payment facilitator. The emerging option for these platforms is to bundle banking services enabled in partnership with a sponsor bank and payment processing to complete their mission of becoming the true operating system for their businesses. Offering banking services increases interchange and potential float revenue, while also leveraging transaction data to embed more tailored credit options. These platform providers can also deliver settlement funds into their customers’ operating accounts days earlier.
How Aggregated Payment Can Make Money Work Harder
There will always be a market-driven need for money to work better, faster, and easier. Embedded finance acts as an enabler by constructing vital end-to-end journeys for what people desire. It gives them more flexible options across payments, rewards, and more. The frictionless interactions of aggregated payments greatly improve customer perception of financial service providers and merchants–especially when there’s an opportunity to help increase their purchasing power.
The time has passed for embedded finance to be considered simply a value-add passed down to the customer. Embedded finance functions within an all-in-one operating platform that facilitates commercial transactions across businesses while creating a superior customer experience.
Providing a tailored service pays off with improved customer satisfaction scores. Full-service banking, acquiring, and payment providers offer the necessary ingredients for businesses to remain competitive. If a business can offer a broad range of these strategic services, they are more likely to become mission-critical to their end-customer’s capital flows. And the more value an end-customer receives, the more durable a business’s revenue becomes.
Financial products and services are becoming ubiquitous for all types of customers, in any channel, in every phase of the commerce journey. At the customer experience layer and in core systems, a more visible, curated form of embedded finance is the next round of innovation that will provide enhanced transparency and greater democratization of financial services.
Sunil Sachdev is a global fintech executive with broad experience in banking, acquiring, DeFi and payments at companies such as American Express, Meed, Pershing and Fiserv. He has been awarded patents for his work at American Express.
Sunil has worked at Fiserv for nearly a decade in various roles and geographies. He headed up the U.S. Community Bank segment for Fiserv before taking on the Fintech and Growth role to extend the dual-core and banking-as-a-service capabilities from Fiserv. In 2023, Sunil was tapped to stand up the Embedded Finance business with horizontal accountability across banking, merchant acquiring and issuing businesses at Fiserv.
