The future of finance is embedded

an article written by Panagiotis Kriaris – Head Of Business Development at Unzer

Embedded finance is proving to be the next big thing in financial services with its impact set to reverberate across industries. Let’s take a look.

Simply defined embedded finance has to do with incorporating financial services into non-FS offerings.

Perhaps we don’t realize it at first glance, but chances are that we have all been using embedded finance services one way or another: taxis integrating payments, retailers offering BNPL at check-out or SMEs getting financing from their payments’ provider are all typical use cases.

The attractiveness of the model has three main pillars:

— The use of technology so that (finance) products that are seemingly very different from the underlying offering can be natively incorporated into the end-to-end target customer experience. The rule says that the harder it is to distinguish between embedded and target offerings, the better it is

— Flexibility (companies of any size and type can integrate financial services offerings in their end-to-end flow using on-demand servicing and pay-as-you-go pricing)

— Diversification (both on the business and on the revenue side, given the connection with new revenue sources and with customer retention)

However, beyond the brilliant tri-dimensional win-win-win set-up (for providers, target companies and clients), the model would not have had any chances, had it not been able to provide a compelling business case: open any business book and customer acquisition holds a top position in the success (or failure) of any company irrespective of the industry. There is even a famous rule of thumb that says that acquiring new clients is five to ten times more expensive than keeping existing ones.

It is exactly the heart of the customer acquisition challenge that embedded finance is addressing by going where the clients are and positioning finance offerings at the core of a number of industries. Let’s see some numbers:

— According to Statista, global retail ecommerce sales amounted to approximately $5.2 trillion in 2021 and are forecasted to reach about $8.1 trillion by 2026

— According to the Global Wellness Institute, the global wellness economy stood at $4.4 trillion in 2020 and is projected to reach nearly $7 trillion in 2025

— Revenue in the Shared Mobility segment (it includes the likes of flights, ride-hailing & taxis) was projected to reach $1.18 trillion this year and grow to $1.74 trillion by 2026, according to Statista

Even with these few examples, it becomes clear that the cross-industry factor can provide access to such a diverse pool of clients that its multiplication effect is huge. Future estimates speak volumes: based on a popular prediction (Simon Torrance), the global embedded finance addressable market opportunity by 2030 will exceed $7 trillion (about twice the combined value of the world’s top 30 banks today).

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