Beyond payments: the roadmap to embedded finance

Our Thinking

Posted on February 4, 2022
Beyond payments: the roadmap to embedded finance
Payments are just the starting point. With payments embedded into your products, you have a springboard from which you can layer in other financial services.
OpenPayd Editorial Team
OpenPayd Editorial Team
February 4, 2022

Big things never start big. McDonald’s was a single burger joint run by two brothers. Now it’s the world’s largest chain, with restaurants in 118 countries. Netflix was a service for renting DVDs via post. Now it’s a multi-national streaming platform which has changed the way films and television are made and experienced.

Amazon began as an online bookstore before Jeff Bezos decided to sell… everything. Big things start small.

When we’re talking about embedded payments, “small” probably isn’t the first word you’d use. Embedded payments will generate €277bn of revenue for European businesses within the next 5 years and 87% of companies are either developing it already or will start within that time frame.

So perhaps a better description would be that big things start with a singular focus. They solve a particular problem or nail a particular product. Once they’ve done that, they can explore new products or add new functionality.

Embedded finance will work in the exact same way. We recently published an article on why we think payments will open the door for the rest of embedded finance. With payments embedded into your products, you have a springboard from which you can layer in other financial services.

Now for the exciting part – what happens when the door is opened?

Embedded payments are just the beginning

Let’s fast-forward 12 months. You’ve mastered embedded payments. You’re offering your customers payment functionality that keeps them entirely within your product ecosystem and streamlines their payment journey. Sales are up. Customer satisfaction is up. You’re content, but are you done?

No chance. It’s time to find the next layer of embedded financial service that will elevate your offering even further.

Embedded banking: Embedded banking services like bank accounts go hand-in-hand with upgraded payments infrastructure.

Let’s take a real-life example: an online marketplace. Embedded payments allow transactions to be reconciled automatically so that buyers, sellers (and the marketplace itself) can receive payments without time-intensive manual interventions and reconciliation.

But this is just the beginning for our marketplace. It may operate in multiple currencies, so offering business users multi-currency accounts will help them to buy and sell internationally. It may benefit their clients to have these features typical of bank account, simplifying their operations and adding another touch-point with the marketplace. This is embedded banking.

Or a different example. Imagine a digital asset business like a crypto exchange wants to offer segregated accounts to its customers so that it’s easy to track when their users make deposits. It may take this further still, offering FX to allow customers to make payments in multiple fiat currencies as well as digital, all in one place. Embedded banking makes these developments possible through a single API, with businesses able to add more banking services as and when they need them.

Embedded lending: For eCommerce stores or online marketplaces, the advantages of embedded payments are well established. Increasing customer touchpoints with the brand, improving the overall experience and gaining competitive advantage.

But embedded lending is also making waves. Buy-Now-Pay-Later (BNPL) schemes are already proving to be hugely popular with consumers. If a business is able to embed a whitelabeled solution, with everything branded by the business and built into their ecosystem. Customers are accessing a better method of payment without seeing any third party or payment screen.

Embedded lending can also be used to address cash flow problems which can often appear on gig economy platforms. Restaurants that sign up to a food delivery business may usually have to wait days, weeks or more to receive payment for orders they have completed. Meanwhile, they still need to pay rent, staff and catering services. An embedded lending offering could help to ease these cash flow challenges, by offering short-term financing, secured against their regular billing.

Embedded insurance: There are many goods and services which we buy and then insure later. In the past this made sense. Businesses selling bicycles, phones, homes or other insurable goods often wouldn’t have the required expertise to incorporate insurance into their offering.

Now, they don’t need it. Insurance services can be embedded at the point of sale. This gives the customer a far better experience as they can deal with one company instead of two, and gives the business a new revenue stream as well as valuable data on how their products and services are being used.

Payments are just the starting point. They’re that first Big Mac, Amazon’s first online bookstore. They’re that first test case for the power of embedded finance and how it can be used in your business.

But where you go next is entirely up to you and your business’s strategic priorities. The potential for embedded finance is vast, you have a myriad of options available to you. At OpenPayd, we deliver all our embedded financial services through one API, meaning you don’t have to start again from scratch, just add to what you have already built as your journey unfolds.

Because that’s what happens once you’ve opened the door: you go wherever you want.