Many companies are looking for ways to generate revenue and increase customer loyalty by dipping into banking and finance. The future of the financial services industry is embedded
finance — the seamless combination of traditional financial services and another service. Embedded finance occurs when a non-financial website or app, such as a ride-hailing company or retailer, integrates a financial service, allowing customers to access
financial services anytime, anywhere.
With embedded finances, customers no longer need to stop by the bank to access their money. In some cases, embedded finance can eliminate the traditional bank. If you want to integrate embedded finance into your company, it’s important to understand how
embedded financial services work.
Embedded Financial Services Bridge the Gap Between Brands and Banking
Retail embedded finance includes lending, insurance, digital wallets, integrated payments, and debit cards. Many companies have already integrated embedded finance, such as Walmart and Costco, which offer closed-loop credit cards that function like bank-issued
cards. Today, there’s more potential than ever for brands to develop new revenue streams and engage with customers through the use of embedded finance.
With embedded financial services, companies can offer financial services throughout a customer’s experience, from payment to obtaining insurance. By utilizing embedded finance, you can prevent customers from navigating away from your website or app to complete
a transaction. No longer will customers need to sign up for another app, submit a lengthy credit application, or engage with a different company. The payment process will now be fast and easy.
Additionally, customer debts and funds are kept within your company instead of on a separate card or in their bank, giving your organization more financial leverage.
Generating Revenue With Embedded Finance
One of the greatest benefits that businesses can enjoy from embedded financial services is generating revenue. Your company can generate revenue with embedded finance via lending, payment fees, and insurance fees, along with a wider range of customer data.
Examples of embedded finance projects that companies can launch include the following:
- Insurance: Retailers of large assets that require insurance can offer their own insurance. For example, Tesla offers Tesla Insurance, and ride-hailing
companies like Uber offer insurance coverage for drivers. Flyers can also purchase trip insurance when buying tickets for a flight. This allows your customers to purchase insurance directly from you at the point of purchase rather than shop around for insurance
from a separate provider.
- Wearable wallets: Location data companies and fitness brands like Fitbit have embedded payment capabilities into their wearable devices, allowing customers to pay for services and goods while on the go.
- Financing: Some companies like Shopify offer their customers business loans by using data about the seller’s revenue rather than credit checks. Repayments can also be scheduled as a percentage of sales.
- Digital wallets: You can offer your customers closed digital wallets.
This will allow your customers to add or deduct credits through the issuing merchant only. Partner with Hydrogen to accept digital wallet payments.
- Branded fintechs: Some companies are launching their own fintech, allowing them to offer financial services, such as pre-paid cards, check cashing, money orders, and bill pay.
- Ride-hailing app payouts: Ride-hailing companies like Uber are enabling drivers to get paid multiple times a day through an Instant Pay system. Additionally, Grab provides payouts to drivers who contract COVID-19 while driving a passenger.
- Tech partnerships: With embedded finance, companies that offer delivery services can make it easier to connect with customers who are shopping on mobile or from home.
- Embedded payments: A few companies are embedding payments, including secured cards, payment installation, and co-branded payment cards. Car manufacturers, for example, work with credit card corporations like Visa to integrate payment with
a vehicle voice assistant, allowing car owners to pay for fuel without leaving their cars. With Hydrogen’s embedded finance features, your business can earn as much as 1% in revenue
each time a customer uses a debit card for online purchases or swipes it to make a purchase.
- Buy now, pay later (BNPL): You can also offer a BNPL option that reduces purchase friction for more expensive items. When a shopper opts to use a BNPL option rather than use their debit card, they are essentially taking out a loan to cover
their purchase. You can choose whether you want your BNPL program to require a credit check and select the features you want, such as how many payments a purchase can be divided into and whether shoppers can select when to repay.
With more customer data and better financial relationships with your customers, you can use embedded finance to acquire, retain, and increase customer lifetime value while generating revenue in new ways.
Using Embedded Finance for Loyalty Programs
Along with generating revenue, your company can embed credit scoring. Businesses in transportation, gaming, and retail can harness consumer data with consumers’ consent. You can leverage this data to personalize experiences and gain behavioral insights to
pinpoint useful credit products.
Embedded finance is also ideal for loyalty programs and increasing customer loyalty. Say goodbye to easy-to-lose, paper loyalty cards and hello to loyalty programs that directly link loyalty rewards to payment cards. This allows customers to make use of
rewards instantly. Push notifications can be used to engage customers after they make a purchase with their card.
Loyalty programs also incentive further purchases and help generate additional revenue streams via the interchange fee earned with every card tap. For example, branded cards can be used for membership models in sports clubs and in airlines’ frequent flyer
Along with generating revenue and developing loyalty programs, embedded finance can benefit your company by improving your product’s stickiness. A user-friendly interface can enhance the customer experience and make them more loyal to your brand.