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What is embedded finance, really?

Embedded finance has matured in past years. It now goes way further than companies just slapping their brand on traditional financial products.

Pico Petershagen and Sarah Wachter
December 10, 2021

The buzz around embedded finance is undeniable: for years, venture capitalists such as Angela Strange have predicted that every company would become a Fintech company. This bold and alluring vision has quickly moved from pure VC hypothesis to a real-life phenomenon. But the clock in tech is ticking faster than ever and the very meaning of "embedded finance" has already evolved over time. To understand how embedded finance is maturing, let's first take a step back and consider how the broader category of Fintech has developed over the past decade.

Early Fintechs: taking financial services from analogue to digital

The first chapter of Fintech can largely be summarized as the digitization of traditional financial services. Banking? Previously your local bank, now Revolut or Qonto. Stock Investing? Previously your local bank, now Trade Republic. Loans? Previously your local bank, now Younited Credit. You get the idea.

Fintech companies like these massively improved the customer experience around financial services. No need to head down to the local bank branch anymore – just open your app to get stuff done. It's modern and practical. But revolutionary? Not quite.

Financial products themselves have not changed so much - customers still use the same services they used to get at the local bank branch, only now they're distributed digitally.

Embedded finance is not just another distribution channel for existing financial offerings

Today, many people understand embedded finance as yet another place where customers actively seek banking-like services, only now they're offered by non-fintechs.

Think of credit cards branded by Apple, or gig-economy platforms offering bank accounts to their employees. Kinda cool, but not especially innovative. It's about so much more than just slapping your logo on top of traditional financial services.

Why should services in the digital world look like the traditional ones at all? The flexibility and potential for customization within digital products is endless. Companies can be a lot more creative than what we've witnessed thus-far, if they are given the right tools to do so.

Make your UX's financial steps invisible

Embedded finance lets you insert financial services right where your users have a pain point — right where they are in your customer journey, with a perfectly tailored offering:

  • End-user puts off paying your invoices because it's annoying to switch back and forth between your app and their banking app? Give them a 'Pay Now' button. They won't need to leave your app to re-enter payment info.
  • End-user seeking a loan to increase their ad spend? Why not give them that loan straight out of your software? (👋Shopify Capital)
  • End-user really wants to purchase the latest hoodie from Virgil before it sells out, but they're still waiting for their month's pay to arrive? Embedding buy-now-pay-later options at your online shop's check out will solve this friction point. (👋 Klarna)

The key word behind embedded finance is contextualisation. Instead of copy-pasting traditional banking services and offering them as-is, digital companies can analyze their existing product and data to conceive of ideal finance features and payment flows for their users. With Swan's Banking-as-a-Service platform, they can easily embed those features exactly where the user needs them, and they won't have to worry about the cumbersome process of getting an e-money license and dealing with banking risk and regulation.

Embedded finance is the contextualized integration of financial services into a previously non-financial product.

Your product becomes so much more than the sum of its parts when banking features are natively integrated - it offers seamless user experiences. We've all experienced this feeling before, just think of your last Uber ride.

Two major events make up the Uber experience:

  1. A car picks you up and moves you from A to B
  2. You pay for the trip

When you take a classic taxi, the second step can be clunky and frustrating: you learn the driver only takes cash, you start scrambling awkwardly in your pockets for leftover coins... However, with Uber you don't even notice the payment part. It's totally seamless and practically invisible. 😌

Lean into embedded finance

Across all kinds of digital experiences there are endless friction points that haven't had this user experience treatment yet. Have you already found that Uber-like moment in your user journey? Swan has the tools you need to erase gnarly financial steps in your user journey. If you're intrigued, but not really clear on how this could work for your solution, let's find a time to ideate! Just click here to talk to one of our experts.

Pico Petershagen and Sarah Wachter
December 10, 2021
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