The Future of Embedded Capital in Fintech

Embedded capital (also known as embedded finance) is becoming a common term amongst different software companies. In this blog, we'll dive into this fintech solution and show that it isn't a fleeting trend but a meaningful way for you to scale your operations.

What Is Embedded Capital?

Embedded capital is more than just fintech jargon. Put simply, embedded capital (or, interchangeably, embedded finance) is the seamless integration of digital banking and other financial products and services into non-financial companies’ platforms or applications. It includes things like a store-branded credit card, one-click payment in a brand’s app, or stores offering payment plans on larger purchases — plus countless new applications as technology grows.

This solution allows all companies (even those outside of the fintech space) to offer financial services directly to customers to improve the experience and boost growth opportunities. In essence, every company has the potential to become a fintech institution, which presents strong growth opportunities and new partnerships for existing platforms.

Embedded capital takes many forms, often through businesses leveraging partnerships with existing financial services companies or using embedded capital-specific platforms and vendors.

We see a wide range of benefits, especially for these three groups:

1. Businesses using embedded capital platforms. Businesses of all sizes that leverage embedded capital can expand their offerings, improve their customer experience, and provide financial services to customers right when they need it.
2. The lender or bank providing the financing. Banks and lenders can partner with businesses to integrate their services into existing products. This partnership lowers the bank’s operating cost and introduces its services to a new group of customers.
3. Customers using the platforms. Embedded capital gives customers exactly what they want: a simplified, personalized experience. Instead of having to work through a separate financial institution for lending, investing, and more, customers can now wrap that into a business they already trust. Embedded capital also allows for faster payments and transactions so customers can move on quickly.

What’s Next for Embedded Capital?

As a growing field, the future has numerous opportunities. The market is growing quickly and is expected to nearly quadruple in size and be valued at $291 billion by 2033.

What’s next? As embedded capital grows, we’ll likely see a shift away from traditional banking models where consumers must seek separate providers for their financial needs. Instead, consumers will have access to an integrated digital experience. This creates more seamless transactions for consumers and opportunities for companies to bring in new customers.

It can also speed up transactions by eliminating the traditional banking middlemen, allowing for better service and more control for brands over the digital and financial experience. Businesses and financial organizations will continue to partner to provide these services, and the nature of their relationships may evolve into creative, co-branded experiences that benefit all parties.

Opportunities From Embedded Capital

The beauty of embedded capital is that it isn’t limited to certain software. There are exponential growth opportunities for both platform partners and the small businesses they serve.

Here are just a few of the potential benefits of embedded capital:

• Improved customer experience. Embedded capital streamlines the customer experience and allows businesses to control the translation instead of sending customers to other financial institutions. This is a powerful tool for acquiring and retaining customers. 88% of companies that implement embedded finance report increased customer engagement, and 85% say it helps them acquire new customers.
• Increased customer lifetime value. By offering new embedded capital services, such as a branded credit card or embedded investing or lending, platforms create new revenue streams within their existing user base. These financial product offerings and transactions make customers more valuable without having to recruit new customers.
• Data-driven insights. Businesses already have a wealth of customer data. They can use their knowledge of their customers’ behavior patterns to create customized financial experiences. It’s a win for both sides: your platform can expand their offerings, and customers can leverage financial services from a company that already knows them.

Want to learn more about the benefits of embedded capital? Fundbox offers seamlessly embedded capital solutions.

Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.