Embedded finance, especially lending, has recently been introduced into a variety of URLs, apps, brick-and-mortar environments, and even at the point of sale, demonstrating how widespread integration into the connected economy has become. It will be.
This opportunity, measured by transaction volume, will be a focus for consumers, financiers, and small businesses in the near future. Nandan Sheth, CEO of card-linked installment solutions provider Splitit, recently told PYMNTS' Karen Webster that he sees the future tied to three main categories: lending, insurance, and investing. .
We call this an “all-inclusive” economy, where transactions become part of the entire experience.
“From a consumer perspective, they expect a seamless experience tied to their core purchase,” Sheth told Webster as part of the ongoing series “The Next Steps to Payments” Conversations. spoke.
Sheth highlighted his own interactions with embedded options he encountered during his online journey. When booking a trip to Europe, he was offered the opportunity to purchase tickets online and purchase travel insurance through a third party (which he took advantage of).
“I didn’t have to leave the airline site,” he said.
Benefits and challenges
For companies and platforms that get it right, there is an understanding that a one-size-fits-all approach is not enough.
It's important to understand different consumer segments and credit profiles. Customers with FICO scores of 650 or higher may not be “looking” for loans. Customers below that level may be fully creditworthy and may actually want to finance the transaction. He pointed out that financing should be provided relatively early in the customer journey, not just at the last moment before a purchase.
“If you don't understand this, you might not get the sales conversion you're looking for,” he said of platforms that offer built-in financing.
Sheth said a deeper understanding of customers' nuances and daily needs will allow the platform to avoid defaulting to the same built-in financial partners and models as its competitors. Doing so provides a level of differentiation that is extremely valuable (such as “Pay on Delivery”, which Splitit has developed with its distribution partners).
Sheth noted that built-in options can help businesses scale by providing a personalized approach that leverages data collected from customers' banking relationships and the platform itself.
Economies of scale extend to end users as well. Platforms can offer bespoke financing (and perhaps lower interest rates and payments than found elsewhere), allowing end users to get the proverbial 'great deal'. There is a non-economic benefit in that customers can get what they want or need at the exact moment they want or need a product or service.
We are all part of what Sheth called the “API economy.” In the API economy, these application programming interfaces connect banks, platforms, and third parties and enable secure data exchange, which underpins embedded lending. He said open banking may not yet be widespread in the U.S., but it will gain momentum as artificial intelligence and machine learning drive further innovation across platforms.
Sheth said the partnership will help accelerate that innovation, noting that Splitit recently launched a solution that allows banks to offer installment plans at checkout.
Additional considerations
While embedded offers may seem like a no-brainer for sellers and platforms, Sheth cautioned that all stakeholders still need to think through the evolving regulatory environment.
Even if the rental product is serviced by a third party, each state may have different obligations in terms of licensing, etc. It is also incumbent on platforms to ensure that authentication is intuitive and does not create enough friction that users abandon the transaction altogether.
Looking ahead, education, real estate, and especially healthcare have long existed as fragmented industries with payments winding between patients, insurers, and healthcare providers, so we're looking to more fully incorporate embedded options. Sheth said the implementation is particularly promising.
“Embedded finance is here to stay and has already penetrated many use cases,” said Sheth. “As the year goes on, it's going to get even bigger and more global.”
