This article first appeared in Börsen-Zeitung (in German).
BNPL, which stands for ‘buy now, pay later’, is key to the success of embedded finance. With this payment option, which is now offered by all major online retailers, customers receive a loan when purchasing a product – without having to contact a bank. Embedded finance is a term to describe the seamless integration of financial services into the products offered by companies whose business focus is not primarily on finance or banking.
Although this instalment purchase option is extremely popular when purchasing items, it’s just the beginning. Other financial products – from credit cards and insurance to investments – are also increasingly being offered by online merchants or other platforms, often even without the need to consult a bank. A quick glance at Asia or the US shows how far-reaching this trend currently is and how far it could extend in the future.
In China, for example, it is already possible to invest money and even buy real estate via the super-app WeChat. In the US, big brands like Walmart offer customers the option to open an account and take out a credit card. The banks work behind the scenes in all of these examples.
Industry observers have assessed such products, and the results highlight the potential of embedded financial services: the US private equity firm Lightyear Capital estimates that the embedded finance market will grow from its current level of around EUR 22.5 bn to around EUR 230 bn globally by 2025. This corresponds to average annual growth of almost 60 %. Industry experts estimate that the market could even be worth up to USD 7 tn by 2030.
If embedded finance is used in the right places, it creates a win-win-win situation for all parties. Customers experience a user journey without interruption, just like when using platforms such as Amazon or Lieferando. Dealers can increase their closing rates, and financial service providers can tap into new high-volume revenue streams at low acquisition costs. Last but not least, banks benefit from their products being integrated into digital platforms and the constant data generation as a result of this, which they can in turn use to develop new business models.
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