Embedded Lending revolutionizes financing for businesses and consumers

The concept of Open Finance introduced by PSD2 has created a series of opportunities in the field of financial services, promoting technological integration for businesses and facilitating access for consumers.

Financial companies, banks, and credit institutions – more generally, all companies operating in the field of credit provision – have adapted their offerings to the new open approach of the financial landscape, developing or adopting innovative Embedded Lending services.

What is Embedded Lending? 

Embedded Lending refers to the integration of lending services directly within non-financial platforms, such as Ecommerce, apps, management software, and other digital ecosystems. In other words, lending is offered as an integral part of a primary user experience, rather than as a separate service provided by a traditional bank or financial institution, through APIs.

End customers can request credit directly from the merchant's platform, avoiding long and complicated bureaucratic procedures and benefiting from a fully digital and integrated experience.

Designed to simplify access to consumer credit and other technical forms of financing, the market for Embedded Lending solutions is experiencing rapid growth. The global Embedded Lending market is projected to expand from $7 billion in 2024, to $46 billion by 2034, with a CAGR of 19.6%.¹

Key factors: digital onboarding, KYC, and credit scoring 

Typically, Embedded Lending platforms include three key components of the lending process, simplifying the entire management from credit scoring to fund disbursement:

• Digital onboarding: The digitization of user onboarding processes, applied to credit, simplifies and speeds up the collection of information and documents online. This reduces the risk of human error in handling the request and makes risk assessment more accurate and reliable, improving the end customer experience.
• KYC (Know Your Customer): The verification of customer identity is a mandatory step in granting credit, helping to prevent fraud and financial risks, ensuring that loans are granted responsibly. Thanks to the digitization of the service, Embedded Lending solutions simplify the KYC process for companies integrating them into their offerings, facilitating a more accurate risk assessment.
• Credit scoring models: These allow for the evaluation of applicants' creditworthiness, providing better assessment and segmentation of customers. The digital infrastructure of integrated credit, especially in combination with AI engines and AISP-licensed solutions that allow account data access, represents a competitive advantage in terms of accuracy and transparency in evaluation.

Advantages of applying Embedded Lending 

The advantages for companies incorporating Embedded Lending solutions are not just speed and accuracy. Why should companies integrate these tools into their commercial offerings?

• Customer satisfaction: The combination of digital onboarding platforms and Embedded Lending simplifies the loan application process, reducing friction and improving the customer experience.
• Customer loyalty: Integration into the check-out process allows for personalized financing based on the type of purchase, increasing customer loyalty.
• Average receipt and conversion rate: Offering the possibility to pay in instalments can increase the average receipt and conversion rate, ensuring the opportunity to complete a payment for a larger potential audience.
• Cross-selling and up-selling: Offering these payment methods can contribute to the effectiveness of business strategies to increase the profitability of individual customers.
• Cash flow: Periodic collections ensure a constant flow of liquidity for the company, with additional income from the interest generated by financing plans.
• Operational efficiency: API integration of these services allows companies to reduce costs and integration times, as well as simplify customer journey management activities.

The need for loans or financing can vary, as can the sectors in which Embedded Lending services are applied and the use cases for each industry.

Automotive sector 

Embedded Lending solutions allow for offering financing options directly from the dealer's or manufacturer's platform. This way, the customer has personalized financing options based on their purchase, along with a fully digital, simple, and immediate experience, increasingly common in the automotive sector.

Insurance sector 

The deferral of insurance premiums has long been a reality for many insurance companies. Offering flexible payment and instalment options, integrated into online portals or agency and agent management systems, provides greater commercial opportunities and increases the number of policies that can be proposed.

Ho.Re.Ca. sector 

The advantages for the restaurant and hospitality sector range from the ability to manage constant cash flows to cover operating expenses such as supplies or renovations, to the opportunity to cope with periods of low attendance due to the seasonality of the service.

Retail sector 

Integrating loan or instalment options into the check-out process allows customers to make larger purchases or add more items to the cart, thus increasing the average order value.

Embedded Lending services represent a solution that can be applied to any industry, as they improve the customer experience, increase sales, and optimize financial management. For this reason, Fabrick has developed the Lending Place solution, which, thanks to digital onboarding and innovative scoring models, allows companies to make the most of this value-added service.