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6 minutes read

Embedded Lending: Everything You Need to Know 

By Robert Kazmi
Embedded Lending
By Robert Kazmi
6 minutes read

Embedded lending is an exciting FinTech trend that is vital to the embedded finance revolution impacting businesses of all sizes and traditional financial institutions. Embedded lending products are popular with consumers and small businesses needing financing. 

Traditionally, the lending industry has been inaccessible to many consumers. However, embedded lending not only provides more lending options for consumers but also enables non-financial companies to offer loan products and lending services. 

This post will explore the topic of embedded lending and how businesses can harness an embedded lending platform to improve the customer experience.

What Is Embedded Lending? 

Embedded lending integrates lending services into an organization’s existing products or services. Embedded lending removes the friction associated with the traditional lending process. 

Instead of visiting traditional banks or another financial institution for loan approval, embedded lending enables customers to access financing products at the point of purchase. As a result, embedded lending is becoming popular as organizations seek a competitive advantage. 

Embedded lending enables businesses to offer financing options and loans without becoming a financial institution. Essentially, organizations utilize the existing infrastructure of the lending industry and white-label lending and other financial services. 

The Embedded Lending Process

Now that you have a better idea of what embedded lending is, you are probably wondering what the process looks like in more detail. The process can vary depending on the customer and the type of lending product being offered. 

Typically, customers begin the process by applying for a loan through a company’s website or application. While consumers must complete a loan application for most loan products, digital platforms simplify the process and expedite loan approval

Consumers can gain loan approval in minutes or hours for most embedded lending products. Embedded lending still requires input from the financial services industry and credit bureaus to determine creditworthiness and service the loan. 

Embedded Lending Options 

There are a variety of different lending options made available through embedded lending. For most organizations, the most popular type of embedded lending is buy now, pay later (BNPL).  

Buy now, pay later enables customers to finance a purchase or pay in installments without incurring interest rates if they make payments on time. In many cases, these small loans can be secured without going through the traditional credit approval process. 

In addition to buy now, pay later, embedded lending can include personal loans, business loans, and working capital loans. Embedded lending enables non-financial companies to offer business loans and explore new markets. 

By offering business lending, organizations can gain access to a new market of business customers and compete with traditional lenders for market share. With embedded lending, prospective lenders can offer the gamut of loans, including:

  • Short and long-term loans
  • Secured and unsecured loans
  • Fixed-rate and variable-rate loans

Embedded lending makes securing a loan easy for consumers and allows them to find the product that best suits their needs. 

The Benefits of Embedded Lending 

Whether you’re a consumer, business customer, or organization that wants to offer lending services, there are several benefits of embedded lending that you should know about, including the following: 

  • New revenue streams
  • Improved customer experience
  • Access to financing 
  • New business partnerships
  • Access to new customers

New Revenue Streams 

Embedded lending offers organizations access to new revenue streams. Businesses might not be handling the technical aspects of lending, but they get a percentage of each loan originating within their product. This opens new revenue opportunities for non-financial businesses.

With new streams of revenue, your business can scale operations, cover operational costs, and expand into new markets. Not only does embedded lending make your product more desirable to users, but it also unlocks new revenue opportunities for the business. 

Improved Customer Experience 

Embedded lending improves the customer experience of your product or service. A good customer experience fosters customer loyalty and makes it easier for your business to retain its customers. 

Customer churn can be extremely costly to businesses. Organizations are always looking for ways to improve and optimize the User Experience of their products and services. Embedded lending can be used to drive customer engagement, reduce churn, and make more sales. 

Access to Financing 

Struggling to get a business loan from a traditional lender? Embedded lending gives businesses greater access to loans. Sometimes all a business needs to succeed is a loan, but obtaining a small business loan through traditional channels can be time-consuming, frustrating, and ultimately, fruitless. 

Embedded financing delivers greater access to lending products and services. For small businesses, this could be the difference between getting the business off the ground and never opening. 

Greater access to financing options is great for local communities and generates more opportunities for innovation. 

New Business Partnerships 

How does embedded lending help financial institutions? It might seem like new embedded lending services would be detrimental to traditional banks and lenders. However, one of the primary benefits of embedded lending is the potential for new business partnerships

This relationship enables lenders to partner with businesses in new ways and offer unique loan products and services. New business partnerships can be very beneficial for established financial institutions that are getting left behind by FinTech companies and digital innovation. 

Access to New Customers 

Another key benefit of embedded lending for financial institutions is access to new customers. Through embedded lending, lenders can access a new crop of potential customers without having to attract customers to their business. 

Embedded lending enables lenders to expand their business operations without having to do the leg work of attracting new customers. Lenders can expand their business quickly by integrating with other products and services. 

Final Thoughts 

The partnership created by embedded lending is truly the rare win, win, win scenario. The arrangement benefits everyone, financial institutions, businesses, and consumers. If you want to learn more about embedded lending and how your business can utilize this service, contact an experienced FinTech app development partner like Koombea.

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