Though businesses have been trying many embedded finance services like embedded payments, embedded insurance, embedded BNPL (Buy Now Pay Later) and more, the most popular of these services remains embedded lending. What is this all about, and how has it changed the financial sector in recent times? Keep reading to know more about this.
The business of lending loans has undergone a sea change in the last few years. Until a few years ago, customers had to gather documentation to support their credibility and approach banks, or other traditional financial institutions to submit their application for loans. Banks would then study these applications in detail, and grant loans only to those customers who have a good credit history and proper documentation.
Customers with a not-so-good credit score, insufficient credit history & documentation, had a hard time getting loans. Embedded lending is that mechanism that helps all people with financial requirements, irrespective of their credit history or reputation. Through this system, even non-finance companies integrate lending into their business. Embedded credit not only helps businesses increase their revenues, but it also helps borrowers get quick and hassle-free loans.
According to finance experts all over the globe, embedded lending is all set to become the face of the digital lending industry soon. The pandemic that struck the world in 2020 kept people confined to their homes. Therefore, the demand for financing options, where one could easily get loans from the comfort of their homes, with minimal documentation and processing time, increased considerably.
Embedded lending as the name suggests, is the lending services embedded in a company’s products and services. Such an arrangement allows the customers to access lending funds from the platform they are using to buy goods and services. This makes access to loans or financing options easy and integrated.
This form of lending helps to provide loans to people and businesses that are otherwise not recognized by banks and financial institutions. The ecosystem of fintech companies, online stores, customers and lenders is growing massively with each day, helping businesses to unlock the full potential of this segment. One of the most important reasons for the massive popularity of the embedded lending industry is the phenomenal growth of the smartphones and internet market. As more and more people started to shop from their smartphones, they started depending on digital lending for all their loan-related requirements.
In the year 2020, when almost all industries were facing a lull, the number of internet users in India grew at an active rate. While this number was only around 400 million in 2017, it climbed to a whopping 622 million in 2022, accounting for almost 43% of the total population. In another two years, this number is expected to touch the 900million mark. What is even more surprising is that this number includes the rural segments as well.
With the world in their palms, and thousands of products/services at their disposal, customers started to look forward to a mechanism, where they could buy whatever they wanted, even if they couldn’t afford them upfront. Even small businesses started to welcome digital lending options, as it gave them the money to cater to their working capital needs.
Online retail giants like Amazon enjoy a loyal customer base and keep adding to their already flourishing business mainly because of these installment financing options. Gone are the days when a customer had to save money to buy his favorite product or apply for loans when buying high-valued items like household appliances, iPhones and the like. Today, customers can buy whatever they want, even if they don’t have the money to pay for them upfront. Sites like Amazon offer easy installment options at the checkout page. Customers can choose their term of repayment and monthly installments at a very low-interest rate, and become proud owners of a product/service, which they otherwise wouldn’t have been able to do in traditional financing.
Sites like LazyPay, for instance, offer quick and easy personal loans to their customers. The ease of the process, simplicity of documentation required and quickness of issue resolution attract many customers, even though these loans carry a higher interest rate than the ones offered by banks. New businesses, people with a low credit score, small traders, etc. are some customers who benefit hugely from these embedded lending systems. Banks don’t recognize them as ideal candidates for loan disbursals, whereas these financing companies don’t do that.
Many retailers like Amazon tie up with banks and financial institutions to offer co-branded credit cards to their customers. The Amazon Pay ICICI Bank Credit Card is one such popular example that customers can relate to. Customers don’t have to pay any charges for this card, but they get a lot of financial benefits like cash back offers on purchases using Amazon Pay Balance, fuel surcharge waivers, attractive discounts at various dining outlets and more. While these cannot be directly classified as a loan, it is still a lending benefit offered by the retailers to the customers.
Some of the other popular embedded lending options that are gradually becoming popular in the lending industry are invoice discounting, inventory credit, mobility credit and more.
All businesses are realizing the importance of embedded lending in today’s scenario. The two most important reasons for the success of any business are its reputation among customers and the quality of its products/services. Thanks to embedded financing opportunities, businesses have learned the trick of attracting their customers and keeping them engaged in their apps or websites all the time. A good fintech company like Finverv can be the perfect bridge between businesses and their customers, as it helps to unleash the immense potential of the embedded financing options, thereby benefitting both parties in the long run.
