Embedded lending has emerged as a transformative force in the financial industry. By seamlessly integrating financing options into non-financial platforms like ecommerce websites, point-of-sale systems and digital wallets, it offers a streamlined, customer-centric approach to consumer lending. As banks face increasing competition from fintech disruptors, adopting embedded lending is no longer optional—it’s the future of consumer financing as well as business financing.
What Is Embedded Lending?
Embedded lending refers to the process of integrating loan offerings directly into platforms that consumers use daily, or that businesses use to make their purchases. For example, when a customer shops online and sees an option to “pay over time” or apply for financing at checkout, they are experiencing embedded lending in action.
Unlike traditional lending, which often requires lengthy applications and visits to physical branches, embedded lending meets customers where they are—digitally. This convenience is why it’s quickly gaining traction in both the B2C (business-to-consumer) and B2B (business-to-business) spaces.
Why Embedded Lending Is the Future
1. Seamless User Experience
In today’s fast-paced digital world, convenience is king. Embedded lending eliminates the friction that often accompanies traditional loan processes.
Instead of redirecting customers to a third-party’s website, embedded lending integrates financing directly into the purchasing journey. For instance:
- A customer shopping on an ecommerce site can choose a Buy Now, Pay Later (BNPL) option with just a few clicks.
- A business ordering inventory can access a tailored financing plan at checkout.
By offering an intuitive, in-context financing option, banks can increase application and conversion rates, as well as reduce cart abandonment rates and increase overall sales and AOV for the merchant. Over and above all these tangible benefits, embedded lending also enables the bank and merchant to build customer loyalty through a seamless, satisfactory financing experience.
2. Expanding Market Reach
Embedded lending enables banks to reach untapped markets that traditional lending struggles to penetrate.
- New customer acquisition: By partnering with fintech platforms, banks can extend credit to deserving customers who may not currently have access to traditional credit options, for example, Generation Zers that haven’t yet built up a credit score.
- B2B opportunities: Embedded lending through supply chains allows banks to tap into the lucrative world of small- and medium-sized enterprises (SMEs).
- New verticals: Embedded lending opens doors to new verticals where customers require immediate, convenient access to financing options, for example, for medical procedures, home renovation and travel.
3. Personalization Drives Adoption
Embedded lending leverages data. By integrating with platforms that gather valuable customer insights, banks can offer highly personalized financing solutions based on more than the customer’s traditional credit profile. For example, the lender can base its decisioning – in real time – on other factors such as customer preferences, the type of purchase, ticket size and much more.
This level of personalization not only improves the user experience but also increases loan approval rates and customer satisfaction.
Opportunities for Banks
According to McKinsey’s report on embedded finance in Europe, the market could surpass €100 billion and account for 10-15% of banking revenue pools by 2030.
As embedded lending grows, it’s becoming clear that banks are uniquely positioned to lead this space. Unlike fintech startups, banks have inherent advantages including trust, low cost of capital, deep underwriting experience and regulatory compliance. Customers already rely on banks for secure and reliable financial services. By combining this trust with the convenience of embedded lending, banks can unlock significant growth opportunities.
1. Collaborations
Partnerships can accelerate time-to-market for embedded lending solutions. A recent PYMNTS study revealed that 34% of lenders that do not offer embedded lending products stated technology integration and infrastructure challenges as their barrier to entry. Partnership with an embedded lending provider can help banks and lenders overcome this challenge.
By collaborating with platforms offering white-label embedded lending solutions, banks can quickly integrate embedded lending into ecommerce sites, digital wallets, in-store and other customer channels without needing to develop their own technology stack.
2. Leveraging Lower Cost of Capital
Banks often have access to cheaper funding than fintech companies, allowing them to offer more competitive loan terms. This cost advantage can help banks stand out in the crowded embedded lending space.
3. Gaining a Competitive Edge in BNPL
As BNPL continues to grow, banks must enter this space to remain competitive. Embedded lending platforms allow banks to:
- Offer modern point-of-sale financing options that rivals fintech leaders, such as Pay-in-3 or Pay-in-4.
- Build stronger relationships with merchants by providing customized financing options.
Conclusion: The Future Is Embedded
Embedded lending is more than just a trend—it’s a fundamental shift in the way consumers and businesses access financing. Banks that embrace this model will not only drive customer loyalty but also secure a competitive edge in an increasingly digital financial landscape.
By staking their claim in the growing embedded lending market, banks can unlock new revenue streams, attract new customers and future-proof their lending strategies.
