Have you ever been in the process of paying for a purchase — either online or in a retail outlet — only to be prompted to apply for a new credit card to cover your purchase or to disperse your payments over a set period of time?
If the answer is yes, consider yourself introduced to the world of embedded lending, which describes tools or capabilities that enable consumers to apply directly for credit within a merchant’s platform.
These products are not limited to checkouts. Offers can also be made embedded in apps or through financial services websites in the form of cash advances, personal loans, or increased credit limits. When deployed efficiently, embedded lending products can help consumers fill gaps in their available credit or even enable them to try alternative financing options such as buy now, pay later (BNPL).
But as PYMNTS Intelligence found is creating “The Embedded Lending Opportunity,” a report commissioned by Visa, when shopping online, only half of consumers are pleased with the availability of the embedded offers they see, even though 56% of them say they are highly interested in using them.
The report, which is based on surveys with more than 8,000 consumers in Australia, Germany, India, Japan, the U.K. and the U.S., was created to identify areas of potential improvement in the world of embedded lending.
What we found is that embedded lending offers are landing, albeit not as fully as they could.
Globally, 15% of respondents we surveyed had used embedded lending in the months leading up to our survey — and those offers resonated with key consumer segments. For instance, 19% of Gen Z and 25% of consumers who were experiencing cash flow issues were able to take advantage of well-timed embedded lending offers.
Yet, as the figure illustrates, there are far more consumers who are interested in embedded lending products than who are actually given a chance to use one. Yes, 15% of respondents had recently used embedded lending options when surveyed, but 43% told us they would consider switching merchants if the right embedded lending option appeared in their feed. (The levels of interest increase significantly when younger consumers are asked: 56% of Gen Z consumers and 55% of millennials said they would switch merchants for the right embedded lending offer.)
Geographically, interest in embedded lending is particularly pronounced in India. While 17% of U.S. consumers recently used embedded lending options, 27% would change merchants if they provided an embedded finance option. Yet while 15% of consumers in India had recently exercised embedded lending options, 66% say they would switch providers to take advantage of embedded lending opportunities.
In short, three times as many consumers there are interested in embedded lending than currently use it, indicating there is a large unmet need out there that lending providers should consider addressing.
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