Embedded finance, as a concept, has been around for a while, but not in the technologically savvy, user-friendly form it takes in today’s iteration.
Embedded finance has emerged as a key weapon in the retail quest for online and offline customer conversions.
The technology that underpins today’s embedded financing applications is also familiar. But APIs — which have been the interface for a great deal of innovation — have also advanced with the times.
As Sunil Sachdev, senior vice president, head of Embedded Finance at Fiserv, told Karen Webster, the emergence of APIs has enabled data aggregation, flows and analysis that move with customers as they progress across their daily lives. Embedded financial offerings can help change clicks into conversions, or interactions in the aisles, resulting in incremental sales.
The data and connectivity help firms understand their customers and preferences, as well as transaction preferences inside and outside a store, he said.
“We see merchants that are looking for ways to increase conversions,” he said, especially over the past year and a half of high inflation. “They don’t want to be financial institutions, and they don’t want to underwrite credit. But at the same time, they want to be able to help their customers buy more stuff” as they tailor financing solutions for the different cohorts that they serve.
The approach toward embedded finance depends on where in the commerce ecosystem one serves, Sachdev said. Fiserv, for its part, is delivering on embedded finance by connecting capabilities from across the firm’s acquiring, banking and issuing businesses. Using the connective tissue of APIs, Fiserv is enabling clients to embed financial services through a myriad of traditional and non-traditional channels, such as software platforms, marketplaces and merchant wallets.
“What we’re seeing is a convergence across embedded [credit, debit and prepaid card] payments and embedded finance,” Sachdev said.
Banks are willing to plug in and collaborate, he said. There are many merchants, vertical software-as-a-service companies and FinTechs that view payments as a business and are using APIs to embed finance into different applications.
Doing so requires addressing the limitations of a broad range of tech stacks, said Sachdev. Non-financial institutions have developed back-end flows and technology focused on delivering commerce experiences, but in providing banking services must think about regulations, compliance and data sharing.
Providers such as Fiserv are as regulated as many financial institutions and can bring banking capabilities — in a compliant manner — to a broad set of merchants and FinTechs, he said. APIs offer a simpler way to connect systems, normalize data and get access to it. Artificial intelligence can help firms “learn payment behavior” and predict which payment modality works best for each payment transaction, delivering financial services in a way that can be personalized for each customer.
“We’re seeing the desire to offer the right financing product for the right purchase at the right time,” he said.
Underpinning it all is the data that, with AI and APIs, can help merchants understand where they want to take on risk or offer rewards programs, or even split payments to be made over time. The most successful brands that tackle embedded finance may have started as online marketplaces, but now embedded finance represents the fast-growing segment of their revenues, he said.
“For us, embedded finance is about surfacing capabilities within the commerce journey that provide people with the right solutions at the right time, resulting in a better customer experience and [driving] greater conversion rates,” Sachdev said.
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