As the popularity of cryptocurrencies continues to grow, more and more businesses are starting to incorporate them into their operations.
One of the most promising areas for crypto companies to focus on is embedded finance which involves integrating financial services into non-financial products and services. By doing so, crypto companies can make it easier for consumers to access and use cryptocurrencies while also generating new revenue streams.
An intelligence report from Business Insider suggests that embedded finance companies will reach a market cap of $7.2 trillion globally by 2030.
The range of buy now, pay later options at online checkouts are one excellent implementation in retail pic.twitter.com/iO3ReODZiQ
— BitKE (@BitcoinKE) March 11, 2023
Most consumers are a user of embedded finance even if they are not aware of the term. Embedded finance refers to the shift from time-consuming bank transfers to the use of financial services or tools by a non-financial provider. These financial services are integrated in such a way that you do not need to be redirected to a tradional financial institution to execute a payment.
Services may include lending or insurance and should create more simplicity and convenience by embedding the financial journey into a customer’s normal non-financial journey. Whenever you place a mobile food order, request a car on a ridesharing app or use a mobile payment service, you are engaging with embedded finance technologies.
As consumers continue to want services faster and easier – and companies want to receive payments quicker, too – embedded finance stands to touch nearly any industry by allowing businesses the ability to lend, accept payments or offer insurance without traditional financial institutions.
In this article, we will discuss why embedded finance is important for crypto companies and provide some tips on how they can successfully implement it.
Before we dive into why this is important, here are some classic examples of embedded finance at play:
- Embedded payments
Embedded payments are probably the most well-known type of embedded finance offering. Amazon, Uber, DoorDash, Walmart and Instacart all enable embedded payments, letting customers to place an order and pay for it all in one application.
Google Pay, Apple Pay and Venmo are other examples of embedded payment applications where users can store financial information and conduct transactions in one place.
- Embedded Buy Now, Pay Later
This is where a consumer can get a product right away but pay for it over time in installments. This embedded finance option is usually available during checkout processes such as on AfterPay where you get pay later options of 4 interest-free installment plans.
- Embedded Lending
This is where businesses can offer loans without the need to go to a traditional financial institution. A classic example of this is how companies like Klarna allow you to obtain financing when purchasing a product online by offering a loan instead of going to a bank to get one. Their retailer partners will offer a financing option during checkout, and the purchaser fills out a simple application for financing. They receive an instant decision and make monthly payments to Klarna.
- Embedded Investing
Applications that integrate stock market investing are good examples. Robinhood, Acorns and Cash App are classic examples of embedded investment companies where you can buy, sell, and trade stocks without leaving the app or the need to work with an investment adviser.
- Embedded Insurance
Embedded insurance is a new way of getting coverage without the need for an insurance agent. This form of embedded finance is popular among airlines where you can purchase travel insurance during the checkout process when booking a flight.
- Embedded Banking
Generally referred to as Banking-as-a-Service, this is where customers are able to open bank accounts and their associated debit cards when setting up services. A classic example of embedded banking at play is the ride-sharing app, Lyft, where drivers are offered a checking account and a debit card where they can get paid immediately after every ride rather than lump up their payments and get paid for many rides combined.
Shopify Balance is another example of embedded banking where shopify owners get a debit card with exclusive rewards for purchases made but with an underlying bank account beneath the product.
Why Embedded Finance is Important for Crypto Companies
There are several reasons why embedded finance is a promising area for crypto companies to focus on as highlighed in this report.
1.) First, it can help to increase adoption of cryptocurrencies. Many consumers are still hesitant to use cryptocurrencies because they are not widely accepted by merchants, or because they find them difficult to use. By integrating cryptocurrencies into other products and services, crypto companies can make them more accessible and convenient for consumers.
2.) Second, embedded finance can help crypto companies to diversify their revenue streams. By offering financial services alongside their core products, crypto companies can generate additional revenue from transaction fees, interest charges, and other sources.
3.) Third, embedded finance can help crypto companies to build customer loyalty. By providing a seamless and integrated user experience, crypto companies can create a strong bond with their customers, which can lead to repeat business and positive word-of-mouth advertising.
Tips for Implementing Embedded Finance
If you are a crypto company looking to implement embedded finance, here are 5 tips to keep in mind:
- Identify the right opportunities – Not every product or service is a good fit for embedded finance. You need to carefully consider which financial services will be most valuable to your customers and which products and services are best suited for integration.
- Choose the right partners – In order to successfully implement embedded finance, you will likely need to partner with other companies such as payment processors or lenders. Make sure to choose partners who are trustworthy, reliable, and have a good track record of success.
- Invest in security – Cryptocurrencies are still vulnerable to hacking and other security threats. To protect your customers’ assets and build trust, you need to invest in robust security measures such as multi-factor authentication and encryption.
- Provide a seamless user experience – To encourage adoption and build loyalty, you need to provide a seamless and user-friendly experience for your customers. Make sure that your financial services are integrated seamlessly into your core products and that the user interface is intuitive and easy to use.
- Stay compliant – Financial services are heavily regulated and crypto companies need to be aware of the laws and regulations that apply to them. Make sure that you are staying compliant with all relevant laws and regulations and that you are taking steps to mitigate regulatory risk.
Embedded finance is a promising area for crypto companies to focus on.
By integrating financial services into their core products and services, crypto companies can make it easier for consumers to use cryptocurrencies while also generating new revenue streams and building customer loyalty.
To successfully implement embedded finance, crypto companies need to carefully identify opportunities, choose the right partners, invest in security, provide a seamless user experience, and stay compliant with relevant laws and regulations.