Traditionally, financing and other payments services were separate from brands and their experiences. If customers seek a loan for a significant purchase, a retailer may refer them to the finance office. If customers engaged in acquiring a co-branded credit card, the application, management, and payment experiences lived in a separate relationship with the bank issuer. Embedded finance allows brands to deeply integrate finance experiences with their brand experience in a custom way.
Let’s look at co-brand credit cards to paint a picture of the differences. One of the world’s most successful is the American Airlines Mastercard issued by Citibank. As an American Airlines loyalty flier, you manage your experience with American Airlines on their website. Your loyalty account lives on the American Airlines brand from booking to redemption.
However, when you acquire the credit, your experience with the card lives on Citibank’s website. You earn miles for your purchases, and once a month, in a single bucket, your points are transferred from Citibank to American Airlines, where they say something like “points from credit card” Although the experiences are linked, they are not embedded.
What is Embedded Finance?
Embedded finance is the use of Application Programming Interfaces (APIs) and Software Development Kits (SDKs) to bring experiences developed and managed by the financial services technology provider directly into the branded experience.
Key examples of modern embedded finance include Buy-Now, Pay-Later, points-of-sale financing, banking-as-a-service, and credit-cards-as-a-service.
Buy-Now, Pay-Later (BNPL) allows consumers to finance a purchase, typically over a short term, with a simpler and less expensive method than a traditional loan. A customer can split a purchase into four fixed-amount payments at the point of sale, paying a fixed fee (or no fee when subsidized by the merchant). Compared to a traditional loan or credit card, these plans do not have interest compound or accrual, do not require a hard credit check, and do not require leaving the merchant’s checkout page or retail point of sale terminal. Merchants can increase sales of higher-value items without bearing the complexity or risk of financing.
Most embedded solutions utilize a banking-as-a-service provider to perform key compliance and payment operations, including managing partnerships with a banking provider and card processing platform.
Like BNPL, point-of-sale financing offers the consumer a traditional personal loan product at checkout. In contrast to BNPL, a financing offer is a true loan, typically with a compounding interest rate and a payback period of three to 24 months. Some loans may have 0% introductory offers, while others charge interest from day one.
Embedded banking-as-a-service brings debit card accounts (like a checking account, but without the checks) to the brand. For brands serving a broad range of consumers who may not qualify or desire to have a credit product), a debit card product can provide loyalty, rewards, and other benefits and appeal to the more than 50 million un- and underbanked consumers in the United States. Most embedded solutions utilize a banking-as-a-service provider to perform key compliance and payment operations, including managing partnerships with a banking provider and card processing platform.
A co-branded credit card is the most common type of embedded finance in retail, sports, and other brands. Using APIs or SDKs, both modern providers, like Cardless, and traditional providers, like Synchrony, with their SyPi plug-in SDK capability, enable brands to deeply embed the payment experience in the brand’s own applications.
Major examples of embedded credit cards include the Apple Card, provided by Goldman Sachs, and the Venmo Credit Card, provided by Synchrony. The Apple Card is entirely API-powered, with the application and management of the card built directly into Apple’s native Wallet app on the iPhone. Venmo is a peer-to-peer and debit card platform that brings management of their credit product directly into the Venmo app without requiring users to install or use a secondary app to manage this new aspect of their account.
Why Should Brands Consider Embedded Finance?
Embedded finance enables brands to think beyond the transactional purchase of a good or service and drive improvements in customer experience, revenue, and brand loyalty. While few brands command daily interactions with customers, most customers use their payment cards daily.
Acting a daily brand connection can help the brand to reinforce its relationship with its users. In addition, brands can provide loyalty incentives for new purchases and other brand-building activities through this connected experience. Examples include earning points for opening a new credit card, taking action on social media, or signing up for email marketing.
Managing a debit or credit card is outside the core competency of most brands. Embedded finance providers, like Cardless, bridge this gap by providing a flexible, modern brand engagement platform supported by a regulated financial institution and global payment brand network to help ensure that brands can focus on what they do best.
Key Considerations for Brands Implementing Embedded Finance
A few key factors should be included when considering a partner once a brand is ready to move forward with an embedded finance solution.
First, brands must assess the fit of a provider to their brand. For example, your brand takes pride in a high-touch customer experience, but your credit card provider has limited support options. You take the risk of diminishing your brand promise with some of your customers. Alignment of values and approaches is a key check mark.
Second, especially when it comes to lending products like a credit card, it is important that the brand work closely with its provider to align underwriting opportunities and standards to the customer base. For example, your brand may have customers that simply cannot be offered a line of credit, a provider can work with you to ensure that more flexible credit limit options are available for your brand’s customers with a variety of credit profiles. On the flip side, many high net worth and high credit score customers may expect large credit lines, and you will need a provider that supports that.
Third, brands must consider the technical integration capabilities of their partner. Ease of integration can be a major factor in speed to deployment. Brands should also review their partner’s scalability, security, risk management, and privacy approach.
The Right Technical Approach for Credit Card Products
Credit cards are complex and highly-regulated financial products. At one end of the spectrum, a brand, like traditional airline co-brand cards, can simply disconnect the experience: users log in to a bank’s experience to manage their credit card and a brand’s app to manage their loyalty program membership.
At the other end of the spectrum, SDKs provide a way for brands to deeply integrate their co-brand card into their digital experiences (web or mobile) while offloading the technical and compliance technicality to the provider. SDKs are an essential part of embedded finance–placing the financial services experience inside the core brand experience–without compromising the brand’s identity.
If you’re a CMO looking to combine brand awareness and increased spending, please contact the Cardless team today to start working on your card.
Cards issued by First Electronic Bank, Member FDIC, and powered by Cardless.
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