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Lending Briefing: Embedded lending with Finastra

  • Embedded lending is growing as a market, and large banking providers like Finastra are developing BaaS solutions to start pooling together banks and merchants in order to bring more lending options to consumers.
  • Elsewhere, we look at CashApp's new milestone, and how fintech lenders might be finding it hard to sell their loan books in a high interest rate environment.

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Lending Briefing: Embedded lending with Finastra

Embedded finance is growing in popularity, aiming to attract companies in any industry that are looking to implement financing solutions to their business.

Lending is and will continue to be a huge part of the embedded economy – it’s all about customers being able to access financing when they are making a purchase, whether they’re buying a hot tub or need to fix a faulty pipe in their home.  

Embedded lending is point-of-sale financing, but it’s not buy now, pay later (BNPL). It allows access to traditional regulated lending products offered by financial institutions.

This is exactly what Finastra is doing with its new embedded consumer lending solution. 

For consumers, ​​it’s providing more options and an alternative to BNPL, which is often not applicable to high value purchases. For merchants, it allows them to give their customers access to numerous lenders and their specific products. And for financial institutions, it’s access to a marketplace of distributors and merchants to distribute their banking products.

To get a better sense of what this all means and the strategy behind it, I spoke to Angus Ross, chief growth and revenue officer, embedded finance at Finastra. So if you’re still unsure about what embedded lending means, we’ve got the answers right here. 

How would you define embedded lending?

Angus Ross: We define embedded finance from the perspective of the end consumer and the points of context they are interacting with which banks don’t own. These points of context include retail brands (e.g. Amazon), ERPs (e.g. Microsoft, SAP), merchant acquirers (e.g. Block, Elavon) etc.

Embedded Finance is the evolution of Open Banking and Banking as a Service (BaaS), which both focused on unbundling banking products and making them available to non-bank channels (i.e. supply of banking products). Embedded finance takes this a step further by focusing on the end customer and consumption point (i.e. demand for banking products).

The relatively short two-year history of BaaS and Embedded Finance is important, because what you’ve seen in the market in the last few years will inform what you see in the next two. BNPL, low value, consumer-led financing was just the tip of the iceberg. Everyone thinks if you’re going to offer lending at a point of sale, it’s just Buy Now Pay Later – it’s not.

Finastra’s embedded consumer lending offering is a regulated banking product, with all the responsible lending attributes and a regulated institution that sits behind it, offering lending to an end consumer in a relevant point of context. It shows you the evolution from low value BNPL to a higher value, more regulated, rigorous product, and this will evolve into having multiple financial providers offering a lending product in a point of context, so the end consumer has choice.

We refer to ourselves as the orchestrator of open finance. We’re fortunate to serve 8,500 banking customers globally, but we cannot offer one consumer 8,500 offers at their point of sale. Connecting both sides of the network – many retail embedders and many financial services providers – and bringing all of them together in a democratized sense is what we see our role to be, ultimately for the benefit of the end consumer.

How do you think about merchants in this context? What type of merchants would be currently ideal for this type of a partnership?


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