The dividing line between brands and banks is blurring. 

The rise of e-commerce, embedded finance and Banking as a Service (BaaS) has enabled non-financial consumer brands to begin delivering financial services to their customers within their platforms and branded environments.  

For brands, this capability represents a massive opportunity to drive new revenue, strengthen long-term customer engagement, loyalty and lifetime value, and–perhaps most crucially–modernize their entire value proposition to meet consumer demand for financial services that are provided within the contexts and customer journeys of their favorite brands. 

That demand is large–and growing. According to a study by Lightyear Capital, such embedded financial services will produce nearly $230 billion in net new revenue by 2025, up from just $22.5 billion in 2020. 

In this blog, we’ll delve deeper into this growing opportunity for non-financial brands, detailing the array of financial services that brands can offer and outlining the compelling benefits for consumer-facing companies. We’ll also explain the considerations necessary to build and support the robust, contextual tools needed to fully capitalize on the transformational opportunity of merging brands more closely with financial services.  

What kinds of embedded financial services can brands offer?

Consumer brands can offer a variety of financial services within their digital channels and customer environments. Some of the most popular use cases are:

1. Payments 

Perhaps the most widely known form of brand-provided financial service, payment tools that are integrated within a brand’s customer journey and shopping experience can offer convenience and financial rewards for consumers while driving powerful synergies, valuable user data and cost efficiencies for brands. 

Branded credit cards that offer discounts and rewards to customers have been offered for decades by the likes of department stores and airlines, with boldface names including Amazon, Home Depot, Walmart and Gap among the high-profile brands offering their payment cards.

The rise of digital and mobile commerce has enhanced the convenience and utility of such branded payment cards, which can be stored within brands’ apps and third-party mobile wallets. This model enables more robust functionality within the context of a brand’s overall offering, while also helping the brand establish and maintain a presence in the digital environments and channels through which today’s customers conduct much of their everyday lives.

And the potential integration of brand-provided payments extends beyond cards, into additional use cases such as offering consumers the option to pay directly from their bank accounts via Automated Clearing House transfers, which typically cost less for merchants to process. Studies even have shown strong willingness–especially among younger consumers–to open checking accounts with known and trusted nonfinancial brands.  

2. Lending/Buy Now, Pay Later

Buy Now, Pay Later (BNPL) services–by which retail and consumer brands offer financing at digital point of sale, typically via a third-party specialist–have in recent years become an increasingly popular payment option. 

By breaking a payment up into smaller increments paid back over several weeks or months–typically without interest–BNPL offers brands the promise of boosting sales and reaching a wider swath of buyers, including those who don’t want to pay the full purchase amount upfront but don’t have a traditional credit card. Leading BNPL enablers integrate smoothly into brands’ digital checkout processes, helping reduce shopping cart abandonment and increase conversions. 

Why Galileo’s Buy Now, Pay Later model is different–and better.

Along with the booming BNPL segment, there also exists a major opportunity for brands to provide traditional financing, especially for large-ticket purchases. Auto dealers, for example, have long offered loans to help buyers fund car purchases. However, studies have shown that the potential for brand-based financing extends into use cases such as home improvement stores offering home equity loans to customers planning large renovation projects. 

3. Insurance 

Just as Buy Now, Pay Later has enabled brands to present financing options at the digital point of sale, insurance offers, too, can be embedded into the checkout flow. Giving consumers the option to obtain extended warranties or other insurance policies as an add-on to a purchase offers greater convenience, reducing the need for a consumer to shop for and purchase such coverage separately. 

It’s also more contextually relevant, given that the coverage is specific to the good or service being purchased at the time and is thus at top-of-mind for the customer when the offer is being made. Many travel brands, for instance, offer trip cancellation insurance at the time of booking as an add-on to the overall transaction. Likewise, many car manufacturers have begun challenging traditional auto insurance providers and offering coverage directly to car buyers. Consumer surveys also have revealed high potential demand for additional embedded insurance use-cases, such as home fitness brands offering health insurance. 

Several underwriters and facilitators specialize in enabling brands to offer embedded insurance within e-checkout flows, and multiple providers and coverage options can be offered for a given purchase, enabling customers to select the policy option that best fits their needs. 

4. Investment 

While somewhat more nascent than the above examples of brand-provided financial services, investment and wealth management offerings are emerging segments of the embedded finance market. 

Among the high-profile nonfinancial brands exploring investment services in recent years are Amazon and Walmart, both of which have made wealth management acquisitions in India, and Airbnb, which partnered with micro-investing platform Acorns to enable hosts to deposit earnings from short-term rentals directly into investment accounts. Meanwhile, WeChat has explored an alliance with BlackRock under which the China-based social messaging giant could potentially offer BlackRock’s investment services to its Chinese user base. 

In the U.S. market, surveys have revealed strong interest in investment services provided by a variety of consumer brands that would allow customers to invest in the brands themselves, as well as cryptocurrency and other assets. 

How do brands benefit from offering financial services?

The embedded financial services described above can offer clear benefits for customers–but what’s in it for brands? 

Plenty, it turns out. 

For non-financial brands, offering financial services such as those described above offers significant potential to broaden revenue streams. These new inflows can take the form of transaction fees including interchange and payment processing fees, as well as income from end-users, such as loan interest or other fees.

The potential revenue from such fees is significant, data indicate.. Using the home improvement loan example above, A Cornerstone Advisors study calculated that if Home Depot extended an averaged-sized home equity line of credit to 5 percent of its customers, the company would generate $54.4 billion in loans, which would result in $600 million in annual revenue from fee and interest income.

How financial services can build brand value 

However, the full value of embedded financial services can extend well beyond direct revenue derived from those offerings. By becoming a central part of customers’ day-to-day financial lives, non-financial brands and platforms can significantly increase stickiness, satisfaction and loyalty. 

Learn more about the importance of customer growth and activation. 

What’s more, data have shown that this enhanced engagement can also actually boost income derived from non-financial platforms’ core products and services. According to the Cornerstone Advisors study, among consumers who had obtained a financial product from a non-financial brand:

In this way, these embedded financial services create a flywheel effect–not only generating potential revenue in and of themselves but likely also driving consumers to engage and spend more on the brand’s core products and services than they had before obtaining the financial product. Additionally, the data derived for customers’ use of financial products can be leveraged to enhance cross-sell, pre-qualification and risk reduction activities. 

Ultimately, for nonfinancial brands, likely the most significant benefit of offering financial services is simply continued relevance as the market for financial services becomes more integrated and contextual, with financial services delivered to consumers through trusted brands via digital channels through which they conduct an ever-larger portion of their everyday lives. 

Amid this paradigm shift, brands that ignore that confluence may do so at their peril, and risk losing market share to competitors that instead capitalize on the transformative opportunity at hand. 

What factors can brands consider when designing embedded financial offerings?

Given the wide variety of potential financial services use-cases for brands to deliver and the potential powerful benefits of doing so, it may be tempting for brands to simply roll out as many financial tools as possible with little strategic consideration to how each fits into its holistic service offering and value proposition.

This “kitchen sink” strategy, however, is likely a mistake. Instead, brands need to assess which service or services complement the needs of their particular industry and customer base. 

Given the general investment required to launch, integrate and operate these financial services, thoughtfully assembling the right array of tools can be crucial to ensuring such offerings will be relevant to customers, drive revenue and engagement and meaningfully enhance brand experience and value–thereby providing a positive return on investment. 

According to Cornerstone Advisors, the key elements nonfinancial brands should prioritize when designing a financial services offering are:

• Driving mobile app engagement. Because of the growing primacy of the mobile channel, brands’ apps are likely to be the most effective way for brands to promote and deliver financial services to their customers, so driving adoption and use of these apps will be of vital importance.  

• Developing strong value propositions. Convenience and the ability to earn rewards are prime differentiators to convincing customers to adopt and use a financial service. Brands must make it easy for users to access financial tools within the context of how they already interact with a brand, and be rewarded for doing so. 

• Personalizing the product offering. Brands should offer different financial products to different segments of their customer base. For instance, younger consumers aren’t likely the audience for an embedded car insurance offer or home equity loan, but they might be more interested in Buy Now, Pay Later for apparel or video game purchases. 

• Finding the right partner. While it’s possible for a brand to partner directly with a bank or other financial service provider, leveraging an intermediary enabler can significantly streamline the process of getting financial offerings up and running. These enablers provide a platform that bridges the gap between banks and brands, with leading enablers leveraging API technology to connect the two parties’ systems. This approach can make it easier, faster and less costly to develop, launch and scale embedded financial tools that are mutually beneficial for customers and brands.

In conclusion, the convergence of non-financial consumer brands and embedded financial services can represent a transformative opportunity. By seamlessly integrating payments, lending, insurance, and investment offerings into their platforms, brands have the potential to not only unlock new revenue streams but also fortify their relationships with customers, fostering greater loyalty. As the financial services landscape continues to evolve in the digital realm, embracing this shift is not just a smart move; it may also be a necessity to stay relevant and competitive in a market where customer expectations are shaped by their favorite brands. The future of finance is digital, and for brands willing to capitalize on this trend, the possibilities can be boundless.

Contact us to learn how Galileo can help transform your brand with embedded financial services.