News In Context

Embedded Finance: The Payment Revolution’s Impact On Business

Amazon announced this week that it is launching a portal for buying insurance in the UK, the latest example of how new intermediaries are embracing embedded finance.

Embedded finance, a new addressable market opportunity estimated to be worth over $7 trillion in ten years, is about abstracting banking and insurance functionality into technology and enabling any brand or merchant to rapidly and economically integrate innovative financial services into their offerings and customer experience. Newcomers to financial services have to use licensed banks and insurance companies on the back-end but it allows those who are closer to customers to control the experience and create personalized solutions that are more relevant, says Simon Torrance, Founder and CEO of UK-based consultancy Embedded Finance and Superapp Strategies.

Embedded finance is a way for companies in all sectors to not just add revenues but also add value to their customers, says Torrance. “It creates stickiness because it provides an additional way for your application or your proposition to be more comprehensive and more attractive to customers,” he says.

Amazon already offers online payments, co-branded credit cards, gift cards and installment-lending services, including a buy now, pay later partnership with Barclays in the UK. In insurance, it offers extended warranties for some products purchased through its online store and, in India, car insurance via a partnership.

Amazon’s new “simple and convenient” way for customers to shop home insurance in the U.K.  offers like-for-like comparisons, a streamlined and simple quote questionnaire, and a checkout experience integrated with For the initial launch, the e-commerce giant has partnered with three insurance giants, including Ageas UK, Co-op, and LV General Insurance.

Jonathan Feifs, Amazon’s general manager for payment products in Europe, told the Financial Times that Wednesday’s launch of home contents and buildings insurance was “just the beginning”. “Certainly, there are opportunities to improve other insurance shopping experiences as well,” he said.

Amazon is not the only newcomer branching out into financial services. Tesla, which plans to produce 25 million electric vehicles in the next five years, is also adding insurance to its offerings. The average cost of insurance is $2000 a year. “Multiple that by 25 million and you have a $50 billion addressable market, so rather than hand that over to insurance companies it makes sense for Tesla to take some of that margin and offer its customers a Tesla experience,” says Torrance. Its cars are connected to the Internet so Tesla automatically knows what type of driver an owner is and can offer the good ones a discount.

Technology is making it easier for SMEs to create smooth digital online financial services, not just the likes of Amazon or Tesla, says Torrance.  “For example, small retailers of electronic bikes can extend warranty programs or provide a loan,” he says. “It is very attractive to brands. Some companies are adding 10% to 20% to their bottom line by selling financial services.”

Brands have a lot of data about their customers and that data is valuable to the financial system. “The more you know about customers, the easier it is to underwrite loans or insurance,” says Torrance. “What is happening is that embedded finance is closing the gap between the suppliers of financial services, which tend not to have a deep understanding of customers’ needs, and brands which tend to have a lot of data about their customers.

Take the case of small and medium sized businesses. In the U.S. some 50% have no insurance and the other 50% tend to be under-insured, says Torrance. Vertical software-as-a-service tech companies who provide software to sectors such as hairdressers or hotels, know, in real-time, the financial status of the businesses they service because they track payments going in and out. “They have unique access to data that insurers or lenders do not have,” says Torrance, “so they can design products tailored specifically for them.” 

Traditional providers of insurance and banking products have a choice to make about how they play in this new marketplace, says Torrance. They can’t stop interlopers from offering financial services so banks and insurance companies can either place themselves in an orchestration role, helping newcomers create insurance or banking-as-a-service add-on businesses and manage them for them, or they can be commodity players lower in the value chain, he says.

Winners are already emerging among the financial institutions powering embedded finance, says an October 13 article written by McKinsey consultants, entitled Embedded Finance: The Next Payment Revolution. “The long-term winners are likely to be those that are already building the table stakes technology, expertise, and relationships needed for a future leadership position,” says the article. “However, tech-savvy banks, fintechs, and payments companies that are willing to invest and partner still have time to claim their share of this fast-growing market.”



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General Motors Takes A Stake In Startup That Makes Imitation Leather Out Of Mushrooms

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Israeli Scientists ‘Teach’ Bacteria To Preserve Food Safety

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Retailers, Brands and Tech Platforms Bet Big On Live-Streamed Shopping In The U.S.

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About the author

Jennifer L. Schenker

Jennifer L. Schenker, an award-winning journalist, has been covering the global tech industry from Europe since 1985, working full-time, at various points in her career for the Wall Street Journal Europe, Time Magazine, International Herald Tribune, Red Herring and BusinessWeek. She is currently the editor-in-chief of The Innovator, an English-language global publication about the digital transformation of business. Jennifer was voted one of the 50 most inspiring women in technology in Europe in 2015 and 2016 and was named by Forbes Magazine in 2018 as one of the 30 women leaders disrupting tech in France. She has been a World Economic Forum Tech Pioneers judge for 20 years. She lives in Paris and has dual U.S. and French citizenship.