Embedded lending is on the rise – how can businesses capitalise?

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embedded lending

Banking-as-a-Service (BaaS)-powered embedded lending is gaining traction. Buy Now Pay Later (BNPL) is already offered by many retailers, with a potential 20-30% increase in conversion as a result.

Now, with the appetite for embedded banking products growing, a PYMNTS Intelligence and Visa report, ‘The Embedded Lending Opportunity’, has surveyed more than 8,300 consumers across six countries (Australia, Germany, India, Japan, UK and US) to shed light on its increasing popularity.

What is embedded lending?

Embedded lending is the integration of lending solutions directly into a brand’s customer journey. Through BaaS, businesses are able to offer loans, flexible payment or other lending products to their customers without the need to exit the customer journey, or access financial products from a third party. Embedded lending solutions are also contextualised, meaning they are found at the point of need in the customer journey. 

What are the benefits?

For customers, embedded lending offers choice, as well as the ease in being able to access financial solutions when they need them most, without needing to leave the app or website.

For businesses, the benefits include increased conversion, greater loyalty and new revenue streams. 

Arvind Ronta, global head of BNPL and embedded finance at Visa, explained to PYMNTS that his company had witnessed a “huge spike in conversions” when customers are presented with embedded lending solutions just as they are considering purchases.

Demand is on the rise

The PYMNTS study revealed that there is significant demand for embedded lending products:

  • 56% of Gen Z respondents and 55% of millennials say they would be highly interested in using embedded lending under the right circumstances.
  • More than 40% of consumers say they would switch allegiances to firms and platforms that provide lending options.
  • Embedded lending is most appealing in allowing consumers to meet unplanned, emergency expenses – 29% of respondents said they would use such products in this scenario. 

The stats echo findings from Vodeno’s 2023 research, in which we surveyed more than 3,000 European consumers. We found that most (52%) 25-34-year-olds prefer using financial products and services from their favourite brands over traditional banks, while 50% will only stay loyal to brands offering financial embedded financial products and flexible solutions like Buy Now, Pay Later (BNPL) and cashback.

However, where embedded lending is concerned, PYMNTS and Visa’s research also showed that there is progress to be made:

  • Only 50% of consumers are happy with the availability of the embedded lending options they now encounter.
  • 37% of embedded lending users say the low credit limits are a pain point. 
  • Another 21% say the fees and interest rates are too high.

Seizing the opportunity

Despite those challenges in improving accessibility and customer satisfaction, it is clear that embedded lending is on the march. As Visa’s Ronta says: “There’s enthusiasm for embedded lending — and it’s a huge opportunity.”

At Vodeno, we are already enabling clients to take advantage of the embedded lending opportunity.  We offer our tech stack in cooperation with Aion Bank’s credit institution and ECB banking licence, which enables us to offer clients a full suite of embedded finance solutions. Our clients benefit from a full end-to-end service, with the right technology, banking licence and regulatory and compliance expertise needed to deliver and scale BaaS projects across different sectors and use cases. 
Get in touch today to find out more.

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