Embedded lending as a concept is often buried in convoluted marketing explanations. When in reality, it’s nothing more than an installment consumer loan that a provider of goods or services is offering their client themselves instead of delegating it to a third-party lender. And with the vast majority of buy-now-pay-later programs, you don’t even need the capital to finance the purchase, just the capability to originate and collect installments on the applications.
Because of how long banks and alternative lenders had a monopoly on credit, embedded lending is the biggest change in the digital space since e-commerce. On a high level, it means that a platform like TurnKey Lender allows any retailer, manufacturer, or service provider to offer Buy Now Pay Later credit products to their clients in-house without delegating profits to a bank. Your business can and should ride this wave.
In this webinar, Dmytro Voronenko, CEO and Co-founder of TurnKey Lender explains the embedded lending phenomenon in simple terms, shares what is possible in the embedded lending space today and what the future holds for business owners who embrace this change. The insights you can watch or read below are based on the experience of TurnKey Lender’s clients, industry trends, and the journey of the business owners and borrowers benefiting from embedded lending already.
At the start, Dmytro highlights that “all the industries need to recognize that a huge paradigm shift is happening throughout the economy. Embedded lending becomes more and more available to any business, not just the specialty lenders and big business.”
The biggest consequence of the embedded lending revolution is that any business can offer independent financing without banks, without the need to attract capital. It’s much easier for the client and often fully automated.
This becomes possible because of the autopilot capabilities of embedded lending ensured by FinTech providers like TurnKey Lender.
To show just how quickly embedded lending is taking over the digital space, “the whole FinTech market used to be around $20b a few years ago. And with embedded lending available, it’s at least 10 times bigger.”
The fact that large players like Apple and PayPal are tapping into the BNPL space shows how important this phenomenon is going to be in the new economy, possibly replacing many of the traditional credit products and models like credit cards.
“More and more digital companies like Shopify, Strive, or QuickBooks start to offer capital opportunities to their customers and what will happen in the next 10 years is that any company will be able to do that. Mainly because of software platforms becoming available and easy to use. In the past, to start lending you needed to dedicate yourself to this business, to have a team, proprietary software, significant investments, and expertise. Now anyone can extend credit to their customers in-house.”
Before, to get a loan, a client went to a bank or a leasing company. Now, thanks to BNPL availability customers know that they can have this financial product exactly at the point of need, exactly in the form they want it. And as you know, customers often prioritize convenience even over price.
Examples of e-commerce giants like Shopify who enter the Buy Now Pay Later space to allow shop owners to embed credit into their operations is a reflection of the benefit embedded finance brings and the demand already present in the market. Especially as businesses at the point of contact have much more real-life data about clients which helps inform the credit decision and come up with the right credit terms.
The benefits of embedded lending or buy now pay later already extend to businesses in a wide range of industries. Most such credit products don’t have to be originated and serviced through a bank. Given that the business owner has the resources to make an accurate loan decision with low risks, there’s no need to delegate customer relations and profits to a third-party lender.
This applies to retailers, manufacturers, healthcare providers, franchise providers, and much more. By offering credit in-house you not only tie the client to yourself for future business but also overcome income seasonality and make more money on each sale over time. Just some of the examples from our clients include the following:
“Embedded lending enables things which weren’t possible before. For example, Habitat for Humanity builds houses for families in the communities and they finance those houses themselves, interest-free. And once deployed in one country, they can easily migrate to other countries they work in.”
Buy now pay later providers vs in-house buy now pay later
Many companies don’t realize how simple embedded lending is these days. This is why many businesses still resort to delegating credit to a bank or a specialty lender who are happy to finance the BNPL loans because of their low risks. This is also why many business owners choose to partner with BNPL providers who finance the clients and handle relations with your customers on their end.
But the interesting thing about running a buy now pay later operation in-house is that as a business owner you already have the product, you have the staff on the payroll, you are handling expenses in any case. So for you, it’s important to have the pipeline moving and when it comes to the BNPL purchase, you don’t need to finance the clients like a lender does. You just give them the product or service and get paid over time. This means that you don’t need a lender’s capital to offer BNPL. A lender and their funds in this case are the unnecessary middlemen.
- If you do Buy Now Pay Later in-house, you can use the unique data your business has about the client in decision-making and upsells.
- In our experience, up to 10% of customers are lost to competitors when sent to do business with a buy now pay later provider. A third-party buy now pay later provider doesn’t care which of their partners gets future sales or any given client.
- Build customer loyalty to you rather than a third-party finance provider.
Embedded lending can’t exist in a vacuum. The low-hanging fruit in embedded lending is simply having the infrastructure to support it, a functioning business that will benefit from implementing it.