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From Brewing to Boom: Embedded Finance takes-off in Europe

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From Groceries to Policies: Europe's Embedded Endeavours

Brands and digital platforms across Europe are integrating financial products, refining user experience to the nines. From fashion to logistics, they’re changing the way the world perceives financial services. A personal loan from your go-to grocery store or home insurance from your furniture store – to some it may sound far-fetched and untrustworthy, but the “everything is fintech” mantra is changing this belief.

Europe has been at the forefront of several game-changing fintech happenings, and embedded finance is all but one of them. With this blog, we take a look at the innovation in embedded finance across key markets in the UK and European Union. The spotlight is on nonbanks, such as retail brands and digital platforms embedding financial services with the help of fintech enablers and financial institutions that offer their technology and licences.

Let’s get to it!

Germany and the UK lead embedded finance innovation

Progressive regulations and policies in the UK and Europe, such as open banking, PSD2, and fintech licences (electronic money institutions, digital or startup banks, etc.), have led to the creation of an abundant playground for innovation. Non-banks across the UK and EU are experimenting with contextual embedded financial products for captive users. Varying from individuals to freelance professionals and small businesses, the audience for these offerings is quite diverse.

Two regions in particular stand out in terms of the number of nonbank-led embedded finance propositions being offered – Germany and the UK. In Germany, Solaris, a long-standing banking-as-a-service frontrunner, has forged unique partnerships with brands like Samsung, Grover (a tech rental platform), and Navit (a B2B mobility benefit platform). Similarly, new-age providers like Vodeno and Swan are also venturing into exciting partnerships. German automaker Mercedes Benz is also experimenting with Visa and Mastercard for tokenised in-car payments.

In the UK, YouLend has emerged as a game-changer for e-commerce businesses. Working with prominent marketplaces like Amazon, eBay, Shopify, and more, Youlend provides merchant cash advances to help small businesses manage their day-to-day finances. On similar lines, fintech enabler Weavr teamed up with Gigable to introduce instant payouts and banking for platform-based gig workers. Embedded lending providers like Aro and Klarna are also working their magic by working with well-known retailers to introduce financing solutions for the British population.

Across other European markets, the tide is rising slowly but steadily. And it is enablers like Enfuce, Toqio, Additiv, Klarna, Younited, Scalapay and others that are driving the momentum one partnership at a time. Look closely at some of the embedded finance use cases these companies are powering, and you’ll be left amazed!

POS Financing and Cards are go-to use cases for embedded finance

Embedded finance has the potential to bring to life a variety of use cases for a myriad of industries and user flows within. Take, for example, an e-commerce marketplace like Amazon. There’s buy now, pay later and credit cards that retail users can avail to finance their purchases. Amazon sellers, which are, in most cases, small businesses, can avail of working capital or cash advance from Amazon. Delivery agents who are gig workers can also resort to benefits like instant payouts and insurance.

When it comes to platforms and brands in the European market, cards (debit, credit, prepaid) and point-of-sale (POS) financing are the most common use cases being launched.

On the retail front, a sports club like Tottenham Hotspur has launched a prepaid card and e-wallet offering in partnership with AstroPay for fans to earn loyalty points and rewards. Marketplaces like Starcart and Grover have introduced single-use virtual cards and debit cards, respectively, to help streamline the user experience on their platforms. On the commercial front, in segments like logistics and inventory procurement, companies like OKQ8, Navit, and Metro AG are introducing cards to facilitate transactions for employees and businesses.

POS financing, better known as BNPL, has taken the world by storm with its new avatar. Brands, particularly, have found this to be an effective way to increase average order values and successful purchases. Acting on the FOMO, the brands you may have thought never had a fintech connect have partnered with the likes of Klarna, Scalapay, Zip, Afterpay, and more. Some standout instances have been:

  • France’s national state-owned railway company SNCF partnering with AlmaPay to enable pay later on train tickets.
  • Zapp EV partnering with Younited for vehicle financing solutions. Similarly, Iliad Italia introduced device financing with Younited.
  • Shoe manufacturer Bata’s AOV increasing 48% online and 200% in physical stores thanks to its partnership with Scalapay in Europe.

Embedded banking, which can be a tough nut to crack, also saw some takers like the gig economy platform Gigable, creator economy platform Talenthouse, treasury management platform Pile, and grocery store chain Coop. Sweden’s beloved furniture and lifestyle brand, IKEA, stepped out of the box by launching home insurance in partnership with Swiss Re’s digital platform iptiQ.

Keeping up the momentum

What’s important to highlight is for embedded finance to succeed and sustain, a fortified base of fintech enablers (BaaS, open banking & alternative data, KYC/AML, and other technology vendors) and licensed financial institutions (banks, card networks, lenders, insurers, brokers, etc.) is paramount. 

We’re seeing this fortification happen in real time. Regulators are scrutinising how BaaS providers and banks operate. In the short run, this creates an uncertain environment for the industry, but in the long run, it makes governance and compliance in the industry stronger. On the other hand, banks are entering alliances with fintech enablers to step up their tech stack and provide better B2B capabilities for fintechs, platforms, and brands. This makes the fintech infrastructure in the industry stronger. 

All in all, for an industry to sustain itself, it must undergo transformation. That transformation may be a leap of technological evolution, or it may be regulatory turbulence that forces it to recalibrate, or both. The end result is a more resilient version than before. And that is bound to be the case for embedded finance in an open economy.

Authors

Co-founder & COO | afshan@whitesight.net

Afshan, the co-founder and COO at WhiteSight, loves studying business models and understanding how things work. When she's not busy working, you can catch her experimenting with new recipes and flavours in her kitchen.

Founder & CEO | sanjeev@whitesight.net

Sanjeev is a fintech aficionado who loves to explore the depths of the industry as much as he loves to explore the depths of the ocean in his scuba gear. He is the founder and CEO at WhiteSight, bringing a wealth of research and advisory experience to the fintech world.

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