Financing Platforms – A Beginner’s Guide

Platform financial services offer several benefits, including lower costs, faster access to funds, and perks that only platform users can get. These services can also differentiate platforms and attract more business.

These financial platforms facilitate lending and borrowing between borrowers and lenders. They typically charge origination fees to borrowers and deduct them from loan repayments made to investors.

Embedded Finance Platforms

Embedded finance refers to financial tools integrated directly into other platforms or apps. For example, e-commerce sites often feature payment methods like wallets, credit cards, or digital banking services to enhance user experience and provide customers with a smoother checkout process. This also helps boost revenue and customer retention rates.

Similarly, ride-sharing apps commonly include features that allow users to pay with their digital wallets without leaving the platform to complete a transaction. This provides a seamless and convenient customer experience, allowing ride-sharing companies to earn money through transaction fees, lending services, and other financial tools.

Businesses and consumers benefit from embedded finance because it provides access to new, more convenient financial tools, such as point-of-sale loans or rewards programs that increase savings and convenience. It also eliminates the need to leave a business or app’s platform to access these tools. It opens up a more comprehensive range of demographics that would have otherwise been excluded from the services.

Embedded finance is made possible by several technological advances, including cloud computing, which makes storing and managing large amounts of data more accessible, and APIs allow different software systems to communicate. BaaS tools are also in high demand among neo-banks that need to focus on their product and service offerings while outsourcing the infrastructure they need for back-end operations.

Embedded Payment Platforms

Platforms and marketplaces suck as Payspyre offers embedded payments, enabling customers to complete transactions without leaving the product or service they use. This type of payment flow can help increase conversion rates and customer loyalty.

Embedded payments are typically integrated directly into the user experience via a simple form that asks users for their payment information, including card details and billing and shipping addresses. Then, the platform uses secure data transmission methods to send that information to a payment processor for processing.

This type of payment integration can also streamline accounts receivable by delivering digital invoices and providing an end-to-end view of all transactions in one place. Additionally, it helps ensure compliance by automatically updating to local payment verification requirements and collecting IDs as required by KYC rules.

In addition, the ability to embed payments can make it easier to add a range of new revenue streams for a business. These can include transaction fees, markup or revenue share, and additional financial services such as insurance and lending.

One of the most prominent forms of embedded payments is buy now, pay later (BNPL). Customers can opt for revolving credit lines at checkout to split purchases into interest-free installments. Popular BNPL providers include Klarna, Affirm, and Afterpay. Adding BNPL to a platform is typically straightforward and can be done quickly by partnering with an experienced provider.

Embedded Loan Platforms

Embedded loan platforms allow nonfinancial businesses to offer credit directly on their websites or apps. These lending-as-a-service (LaaS) solutions simplify operations-related tasks and bolster customer satisfaction. They also reduce the amount of manual processing and eliminate various risks associated with traditional loan processing.

With embedded financing, companies can offer consumers the option to buy now and pay later at the point of service. For example, if you want to purchase a Peloton bike online, the seller may offer four interest-free installment plans at checkout. This buy now, pay later model empowers consumers to shop differently and allows them to access services they might not otherwise be able to afford.

In addition to offering an integrated payment option, these lending platforms can provide a full range of services, such as loan origination, repayment management, and reporting. This enables them to offer a secure and scalable, end-to-end credit solution. Moreover, they can reduce operational risk by reducing the number of touchpoints for customers and financial providers.

Choosing the right embedded loan platform depends on the type of services you need. For example, you might require a lender to offer a seamless borrower portal, allowing you to track active and repaid loans anytime. You might also need a lending solution that integrates with existing payment systems or supports various digital wallets.

Embedded Asset Management Platforms

Embedded asset management (EAM) platforms enable non-financial brands to offer their users a seamless, integrated financial product experience. Typically, these platforms have a deep well of contextual customer data that can help them assess risk and provide more accurate pricing for customers who might otherwise be ignored, rejected, or mispriced by traditional institutions.

Embedded financial products include payment and lending solutions integrated into digital apps or user-friendly interfaces such as point-of-sale software, rewards programs, or insurance. Companies subsidize point-of-sale hardware and offer BNPL options.

For B2B businesses, embedded lending solutions such as those provided by Viceversa allow companies to finance their growth with merchant cash advances that can be completed on the platform without requiring lengthy paperwork or credit checks. Generally, the lender of record earns the majority of loan revenue, except business-to-business lending, that a third-party capital provider backs.

Offering embedded financial products introduces a higher bar for security and compliance. Platforms must partner with fintech or neobank-backed enablers to ensure their users’ secure, end-to-end experience. Choosing the right partner can save time and money for new-to-market platforms and reduce their financial exposure to risks and penalties for failures in these critical areas.

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