In an economy where convenience is king, it’s no surprise embedded finance has become a serious revenue driver. By dropping a lending platform directly into a merchants’ existing workflows, and integrating it with their existing technologies, convenience becomes accessible to all parties in a transaction. Merchants can simplify their tech stack while closing the deal, lenders get their financing products in front of a ready-to-buy audience, and consumers get access to the funding they need quickly. Of course, with a boom in embedded lending revenue comes a boom in embedded lending providers.

Not all will be the right fit for every industry, and not all will come with the due diligence necessary to keep businesses’, and their customers’, sensitive information safe. If you plan to leverage an embedded lending platform, make sure you ask these questions first: Will a Technical Implementation Give My Team a Headache? Once an embedded lending platform is installed, customers will encounter a seriously streamlined checkout process. But as all developers know, convenience on the front-end often means complexity on the back-end.

It’s important merchants understand what’s required of them before go-live, especially if their IT team is already wrapped up in other digital transformation initiatives. There’s good news for those who feel that stress headache coming on: merchants can find embedded finance platforms that are essentially turn-key. During the selection process, merchants should ask how much of the integration process the provider will handle. They should manage all onboarding, consumer underwriting, fraud prevention and compliance, allowing merchants to access all their benefits simply by embedding through their APIs.

The goal should be to make integration as low-friction as possible. How Secure Is Your Embedded Finance Platform? Embedded finance should function as a white label for a merchant, allowing the customer to stay on the business’ website as they submit their personal information. That step offers customers peace of mind, but behind the scenes, it’s important the business understands what steps their embedded lender has taken to keep sensitive data private. After all, a white label can damage brand trust if a breach occurs and the business’ name is on the checkout process. To avoid that fate, merchants should run down a laundry list of security measures before adopting an embedded lending platform.

Has the platform been through regulations? An audit? Are they SOC certified, and are they PCI compliant (PCI compliance regulations stretch beyond businesses that process credit cards)? The platform should be transparent about where data is stored, and how it is used. How Do You Manage Funds? For big ticket purchases that involve labor after the sale—say, for instance, installing windows on a house—distribution of funds often becomes a sticking point. After the lending platform receives the bank’s funds, they may release them to the merchant or the window manufacturer, essentially transforming the recipient into a middleman, or even hold on to the money. This could mean the manufacturer must take the extra step of invoicing the merchant, or the merchant must front the money for materials while they wait to get paid.

It’s a needlessly complicated process. Merchants should instead look for an embedded financing partner that pays all parties in line, in real time. This ensures that everyone has the money they need to provide materials and finish the job, without working in a deficit. It also solves concerns around cash flow velocity.

The platform should work with customers to release the funds needed to complete the job, while holding on to the remainder until the customer is satisfied. Don’t Stop at Convenience An embedded lending platform will make financing easier without upending a merchant’s tech stack. By exploring the embedded platform from all angles—how it integrates, how it protects, how it distributes funds—merchants can find something that fits their needs, while also delivering a simpler, more secure lending process for all parties involved. 

By Brian Lanehart
Jun 09, 2023 00:00
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