Digital banks and fintech firms are forging alliances to launch embedded lending solutions in 2023

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Digital banking has emerged as the preferred channel for accessing financial services among consumers worldwide. The pandemic has supercharged the adoption of digital channels and the desire to access personalized services is projected to further drive the trend among customers and businesses globally. With the growing preference for digital channels, conventional banking firms have also launched similar services to avoid losing market share to neo-banks and fintech firms. 

As the competition to acquire customers continues to grow, digital banks and fintech firms are forging strategic partnerships to launch innovative solutions and expand their customer base in 2023.

• In February 2023, Lunar, the Europe-based digital bank, announced that the firm had entered into a strategic collaboration with fintech firm Froda and Visa. The partnership is aimed at launching a new embedded lending solution catering to the needs of small and medium-sized businesses.
• As part of the collaboration, Lunar’s customers will gain access to business loans through the embedded lending platform offered by Froda. Notably, small and medium-sized businesses will be able to apply for loans directly through their card provider.

One of the biggest advantages that Lunar and Froda have is the availability of Visa as a strategic partner. The payment giant has a presence in over 200 countries. As a result, the embedded lending solution launched by the firms is scalable globally. The firms are planning to launch the embedded lending solution for businesses in Q2 2023. As the embedded lending solution enables SMEs to apply for loans through the card provider, Froda and Lunar are seeking to partner with more card issuers to expand their customer base in the global market.

The embedded lending space is growing at a rapid rate amid the current higher interest rate environment. This, coupled with the inflationary pressure, has meant that even consumers are looking for lending solutions that are cheaper compared to those offered by traditional banks. Consequently, digital banks and fintech firms are forging strategic alliances to provide seamless and efficient lending services catering to the needs of consumers.

• In March 2023, Seattle Bank, the digital banking provider, announced that the firm had entered into a strategic partnership with LoanStar Technologies, the fintech firm in the United States. The collaboration between the two firms is aimed at enabling merchants and service providers to offer point-of-sale loans to customers.
• The two firms are joined by Finastra, the services of which will enable Seattle Bank to integrate with LoanStar Technologies. This, in turn, will give clients access to loans directly through merchant partners of LoanStar Technologies. While Seattle Bank will be able to expand its reach to customers nationally, LoanStar Technologies merchants will be able to drive their business growth by offering convenient lending options.

Amid the current macroeconomic environment, which has had a severe impact on the disposable income of many, such solutions are expected to gain increasing traction among consumers. Consequently, PayNXT360 expects Seattle Bank to record strong growth in its disbursement volume and value from the short to medium-term perspective.

In the B2B space, as well, PayNXT360 expects the demand for embedded lending to remain robust over the next three to four years. Consequently, more strategic collaborations are projected to emerge in the global market, as access to capital becomes expensive and difficult through traditional channels. These collaborations also mean that traditional banks risk losing market share to digital banks and fintech firms, which are offering personalized and instantaneous services to SMEs and customers.

As the embedded finance market continues to expand and more and more customers, including businesses, adopt digital channels to access financial services, it will become crucial for conventional banks to adapt their banking practices to the need of modern businesses and customers. With personalization becoming a key factor for businesses and customers to select their financial services provider, traditional banking institutions will have to invest significantly to innovate in the segment and offer the services when and where it is needed by the customers. Furthermore, conventional banks must also provide appropriate digital support to SMEs, which paves the way for their business growth.

To know more and gain a deeper understanding of the global embedded finance market, click here.