Real estate is banking on embedded finance to explore new business opportunities

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Newer sectors are harnessing the power of embedded finance to provide a better customer experience at the same time explore new business models to improve their bottom line. Importantly, real estate is one such sector that has been seeking immense attention from embedded finance platforms over the last four to eight quarters to see growth. For instance,

• In October 2022, India-based tech platform for property and real estate, Housing.com announced entering into collaboration with an insurtech platform Riskcovry, to launch an innovative service called 'Rent Protect Cover.' Riskcovry offers a powerful unified API that enables any organization to distribute insurance anywhere, over multiple channels, instantly. Through this collaboration, the prop-tech platform plunged into the insurance distribution business, offering an array of insurance benefits to its buyers at a very reasonable premium.

This insurance cover will take care of more than 12 critical illnesses worth approximately US$2,430 together with an accident plan worth approximately US$1,216, and also medical expenses worth approximately US$729 in case of accidental hospitalization. Though one can pay the insurance premium monthly, the tenure of the insurance policy will be mostly annual. Consequently, the benefit claim can be used by the customers to pay rental dues over the coming months.

The premium of the insurance will particularly be embedded into the workflow channel of rent payments for Housing.com’s customers under the ‘Pay on Credit' section. To be specific, this ‘Pay on Credit’ is part of Housing EDGE, a full stack rental & allied services platform under Housing.com. In the year 2020, the ‘Pay on Credit’ service was launched and it captured around 100K users within two years of its launch.

Housing.com, together with Proptiger.com, and Makaan.com, have been strategizing on elevating consumer experience with full-stack services in the residential real estate space, as well as meeting the needs of home buyers, renters, and other allied service providers. As timely rental payments have always troubled the property owners and any unforeseen situation may lead to default and delay in rental income. Through this insurance, the platform is aiming to deliver a service that bridges the trust gap, between the property owner and tenant communities.

PayNXT360 expects that this embedded insurance service will smoothen by bundling the insurance purchase within the rent payment experience, capturing a significant number of customers over the next four to six quarters. 

• Another partnership was formed in the embedded finance space particularly in the commercial real estate sector in May 2022. Cross River Bank, which is a tech platform specifically for embedded financial solutions announced that its Commercial Real Estate department partnered with a tech-driven commercial real estate lending platform, Erithmitic d/b/a Bridgeton Capital. Notably, Erithmitic d/b/a Bridgeton Capital had been operating in the Commercial Real Estate (CRE) field with the help of AI/ML to provide an end-to-end CRE marketplace for CRE loans in the United States.

Under this partnership, all the borrowers and the sellers will now be able to access credit opportunities across wider geographies and also enable Cross River Bank to enter several newer markets in the country. In other words, this partnership will help in overcoming inefficiencies in the CRE space by integrating Cross River's technology infrastructure and regulatory expertise with that of Bridgeton's AI and machine learning support. Notably, both companies intend to focus on offering one to two years interest-only bridge loans on multifamily and commercial properties of around US$5-US$50 million across the country. Furthermore, it is important to mention here that a multifamily bridge loan is a type of financial tool used by commercial property owners to narrow the time difference between the time to get the loan and the time to execute the plan with the property.

Consequently, PayNXT360 projects that together both platforms will be able to solve the issues of processing and underwriting loans, thereby providing the commercial real estate market with a more efficient solution to accessing capital.

• Innovative embedded finance platforms are propping up in the African region to solve the housing issues and thus are attracting the eyes of investors. For instance, in October 2022, a prop-tech start-up based out of Nigeria, Spleet, raised around US$2.6 million in a seed funding round to expand its residential rent management and rent financing products. This funding round was led by MaC Venture Capital along with other investors-both new and existing.

Though the start-up started as a marketplace where tenants could meet landlords and pay their rent monthly, later it pivoted to a full-fledged embedded finance platform. It now enables tenants to rent properties and pay rent monthly, at the same time allowing the landlords to receive the rent yearly.

Lagos, one of the smallest states in Nigeria has a severe real estate deficit problem and it receives a huge number of visitors daily, thereby pushing the internal migration rates higher leading to a constant high demand for houses in the region. This proves residential rent management and rent financing products will always remain in high demand in the region. Moreover, Spleet’s platform receives rental payments of around US$1,500 a month, a price that is out of reach for most Nigerians. Furthermore, Nigeria does not even have a unified credit scoring system, which has led to high rates of non-performing loans (NPL) and for this very reason, Spleet entered the market with its product. Notably, the platform went for several partnerships to channel loan recovery and wants to build products for those in the residential rent ecosystem.

Now, with the fresh capital, Spleet aims to add more services to its product, such as a service that receives rent payments on behalf of the landlords. Additionally, it also wants to build a tool for landlords and real estate agents to cross-check the background of the tenants before handing over the lease agreement; and also, a reasonable interest rate for accessing rental loan products. With more than US$1 million in annual recurring revenue, PayNXT360 expects this model to bring more revenue to Spleet over the long run.

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