How embedded lending changes the game for non-fintech startups

The distinction between startups rooted in the finance world and startups that weren’t used to be an obvious one. Startup founders would pick an industry and stay there to grow. If that industry didn’t happen to be banking and finance, as it often wasn’t, then money-related services stuck to the basics, like a basic card payment platform for purchasing products or paying a subscription fee. If that industry did happen to be banking and finance, offering financial products would usually be the sole focus.

This is no longer the case. How startups approach industries and grow has changed drastically within the last five years in particular. Startups, SMEs, and established companies that have grown out of the startup economy no longer think in such rigid terms, especially when it comes to financial services. For many not-explicitly-fintech companies, financial services have taken on real appeal as something not to be sidestepped or seen as a necessary evil but effectively integrated into a larger existing platform and offered to customers directly.

Tech giants embrace financial services

This didn’t come out of nowhere. The rise and subsequent success of dozens of neobanks around the world demonstrated that financial services are not strictly the domain of the long-established corporate banks that have dominated the financial world for decades – banks like Chase, HSBC, or BNP Paribas. With banking already freed from the constraints of megalithic corporate finance, the uptick in non-fintech companies offering financial services is just the logical next step.

It’s also something that major, tech-focused but non-fintech companies have been pioneering right alongside startups. Mobile payments opened the floodgates. Apple broke in via ApplePay and now offers its own credit card and savings account. It’s hardly alone in that. Virtually every major tech player has made significant strides into fintech, from Amazon’s wealth of credit and payment systems to Meta’s digital wallets. Walmart announced the creation of an entire fintech unit in 2021, centered around a banking-oriented superapp. This isn’t altogether unprecedented considering how long the retailer giant has offered prepaid debit cards, tax prep services, money transfers, and similar financial services, but it does represent a distinctly fintech-centric pivot.

Embedded lending as new black for non-fintechs

It only follows that non-fintech companies’ view of financial services has continued to expand well beyond the realm of customer deposits and loyalty accounts. Embedded lending is the new financial service trend for non-fintech companies, and in many industries it’s becoming absolutely necessary to make positive unit economics.

Broadly speaking, the term ‘embedded lending’ refers to when non-fintech companies offer lending services. While approaches to offering it can differ, the ability to offer a loan within the platform itself holds real appeal, as it can provide customers with the capital they need fast. It keeps the customer within the company’s ecosystem and allows companies to stay in control of every step of the process, which also means they stay in control of their brand and the overall customer experience. Conversion is a challenge, granted. The customers most likely to convert are people who are already familiar with embedded lending as a practice. Awareness is key, as is an existing foundation of brand trust. 

White-labeled lending opportunities

For many non-fintech companies, moving into the embedded lending space is an opportunity to scale and grow. The unit economics are fundamentally better, as is the decision-making thanks to the data on hand. These companies already have a customer base and the attendant data, which means less marketing spend and an existing degree of built-in loyalty that wouldn’t be there with new customers. The margins around lending work in these companies’ favor, and the money involved works the economy instead of just being parked somewhere.

Building an entire embedded lending infrastructure from the ground up is not exactly feasible for most companies. Thankfully we’ve reached the point where that isn’t the only way to do it. White-labeled lending products make it not only possible but convenient and comparatively easy to integrate this service completely under the purview of an existing brand.

This changes everything. Now any startup or platform that can understand the advantage of breaking into fintech functionality can act on it. Acting on it has the potential to transform the financial outlook of any given startup, which means that any given startup can reshape itself as a fintech-related and fintech-savvy company regardless of its core product.

As more founders and executives recognize the enormous financial windfall and customer growth, this can create, more startups that were never even considered fintech-adjacent will jump right in. You could say that all the startups are becoming fintechs because that’s where the money is – the money that creates growth, ensures loyalty, and can expand the company’s original vision, whatever it happens to be.

  • Markus Prommik

    Markus Prommik is the CEO and Co-Founder of Finfra, the one-stop shop for businesses integrating white-labelled lending products in Indonesia, driven by his commitment to advancing financial inclusion in Southeast Asia.