When I was shopping online, a new option that allowed me to finance my purchase appeared on the screen for checkout. This new service, which includes vacation travel on B2C, B2B, and P2P shopping sites, is becoming widespread across all asset types, from laptops to lift trucks.
The objective is to make it simpler for customers to use financial services in their everyday lives. Buyers can invest immediately instead of arranging to finance or delaying purchases, and businesses can receive payment quickly.
Leasing and embedded specialty financing are on the way. It will likely alter the financial landscape within the next five years. Therefore, auto and equipment finance companies must begin considering how to maximize their potential.
Imagine the implementation of embedded specialty finance in the real world.
Based on over 2,500 online interviews with senior managers at small and medium-sized enterprises (SMEs) in ten countries, my Accenture colleagues recently conducted a comprehensive investigation into the commercial banking industry and produced the report Embedded Finance for SMEs. An illustration of how embedded finance might operate can be found in it. A restaurant owner using a new food delivery platform is introduced to us. He comes across a new feature one day while checking the orders that would enable him to have the money from food orders deposited immediately into an account. Additionally, it is incorporated into the platform for delivery. He began using this integrated account for most of his day-to-day financial services needs within a year of signing up for the new service.
Similarly, equipment and automobile manufacturers may provide customers with a Finance Now button on their websites. It would be similar to Amazon’s “Buy Now” button but include specialized financing procedures in the background.
A service like this would eliminate the need for a lengthy application process, a cumbersome loan or lease application, and a credit check for customers. Instead, they could get financing for the car or equipment they need with just a few clicks—a quick and easy process that works for the borrower, the retailer or manufacturer, and the finance company.
According to research conducted by Accenture commercial banking, many buyers and borrowers are warming to the concept of embedded finance. Additionally, they are willing to pay more for a better experience.
Our survey respondents were interested in various financial services, with loans accounting for more than a third (34%) of their interest. Accenture anticipates that there will be a loss of $32 billion in revenue as a result of all of the benefits, with the potential for an additional $92 billion in revenue growth. That is not pocket change.
How can auto and equipment finance companies take advantage of this opportunity? Our survey found that 85% of people use digital services daily. As a result, digital platforms are well-suited to embed specialty finance services and other value-added services like financial management and analytics tools. End-to-end lending application programming interfaces (APIs) are already being offered by services like Stripe Capital in the United States to Shopify platforms to provide customers with financing options.
Lenders and lessors can take advantage of embedded specialty finance opportunities by collaborating with digital platforms to provide pass-through services, such as those offered by auto and equipment manufacturers. The finance organization can maintain it’s brand presence thanks to this model. Additionally, there is a relatively low investment required to join the platform.
Integrating specialty finance services with a digital platform to provide platform-branded services is a second model. This means a smoother experience for customers, but lenders and lessors lose control over the user experience and service pricing. However, the possibility of co-creating new solutions that address customer pain points exists when you partner with a platform. Additionally, it is a means of gaining access to the substantial customer base of the platform, though this rarely results in “ownership” of the customer. Finance companies may also include additional monetizable value-added options in these new solutions.
Whichever of these two models is most compatible with your business strategy over the long term, I suggest that auto and equipment finance companies start immediately. By 2025, pass-through services will probably be a thing of the past. Additionally, if you want to take advantage of the platform-branded service first-mover advantage, you must begin working with the appropriate platform immediately.
Downloading the report is highly recommended in the interim: SMEs’ embedded financing to assist you in considering your embedded finance strategy, go-to-market model, and execution plan; it provides a list of decision points in the developing embedded finance landscape.