EMBEDDED LENDING MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2024-2031)

Market Size and Trends

The embedded lending market is estimated to be valued at USD 6.35 Bn in 2024 and is expected to reach USD 23.31 Bn by 2031, growing at a compound annual growth rate (CAGR) of 20.4% from 2024 to 2031.

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Embedded lending allows borrowers to apply for loans through the platforms of other businesses. There is growing demand for embedded lending services as more companies integrate financial products and services into their digital customer experiences. Non-bank companies are partnering with lenders to provide customers instant credit approval and access to funds. Additionally, the ease of use and seamless experience embedded lending provides is increasing its popularity among digital-first consumers. Furthermore, technological advancements aiding its seamless integration and rising adoption across industry verticals are expected to drive the embedded lending market growth in the coming years.

Rising Digital Adoption and Mobile Connectivity

With digital technology advancing rapidly in recent years, people's lives have become increasingly online-based and mobile-centered. Activities like banking, shopping, communication, and entertainment that once required physical presence now happen primarily through mobile apps and websites. This shift towards digital and online has opened up new avenues for businesses to provide services and reach customers. Embedded lending allows financial institutions to offer loans, payments and other services seamlessly integrated within the online platforms, marketplaces and apps that people frequent in their daily lives. As more economic activities move to digital spaces driven by growing smartphone usage and internet penetration, embedded lending ensures financial access keeps up with the pace of digital transformation in a seamless manner.

Market Concentration and Competitive Landscape

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The increasing preference of consumers for seamless and customized financing solutions integrated within product purchase flows is a major factor propelling the embedded lending market forward. Customers want the convenience of getting pre-qualified loan decisions in real-time and ability to complete the loan and purchase in a single online transaction. This consumer behavior is encouraging businesses across sectors like retail, auto, real estate, etc. to embed financing solutions into their purchase experience.

Companies are able to boost sales and customer satisfaction by offering instant credit approvals and flexible repayment plans customized to individual needs and budgets. For example, buy-now-pay-later services embedded on e-commerce platforms saw a rise in usage from 52 million users in 2020 to over 100 million users in 2022 according to the World Payments Report 2022 by the World Bank. Consumers found value in dividing large purchases into interest-free monthly installments. Businesses gained by converting more browsing customers into buyers.

This rising preference for embedded buying and instant financing among digital-savvy customers is set to increase going forward. More sectors will look to capitalize on the opportunity by collaborating with lending firms to provide personalized and automated credit approval and disbursement. Technologies facilitating fast underwriting using alternative data sources will further boost embedded lending. Both customers and businesses stand to benefit from the seamless purchase experiences and sales conversions this market enables.

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One of the key challenges faced by players in the embedded lending market is a lack of standardized processes. As various tech platforms introduce lending capabilities, each has its own unique underwriting process, credit policies, and user experience. This presents integration challenges for partners and consumer confusion over differing loan terms. Additional challenges include a shortage of embedded lending data to build accurate risk models, regulatory uncertainties around privacy and lending laws, and converting platform users interested in credit into loan applicants.

Market Opportunities: Partnerships with Fintech Players

The embedded lending market presents significant growth opportunities. As digital-first consumers increasingly manage their finances online, the ability to offer loans and lines of credit directly in everyday spending and payment environments removes friction from the borrowing process. Partnerships between lending and platform providers also allow focusing extensive user activity and spending data to expand access to customized credit options for underserved groups.

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The platform segment is estimated to hold the highest share of 64.5% in 2024 in the embedded lending market owing to its technological advantages over traditional services. Platforms offer lenders a fully-integrated digital solution for end-to-end loan origination, underwriting, and servicing. Their advanced algorithms can automatically assess borrowers' creditworthiness based on vast amounts of alternative data like utility payments, rent history, education levels, and social media activity. This allows for rapid approval of applicants who may otherwise be rejected due to thin credit files. The automated nature of platforms also promises significant cost savings versus manual underwriting processes. Their built-in predictive analytics tools help lenders make data-driven decisions to minimize risks. Platforms are also highly customizable and can be seamlessly integrated with other core banking systems. This enables lenders to launch innovative new loan products faster to test varying underwriting criteria. The ability of platforms to continually learn from each transaction processed further improves approval rates and portfolio quality over time. As more lenders recognize these benefits, platforms will continue capturing larger portions of the embedded lending technology budget.

Insights, by Deployment - On-premise holds the leading position in the market

The on-premise segment is estimated to hold the highest share of 61.3% in 2024 due to strong preferences among larger, more traditional financial institutions. Many established banks and credit unions prefer having direct control and visibility over critical systems that store customer data and manage financial transactions. On-premise embedded lending platforms allow these institutions to host the software locally on their own private servers located within internal data centers. This provides reassurances around data security, regulatory compliance, and prevents reliance on external cloud providers.

However, the cloud-based segment is exhibiting the most robust growth trends. According to the World Bank's annual financial inclusion report, cloud technology adoption is rising steadily among smaller financial institutions and FinTech startups entering emerging markets. The upfront infrastructure and maintenance costs of an on-premise system can be prohibitively expensive for these types of organizations.

Cloud-based embedded lending solutions offer a lower total cost of ownership while removing the need to purchase, house and maintain expensive hardware. This frees up capital and IT resources that can instead be reinvested into business expansion, new services and improving the customer experience. The ability to quickly scale systems on-demand through the cloud is also attractive to high-growth businesses.

Regionally, cloud adoption is highest in areas like Southeast Asia, Central and South America where 4G network connectivity has expanded rapidly in recent years. This has enabled more inclusive access to digital financial services even in remote communities. Supranational organizations like the Inter-American Development Bank are working to foster cloud-based FinTech innovation to help close access gaps.

While security concerns still influence some institutions, encryption and multi-factor authentication standards have advanced to assuage many of these issues. Regulated industries are also developing comprehensive cloud compliance frameworks. As costs decrease and reliability increases, more embedded lending providers will likely transition workloads to public clouds over time or offer hybrid cloud-on premise options to various customer segments.

Insights, by End-use Industry - Retail's data abundance fuels customized lending

The retail segment is estimated to hold the highest share of 23.2% in 2024 owing to its treasure troves of customer purchase data. Point-of-sale transactions at retail outlets produce rich behavioral profiles of spending patterns, paydown histories, product preferences, and others. Leveraging these contextual insights, retail embedded lenders can pre-approve loan offers tailored for each shopper based on their likelihood to repay. Customized terms and convenient digital pre-approvals then directly increase the conversion of basket sizes. Multi-channel retailers also benefit from gaining a unified view of customers across physical stores and websites. Through embedded financing partnerships, they extend their value propositions to include flexible payment options. Conversely, healthcare providers for instance lack the same level of spending observations on individual patients. So retail emerges as the ideal setting for data-enriched embedded lending models delivering personalized experiences at scale.

Regional Insights

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North America has established itself as the dominant region in the embedded lending market over the past decade. The region is estimated to hold a market share of 38.8% in 2024. The presence of key industry players such as PayPal, Affirm, and Kabbage has led to the widespread adoption of embedded lending solutions among e-commerce merchants and consumers in the U.S. Tech-savvy consumers are growing accustomed to applying for personalized loans and lines of credit directly from retailer websites or apps, driving higher approval and purchase completion rates. Furthermore, the extensive use of credit cards and emphasis on consumer credit has normalized the idea of retail-based lending. Major retailers like Walmart and Target have also entered the space through partnerships, cementing embedded lending as a regular part of the shopping experience.

The Asia Pacific region has emerged as the fastest growing market for embedded lending globally. Rapid economic growth, rising incomes, adoption of digital payments, and transition to online commerce are fueling demand. Countries like India, Indonesia and the Philippines in particular are experiencing boom times. Local companies have entered the fray to cater to the nuanced needs of each market like flexible repayment tenures, support for multiple local payment methods and localized underwriting models. Global giants are also establishing local operations to tap into the opportunities. For example, PayPal’s acquisition of GoPay in India was aimed at dominating the payments landscape and culturally relevanting embedded lending products. The diverse region presents a massive total available market as more consumers gain access to digital financial services. Its growth prospects are unparalleled as internet and smartphone penetration are expected to surge over the coming years.

Market Report Scope

Key Developments

• In November 2023, Manigo, a fintech solutions provider, partnered with SurePay V. to launch embedded finance solutions for businesses and consumers across Saudi Arabia.
• In December 2021, TurnKey Lender, a global B2B SaaS company that offers AI-powered lending automation and decision management solutions, formed a partnership with LoanPaymentPro, a leading provider of innovative, technology-driven payment and funding solutions in the consumer finance and debt repayment space.
• In November 2022, SBM Bank India announced a strategic partnership with Open Financial Technologies Pvt Ltd for launching Asia’s first end-to-end Embedded Finance platform- Zwitch- to offer a no-code, low-code and full-stack API solution that enables fintechs to build their own financial products using Zwitch’s technology stack.

*Definition: The embedded lending market involves partnerships between financial institutions and non-bank companies to offer loans, lines of credit, or other financial products to consumers through the partners' digital platforms and websites. By embedding lending capabilities directly into a partner's customer experience, consumers can apply for and receive financing seamlessly as part of a larger purchase or transaction. This removes friction from the borrowing process and allows the partner to expand their services while tapping into the financial institution's underwriting expertise and lower cost of capital.

Market Segmentation

•  Component Insights (Revenue, USD Bn, 2019 - 2031)
  • Platform
  • Services
•  Deployment Insights (Revenue, USD Bn, 2019 - 2031)
  • Cloud-Based
  • On-Premise
•  Enterprise Size Insights (Revenue, USD Bn, 2019 - 2031)
  • Small & Mid-sized Enterprises (SMEs)
  • Large Enterprises
•  End-use Industry Insights (Revenue, USD Bn, 2019 - 2031)
  • Retail
  • Healthcare
  • IT and Telecom
  • Manufacturing
  • Transportation
  • Others
• Regional Insights (Revenue, USD Bn, 2019 - 2031)
  • North America
    • U.S.
    • Canada
  • Latin America
    • Brazil
    • Argentina
    • Mexico
    • Rest of Latin America
  • Europe
    • Germany
    • U.K.
    • Spain
    • France
    • Italy
    • Russia
    • Rest of Europe
  • Asia Pacific
    • China
    • India
    • Japan
    • Australia
    • South Korea
    • ASEAN
    • Rest of Asia Pacific
  • Middle East & Africa
    • GCC Countries
    • Israel
    • South Africa
    • Rest of Middle East & Africa
• Key Players Insights
  • Affirm
  • Afterpay
  • Alchemy
  • Banxware
  • Biz2X
  • Finastra
  • Hokodo
  • Jaris
  • Kanmon
  • Klarna
  • Lendflow
  • Liberis
  • Migo
  • Sivo
  • Stripe, Inc.
  • Tapwater
  • Turnkey Lender
  • Zopa Bank Limited