Winning the

Embedded
Lending Game
A Strategic Roadmap for
Banks to Succeed

Inspiring Better Banking

www.finacle.com
The shifting consumer habits and a surge in digital banking is constantly pushing financial institutions
to deliver more contextual products and services based on life stages of customers. The rise of fintech
and neo-banks has intensified competition, keeping banks on their toes. On the other hand, the global
movement towards financial inclusion is driving efforts to bring banking services to the unbanked
or underbanked. These emerging trends in banking along with the convenience of digital access to
alternative financial offerings and products, have all pushed financial institutions and non-financial
institutions to embed banking services within the primary customer journeys– what we know today
as Embedded Finance.

Embedded Finance can be realized within FIs and non-FIs in various forms - Embedded Lending,
Embedded Payments, Embedded Investment, Embedded Trade, and Embedded Insurance. The
scope of this thought paper is focused on Embedded Lending - one of the pillars of embedded finance.

Embedded Lending is desirable and huge opportunity globally, for banks and financial institutions,
yet many are still figuring out how to conquer this fairly new territory. While there are many aspects
that need to go right, most importantly, Embedded Lending demands a reimagined culture, and a
robust architecture designed to build an ecosystem that fosters seamless collaboration and empower
stakeholders to leverage their strengths. This thought paper provides a strategic roadmap for banks
looking to establish such an ecosystem.
Table of Contents
1. Decoding Embedded Lending
1.1. What is Embedded Lending?
1.2. Emerging Opportunities in Embedded Lending
1.3. Challenges Encountered in Offering Embedded Lending Services

2. Making Embedded Lending Work

2.1 Delivering Excellent Propositions Through an Ecosystem Approach
2.3 Architectural References to Build a Robust Embedded Lending Model

3. Way Ahead

4. Finacle Digital Lending Suite

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Decoding Embedded Lending
Key Players, Opportunities, and Challenges Involved

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What is Embedded Lending?
Embedded lending is the strategic integration of loan application, approval, and Embedded lending disrupts traditional lending models by embedding financial
sometimes even servicing functionalities directly within the primary customer services within non-financial ecosystems. It fosters a win-win situation for
journeys of non-financial platforms and applications. This integration leverages lenders, businesses and customers, offering a more convenient and data-driven
APIs to seamlessly connect the platform’s customer data and functionality with lending experience for consumers.
the lending partner’s credit assessment and loan management systems.

Key Players Involved in a Typical Embedded Lending Journey

Brand BaaS Banks

Embedded lending is the strategic integration Embedded lending is the strategic integration Embedded lending is the strategic integration
of loan application, approval, and sometimes of loan application, approval, and sometimes of loan application, approval, and sometimes
even servicing functionalities directly within even servicing functionalities directly within even servicing functionalities directly within
the primary customer journeys of non-financial the primary customer journeys of non-financial the primary customer journeys of non-financial
platforms and applications. This integration platforms and applications. This integration platforms and applications. This integration
leverages APIs to seamlessly connect the leverages APIs to seamlessly connect the leverages APIs to seamlessly connect the
platform’s customer data and functionality with platform’s customer data and functionality with platform’s customer data and functionality with
the lending partner’s credit assessment and loan the lending partner’s credit assessment and loan the lending partner’s credit assessment and loan
management systems. management systems. management systems.

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 Key Elements

Peter Walker Looking for

24 years old. Living in Melbourne. A young professional UX designer, who has A simple way to purchase with just a few experience automation

just started working. Is a millennial and is currently looking to buy a new high- clicks and be able to pay for it over the
end laptop that has just launched in the market. next 3 months.
insights speed
Digital Habits: Android fanatic. Generally knows what he need, and
when & where to buy it. Prefers to make his purchases through his mobile.

Customer buying a high end laptop through a mobile

#1 Receives an #2 Visits #3 Proceeds to #4 The app #5 He opts to #6 Provides #7 His EMI #8 He is #9 Over 3
Email from the e-commerce buy the product gives him an pay as a 3- his credit or request is happy with months, his card
an e-commerce app from his and goes to the option to pay month EMI debit card instantly the experience gets debited
platform about mobile and views payment page either in full, or payment details and approved, and and gives for the EMI
a new laptop product info through EMI make the purchase good rating amount
launch over 3 months purchase transaction
completed
1. Brand
(Merchant DigitalStore) The overall
customer
experience is
2. Saas/Baas Service
good, and the
Provider
service is
(Hosts the Brand and
delivered by all
connects to backend
the 3 parties in
Lenders-Ex: an e-
collaboration
commerce platform)

3. Lender
The Brand service provider is The lender approves
(Backend Partner - Bank
displaying the instant credit the instant credit
or Financial institution)
facility (EMI option) offered by based on the pre-
the backend partner financial assessed credit rating
institution (Lender) of the customer

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Emerging Opportunities in Embedded Lending
Opportunity #1 Opportunity #2 Opportunity #3

Large unbanked population with Millennials and demographic segments SMEs with or without appropriate
mobile access that may or may not be banked financial reports

Markets with large unbanked populations Millennials prioritize user experience and prefer SMEs often lack access to traditional lending due
but widespread mobile app usage present financial services via apps. Embedded lending to insufficient financial documentation. Banks
opportunities for financial inclusion. Banks can allows banks to reach this segment by partnering can partner with e-commerce platforms to offer
partner with telecoms and messaging apps with e-commerce platforms to offer solutions digital onboarding and financing. Goldman
for digital onboarding and credit access. For like Buy Now Pay Later. ICICI Bank (Pay Later), Sachs and Amazon, for instance, provide a
example, KASIKORN LINE (a venture between BRI Bank (Ceria), and UBP’s collaboration with revolving credit line to eligible Amazon sellers via
Thailand’s Kasikorn Bank and LINE BK) has issued Samsung illustrate successful ventures targeting a fully digital process, supporting small business
unsecured loans to over 300,000 customers, millennials. growth.
many previously unserved by traditional FIs.

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Emerging Opportunities in Embedded Lending
Opportunity #4 Opportunity #5 Opportunity #6

Customers looking for loans for

Gig workers Life-stage-specific products
travel purposes

Travelers often seek flexible payment options Gig workers need flexible financial solutions to Tailored financial products aligned to life stages
for trips. Embedded lending partnerships, such match irregular incomes. Banks can partner with like education loans, mortgages, or car financing
as Marcus by Goldman Sachs and JetBlue, gig marketplaces to provide tailored benefits. For can enhance customer engagement. Virgin
offer installment loans with no fees or deposits instance, Lean, a US-based start-up, collaborates Money’s Home Buying Coach app helps first-
directly via JetBlue’s app. This approach simplifies with gig platforms to offer banking services and time homebuyers navigate the process and set
financing for travelers and enhances customer financial ecosystems designed for gig economy realistic goals. Banks also partner with car and
experience. workers. real estate marketplaces to embed lending in
primary purchase journeys.

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Challenges Encountered in Offering Embedded Lending Services
The above opportunities appear exciting and can be potential gamechanger for banks looking to increase customer acquisition and build new revenue streams.
However, the road to leveraging these opportunities has several challenges:

Technology architecture limitations: Banks and BaaS partners often Evolving regulations: As embedded finance continues to grow, regulators
depend on banks’ existing technology stack to deliver these products. But are tightening up the rules on embedded banking business models, like the
banks’ technology architectures weren’t built with BaaS in mind. BaaS OCC in the US. Banks remain responsible for compliance, and must ensure
providers have no option but to build on top of banks’ existing tech stacks. their partners implement mandated processes, controls and disclosures.
This limits how much complexity BaaS providers can eliminate through a
Loss of primary relationship: In embedded lending, financial services
modular platform of their own.
are integrated into non-bank platforms, such as e-commerce websites or
Managing multiple stakeholders: Embedded lending involves multiple mobile apps. The primary interaction point for the customer is the non-bank
players – bank, lending platform, a BaaS provider, and other third-party platform, not the bank. Consequently, banks might lose the opportunity
services. Ensuring seamless and secure data exchange between requires to directly engage with customers, potentially weakening customer
robust and standardized integration architecture. relationships and loyalty.

Risk assessment: Embedded lending often involves smaller loan amounts Brand and reputation: As customers associate financial services with the
than traditional lending and limited data from the lending platform. Banks partner platform than with the bank, it dilutes bank’s brand identity and
need to adopt new risk assessment models that leverage alternative reduces perceived value of bank’s services. Furthermore, any negative
data sources and real-time spending behavior to accurately assess experiences with the service could adversely affect the bank’s reputation,
creditworthiness. even if the bank is not directly at fault.

Reduced control: In these models, customer experience hinges on the Adapting a conducive culture: For a successful embedded lending model,
non-bank platform’s user interface and functionality. Consequently, banks banks need to adopt a collaborative and technology-driven mindset to work
cede some control over the customer experience, not being able to ensure closely with non-bank players and integrating services into their platforms.
it aligns with their own brand and customer experience standards. This represents a significant cultural shift for most banks. Their workforce
may need to develop new skills and embrace a more agile and innovative
approach.

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Making Embedded Lending Work
Ecosystem Approach and Architectural References To
Build a Robust Embedded Lending Model

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Delivering Excellent Propositions Through an
Ecosystem Approach
Delivering embedded banking propositions tests the ability of the stakeholders to deliver complex digital propositions at scale. To make embedded
banking effective, brands, BaaS providers and banks need to work together to design, develop and deliver new propositions and journeys that add value
in customers’ contexts. The promise of embedded banking is to integrate relevant capabilities into customers’ journeys at their point of need.
Effective collaboration is imperative for a robust embedded lending model. Banks and other stakeholders must learn to embrace an ecosystem mindset
that enables this collaboration.

Key Tenets to Embrace the Ecosystem Approach

Build a customer-centric culture and align all initiatives towards this end goal
Execute decisions at pace and work collectively upon budgets, pricing, compliance, and strategy
Ensure flexibility to accommodate products and development processes desired by partners
Align people, processes, and technologies needed for safe and effective sharing of complementary data and analytics
Include risk managers and regulatory compliance experts right from the outset, and deliver the intent of the regulations
Build trust and confidence through transparency with your partners
Define your commercial terms clearly, and help partners understand how you want the commercial relationship to work

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Architectural References to
Build a Robust Embedded
Lending Model
The following architectural references will enable the
stakeholders to design, develop, and deliver an embedded
lending solution with faster time to market. Each reference
architecture artefact, on its own, provides a concise
representation of the solution in that domain.

These references will help banks build a robust, composable,

microservices-driven architecture that facilitates collaboration
and workflows required for a robust embedded lending model.

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 Solution Dimensions
#1 To offer an embedded lending solution, the financial
institutions need to consider an ecosystem providing Key Dimensions and Value Services Required For
Embedded Lending
value added services, along with a robust solution
platform to support the capabilities, which shall
PLATFORM VALUE SERVICES VALUE SERVICES VALUE SERVICES
provide an enhanced customer experience. In the (SaaS / BaaS) Onboard Ecssystem Players Support Ecssystem Player Service Ecssystem Player

financial services domain, businesses follow traditional

strategies to deliver products to market.
Origination Digital Experience Training
Retail
Underwriting
Most commonly, financial institution owned channels,
Disbursement Data Strategy Process Consulting & Design
branch networks, and structured retail partners. SME
Servicing
The diagram indicates the solution dimensions that
API Packages Implementaion & Delivery Testing
support embedded lending solution.
AI & Automation

Security & Governance Operations & Support Change Management

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 Business Capability Matrix
#2 The business capability model provides a visual depiction of
the organization’s capabilities and engagements. It serves as
a clear framework for strategic planning and modernization Matrix of Business Capabilities - Business Functions -
Process - Application Features
while ensuring common understanding of business
capability, its gaps, and empowering stakeholders with a LOAN LOAN LOAN
PRODUCT ORIGINATION PROCESSING & SERVICING
Business
foundation for making informed architectural decisions. Capabilities
Product Structure & Product Comparison Eligibility & Credit Risk Loan Setup Loan Repayment
Features

Product Pricing Customer Engagement Loan Application Loan Funding Loan Closure
/Management (Types)
Business
Product Build Loan Evaluation Loan Approval Loan Exception Mgmt. Corporate Service
Functions

Build Apply Verify Disburse Service

Product Definition Demand Generation Assess Eligibility Funds Management Rescheduling & Recall
Process (Payment & Hold)

Flow Product Variance Customer Data Credit & Risk Mgmt. Amortization Schedule
Charges & Frees

Repayment & Excess

Interest Definition Data Analytics Loan Scheme Default Management
Payment Mgmt.

Overdraft & Credit Line

Application Loan Modelling Loan Enquiry Application Mgmt.
Management
Collection
Features
Pricing Model & Reporting & Inquiry
Dashboard & Display Document Mgmt. Maturity Processing
Calculation Management

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 Functional Architecture
#3 Banks need to build a functional landscape where
different players can seamlessly collaborate based on
Functional Components to Participate in
Embedded Lending
mutually agreed rules. The ecosystem should be capable
Customer Embedded Experience FI Owned
of handling context-specific products for different Facing
Solutions Partner Portal Merchant Fintech’s Contact Center Digital Portal External
customer segments (retail, SME, corporate). To support Interfaces

an embedded lending experience, non-banks should API Gateway - Open API

Credit Validation

Ecosystem
build a bottom-up services orchestration framework Integration Business APIa
Payment Network

Capabilities
encompassing the relevant functional capabilities. E Signature
Service- Repository & Orchestration
Compliance/
KYC

Embedded lending also requires other capabilities, Domain

Customer
Data
Loan
Product
Charges &
Fees
Loan
Origination
Loan
Processing
Loan
Servicing
Loan
Setup
Loan
Funding Regulatory
Reporting
Components
such as payments, ledger, collateral, and collections to Product
Structure
Product
Pricing
Product
Build
Loan
Application
Loan
Evaluation
Loan
Approval
Loan
Closure
Collections Content & Doc
Management
complete its proposition. It must integrate with other
SMS/Email
Transaction Data
external systems, such as transaction rails, systems for Data &
Analytics
KYC and compliance, etc. Data Warehouse / Data Lake

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 Application Architecture
#4 The diagram depicts the application landscape for
lending solution layered across the architecture tiers
Logical Application Landscape For Embedded Lending

COLLABORATION TIER PRESENTATION TIER

supporting its alignment with business capabilities

Security Controls
Origination & Onboarding Digital Channels
and functions. It also indicates the satellite applications Device / IP Profiling

Network Integration
(collaboration tier) that could be part of the financial Soft Search ENGAGEMENT TIER

institution’s ecosystem. Fraud Profiling Risk Rating API Gateway Digital Device Management

ACCESS & SECURITY TIER

Content Management
BUSINESS PROCESS AUTOMATION

INTEGRATION TIER
A key aspect of the solution is its ability to interface
Campaign Management
with the wider enterprise applications landscape of the Process & Rules Engine

AML & KYC

eSignature
financial/non-financial institutions using APIs, enabling EMBEDDED FINANCE (LENDING) ENGINE

enterprise applications to easily access embedded

Enterprise Integration
Payment Management Processing Disbursement Repayment Servicing
lending services.

Identity & Verification

Document Management
DATA STORAGE & MANAGEMENT TIER

Data Analytics Customer Data Lending Data Data Store Enterprise DWH

Visualization
INFRASTUCTURE TIER

Reporting
PODS / Cloud Nodes Cloud Service

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 Composable Services
#5 To conceptualize an embedded lending architecture consumable as
SaaS, at a logical level, the following six key composable services are
required to interface over APIs, with the non-FIs/FIs/Fintech ecosystem:
Origination &
1. Origination and Onboarding: Supports user registration, Onboarding
onboarding, risk profiling, and credit approval while complying
with regulations. Includes notifications for application, account, or Risk Rating Processing
payment progress.
2. Risk Rating: Uses AI/ML models for risk scoring and offer EMBEDDED
suggestions, referencing external credit scoring APIs, with LENDING
optional manual overrides.
3. Processing: Manages customer loan accounts, including creation, Repayment Disbursement

updates, and closures, with support for straight-through and

manual processing workflows.
Servicing
4. Disbursement: Facilitates account funding and checkout options
via APIs, ensuring compliance with guardrails, credit limits, and cross-
currency requirements.
5. Repayment: Supports scheduled, pre-, and late payments with
notifications for changes or updates in payment schedules.
6. Servicing: Handles arrears, rescheduling, interest changes,
deferments, write-offs, recoveries, and reporting, with notifications
for customer updates.

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Way Ahead
A key expectation of today’s banking customer is services that are seamless,
invisible even. Banks can achieve this by embedding their offerings, such as
lending, within their customers’ primary journeys. Embedded lending offers
exciting opportunities spanning customer segments (retail, business, corporate)
and industries (real estate, healthcare, travel, education, ecommerce etc.)
that new-age financial providers, such as fintech and challenger banks are
capitalizing on.

Incumbent banks that have not woken up to the embedded lending

opportunity must lose no time in striking partnerships with BaaS providers
and brands. Having a modern embedded lending solution with the right
architecture will help banks ensure seamless integration to make the most of
this opportunity.

Get in touch with us to learn more.

[email protected]

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Finacle Digital Lending Suite The Finacle Promise
Empowering your institution’s lending evolution
The Finacle Digital Lending Suite is a cloud-native, multi-segment,
multi-product solution that is reshaping the lending landscape
for banks and financial institutions of all sizes. The comprehensive
Better agility to drive
suite supports the entire loan lifecycle digitally to drive agility in innovation and growth
lending, improve risk management, and deliver better operational
efficiencies.
Comprehensive
Finacle brings rich experience in digital lending transformation Lending Suite Better customer engagement with
enhanced propositions
having delivered more than 480+ lending deployments in over 100
countries. Advanced
Architecture

Better operations for

Simplified efficiency and scale
Transformation

Better risk management for

safe and secure lending

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 Finacle Digital Lending Suite: Powering Modern Digital Lending Use Cases

BNPL Digital-only Lending Co-Lending

ICICI Bank PayLater leverages Bank BRI Ceria is the first bank Axis Bank India is capitalizing
open banking to introduce instant in Indonesia to introduce an end- the co-lending business model
digital credit to enable customers to-end digital lending product on to expand its reach leveraging
to make purchases digitally a smartphone for e-commerce strengths of non-banking
and instantly across 5 million purchases by millennials | Loan financial companies (NBFCs), and
merchants both offline and online initiation to disbursal process housing finance corporations
takes only a few minutes | Over 7 (HFCs)
billion Rupiah in loan volumes in
just 45 days of launch

BaaS at Scale Chatbot Lending

A Leading North American Kasikorn Line, Thailand, a joint
bank powers Amazon’s small venture between Kasikorn Bank
business credit line with Amazon’s and Line, launched a range of
business financing options banking services that are offered
extended to eligible sellers with via messaging app LINE BK |
application process 100% digital. Acquired 1 million customers
Small businesses who sell on the in less than 2 months, provided
platform can avail revolving credit unsecured loans to over 300,000
lines from Amazon, powered by customers – 30% of whom don’t
the bank. get loans from other FIs

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Thought paper authored by

Abir Bhatia Glenn Sonsalla Puneet Chhahira Ravi Venkataratna

Principal-Enterprise Applications Senior Industry Principal Head of Product Management Senior Industry Principal
and Marketing
Arjun Singh Leslie Gonsalves Srihari B.A
Member - Content Marketing Senior Technology Architect Rajalakshmi Sridharan Senior Manager - Solutions
Associate Director - Corporate Consulting
Gary White Ninad Hulle Communications
Senior Technology Architect Principal Technology Architect Venkatraman R
Rajasekhara V Maiya Head of Product Architecture
Head of Business Consulting

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 [email protected]

www.finacle.com

www.linkedin.com/company/finacle

twitter.com/finacle

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For more information, contact [email protected] www. finacle.com

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