Embedded Lending: Banks Get a Second Chance to Stake a Claim

Embedded lending has revolutionized the ability of financial institutions to “meet customers where they are”—when they’re shopping online, often for big-ticket products and services. But a market scan by Javelin Strategy & Research found that few banks and credit unions are active in embedded lending, leaving fintechs such as Affirm, Afterpay, Apple, Klarna, and PayPal to dominate a market that Javelin has previously forecast will grow at a 19.5% compound annual growth rate through 2027. 

It’s time for traditional financial institutions to take a more aggressive stance, however, in the wake of the Consumer Financial Protection Bureau decision in May to classify embedded lending fintechs as credit card providers under Regulation Z, a change that will raise the fintechs’ costs. This report scrutinizes strategies that fintechs use to disintermediate FIs, identifies six inviting markets that remain open to traditional FIs, and explores four strategic approaches to success in embedded lending.

Key questions discussed in this report: 

• Why is it time for banks and credit unions to reconsider embedded lending? 
• What embedded lending markets remain promising for traditional FIs? 
• What tactics do fintechs use to disintermediate traditional FIs? 
• How can banks and credit unions adapt to boost their loan portfolios with embedded lending?

Companies Mentioned: 

Affirm, Afterpay, Ally, AutoFi, Bank of America, Carmax, Carvana, CBW Bank, Celtic Bank, Chase Bank, Citibank, Citizens Bank, Cross River Bank, Evalon, First Electronic Bank, First National Bank of Omaha, Four, Galileo, Huntington Bank, Klarna, Lead Bank, Momnt, OpenPay, PowerPay, Primus Bank, Redfin, Santander, Splitit, Synchrony, Truist, United Airlines, Uplift, U.S. Bank, WebBank, Wells Fargo, Zillow, Zip