1.5 Embedded lending

Embedded lending means the borrower’s primary relationship is with a non-lender partner (an ERP, a payments platform, a B2B marketplace, an accounting SaaS, an anchor brand) and the loan offer surfaces inside that partner’s UI. The regulated lender is in the background.

For an SME working-capital platform built around CA networks, Tally, GST, distributor ecosystems, this is the natural distribution model. Tally is the largest accounting installation base in Indian SME (millions of seats); a lender embedded inside the CA’s or business’s Tally workflow has a structural distribution advantage.

Money flow

1. Partner surfaces a “Get a loan” widget inside its product based on partner-side eligibility signals (e.g., 6 months of clean Tally data).
2. Borrower clicks; consent flows through the partner UI to the lending platform.
3. Lending platform pulls borrower data (with consent), runs underwriting.
4. Sanction / KFS surfaces inside the partner UI or via a co-branded webview.
5. Disbursement happens from the regulated lender (NBFC or bank).
6. Repayments via NACH / eNACH / UPI AutoPay against the borrower’s bank.
7. Partner is paid a sourcing fee per disbursal.

Risk owner

Whichever lender funds the loan — own-book NBFC, co-lent bank, or LSP-partner RE. The partner platform does not carry credit risk (in a pure embedded model; some partner DLG arrangements exist but are rare and tightly capped).

Regulatory shape

The Digital Lending Guidelines treat the partner platform as an LSP (because it is a customer-acquisition agent of the RE). All Digital Lending Guidelines obligations apply — KFS must be shown, RE must be disclosed, grievance route to RE must be clear, borrower consent for data shared with the lender.

This means the partner’s UI cannot just show a loan offer with the partner’s brand and hide the lender. The lender’s name, the KFS, and the grievance contact must all be visible. Modern embedded designs solve this with a co-branded webview or sheet that the partner opens from inside its app.

Borrower relationship

The borrower transacts inside the partner’s UI but contracts with the RE. The KFS, agreement, and all loan-account communication must reference the RE clearly.

Underwriting owner

Lender / NBFC. The platform may use partner-supplied data (e.g., Tally cash-flow data) as a primary input to the underwriting, with explicit consent.

Collections owner

Lender / NBFC. Borrower is reachable via the partner only with explicit borrower consent and within Fair Practices Code constraints; otherwise collection reaches the borrower via the lender’s own channels.

Fees

• Sourcing / lead fee to the partner per disbursal: 0.5% – 2.0% of sanction, sometimes a flat ₹ per disbursal.
• Revenue share on interest: rarer in India (regulator views this as the partner taking a credit-risk-like share).
• Co-branded marketing / channel fee: usually absorbed by the lender.

The partner’s expectation is usually ~1.5% – 2.5% of sanctioned amount as upfront fee, paid out of the lender’s processing fee.

Technology modules needed

• Standard origination stack (modules A–N from Section 3).
• Partner integration layer — typically an SDK or a REST API the partner integrates against, with widget components for the partner’s UI.
• Co-branded webview / hosted page for KFS, agreement, eSign — keeps the lender’s compliance surface in the lender’s domain.
• Partner-attribution tracking — every loan tied to its source partner for fee accounting.
• Partner reporting portal — partner sees their funnel, conversion, fee payout schedule.

Integrations needed

Same as own-book, plus:

• Partner-supplied data source — e.g., direct API into Tally / Zoho / Vyapar / e-invoice data, with consent.
• Partner identity — partner authenticates the borrower via OAuth-style flow into the lending platform, with consent artefact preserved.
• Lifecycle webhooks to notify the partner about sanction / disbursement / repayment / closure.

Unit economics

Effectively same as own-book or co-lending on the lender side, minus the partner sourcing fee (which is treated as a cost of acquisition).

Compared to direct or DSA acquisition, embedded models have:

• Higher conversion (warm intent, prequalified by partner signal).
• Lower acquisition cost per disbursed loan (no separate marketing, no DSA payout though the partner fee replaces some of it).
• Lower fraud (partner has authenticated identity).
• Higher repeat rate (borrower is sticky to the partner platform, so the loan offer reappears).

For an SME WC platform, embedded distribution through CA / Tally / accounting partners can yield 3× – 5× higher conversion than cold DSA-led origination and substantially lower per-loan acquisition cost.

Pros

• Distribution leverage from partner’s installed base.
• High-quality data input from partner (especially accounting data).
• Strong borrower trust signal.
• Recurring placement — partner re-surfaces the loan offer each cycle.

Cons

• Partner concentration risk — losing the partner kills the channel.
• Negotiating commercial and integration terms with each partner is slow.
• Partner expects high revenue share and exclusivity.
• Compliance bar for KFS + disclosure is the same as direct lending; can’t be hidden.

Scalability

Very high — bounded by partner count and integration capacity. A platform with 5 – 10 embedded partners can scale to ₹500 Cr+ of disbursements without growing its own brand.

Fit for SME working-capital ₹20–50 lakh, 60–180 days, repeat borrowers

Excellent fit and a high-priority distribution channel. The recommended starting embedded partners for this wedge:

1. CA / accountant practice management software (e.g., partners with firms that consolidate CA + Tally + GST data).
2. Tally / Zoho Books / Busy / Vyapar partner programs (where licensable).
3. B2B marketplaces with distributor / dealer flows (where invoice and PO data is the underwriting fuel).
4. GST suvidha providers (GSPs) that already aggregate GST filings of large SME bases.
5. POS / merchant payment platforms for cash-flow-backed merchant loans (lower priority).

See Section 4 — Accounting software integration for vendor and partnership detail.

Sources

• RBI Guidelines on Digital Lending, DOR.CRE.REC.66/21.07.001/2022-23, 2 September 2022.
• RBI FAQs on Digital Lending Guidelines (updated on rbi.org.in).