What is Embedded Finance? [4 Examples of its’ Application]

In recent years, embedded finance has emerged as a transformative trend in the world of financial technology, or FinTech. Simply put, embedded finance refers to the integration of financial services into non-financial products or services, allowing businesses to embed financial services seamlessly into their platforms. This means that customers can access financial services seamlessly and conveniently, without having to leave the platform or app they are using.

Embedded finance has become increasingly popular due to its ability to improve customer experience, reduce costs, and increase revenue for businesses. By offering financial services within existing platforms, businesses can deepen customer engagement and loyalty. For customers, embedded finance offers convenience and simplicity, enabling them to manage their finances without having to switch between different apps or platforms.

Some examples of embedded finance include buy now, pay later (BNPL) services, banking services embedded into ride-sharing apps, payment processing services embedded into e-commerce platforms, and insurance products embedded into travel booking sites.

In this blog, we’ll dive deeper into each of these examples and explore how embedded finance works, what benefits it offers to businesses and customers, and what challenges and opportunities it presents for the financial industry as a whole.

So, let’s get started!

Definition and Overview

Embedded finance refers to the integration of financial services into non-financial companies’ products and services, allowing customers to access financial services seamlessly within their existing customer journeys. This concept has been gaining traction in recent years, driven by the increasing demand for convenient and user-friendly financial services.

Embedded finance represents a significant shift in the way financial services are delivered, enabling non-financial companies to offer a range of financial products and services to their customers.

How Embedded Finance Works

Embedded finance works by leveraging application programming interfaces (APIs) and software development kits (SDKs) to integrate financial services into non-financial companies’ platforms.

This allows customers to access financial services, such as payments, lending, and insurance, directly within the platform, without the need to navigate to a separate financial institution’s website or app. Embedded finance solutions are typically provided by financial institutions, fintech companies, or specialized embedded finance providers, who partner with non-financial companies to offer these services.

Embedded finance offers a number of benefits to both consumers and businesses. For consumers, it means greater convenience and accessibility to financial services. Rather than having to go to a bank or financial institution, consumers can access a range of financial products and services directly through the platforms and apps they already use.

For businesses, embedded finance offers a way to differentiate themselves from competitors and to provide additional value to their customers. By embedding financial services into their products, businesses can offer a more complete and seamless customer experience.

What are The benefits of embedded finance and new revenue streams?

The benefits of embedded finance are increasingly becoming more and more apparent, with it being a key factor in driving business growth and consumer satisfaction. Additionally, embedded finance creates new revenue streams for businesses by integrating financial services into their existing offerings. Embedded finance is a frictionless way to make payments much easier for both customer and businesses alike, making the process simpler for everyone involved.

Businesses often benefit from embedded payments as they have faster access to customer funds, providing them with additional capital which helps them expand their services or grow their business further. This leads directly to increased profitability and reduced costs associated with the onboarding of new customers and the transactions they perform.

In addition to a financial boost, there are numerous other benefits offered by embedded payments on both B2B and consumer levels. For consumers, using embedded payment solutions provides a high level of convenience, allowing payments to be made instantly without ever having to leave their current environment.

Increased security is also another advantage of using this method, as users do not need to store any sensitive information themselves and can instead rest assured that their private details will be securely stored by the provider they are working with.

Furthermore, thanks to real-time analysis tools and data visions empowered by AI technology companies have access more insights into clients’ spending habits which offer them important decision insights related to expansion strategy or pricing.

What are The Challenges of embedded finance?

While there are many benefits to using embedded finance, it is important to be aware of the potential challenges that come with it as well. One of the biggest concerns is security, as embedding financial services into a platform increases the risk of data breaches or other malicious activity. To mitigate these risks, financial service providers must implement rigorous security measures and ensure seamless integration of financial services. To ensure maximum security, businesses must have rigorous safeguards in place to protect customer data and transactions.

Another challenge is that embedded finance requires businesses to have a deep understanding of customer needs in order to properly integrate the right financial services into their platform. The success of an embedded finance strategy depends on how well a business can design and implement the right financial solutions for its customers.

It is important for businesses to keep up with the latest technology trends in order to remain competitive and provide the most up-to-date financial solutions. As technology evolves and new trends emerge, businesses must be able to quickly and effectively adapt in order to stay ahead of the curve.

The Embedded Finance Market

The embedded finance market is growing rapidly, driven by the increasing demand for digital financial services and the need for non-financial companies to offer more comprehensive services to their customers. According to recent estimates, the embedded finance market is expected to reach $230 billion by 2025, with a compound annual growth rate (CAGR) of 32.2% from 2023 to 2030. This growth is driven by the increasing adoption of embedded finance solutions across various industries, including e-commerce, retail, and business management platforms.

What are the Examples of Embedded Finance?

Buy now, pay later (BNPL) services and embedded lending

Buy now, pay later (BNPL) services are a popular example of embedded lending, allowing customers to access financing options at the point of sale. With BNPL services, customers can split the cost of a purchase into smaller payments over time. These services are often offered at the point of sale, making it easy for customers to access them. BNPL providers work with merchants to offer financing options to their customers, and they make money by charging fees to the merchant or the customer for the service.

BNPL services have become increasingly popular in recent years, particularly among younger consumers who are looking for more flexible payment options. Many retailers and e-commerce platforms now offer BNPL services at the point of sale, making it easy for customers to access them.

While BNPL services can be convenient for consumers, they can also come with high interest rates and fees. As a result, it’s important for customers to read the terms and conditions carefully before using these services and to ensure that they can afford to make the payments on time.

Banking services embedded into ride-sharing apps.

Banking as a service is exemplified by the integration of banking functionalities into ride-sharing apps, providing drivers with easy access to financial services.

Another example of embedded finance is banking services embedded into ride-sharing apps. Some ride-sharing apps now offer banking services to drivers, allowing them to easily access their earnings and manage their finances.

Banking services embedded into ride-sharing apps mean that the ride-sharing app offers financial services such as banking, loans, or payment services to its drivers and/or customers directly within the app. These services are usually provided in partnership with financial institutions, who benefit from the increased customer base and transaction volume generated by the ride-sharing app.

For example, a ride-sharing company may partner with a bank to offer drivers a debit card that can be used to access their earnings and make payments directly within the app. Additionally, customers may be able to use the ride-sharing app to apply for loans or other financial services. By integrating financial services into their app, ride-sharing companies can offer a more seamless and convenient experience for their users.

Payment processing services embedded into e-commerce platforms.

Embedded financial solutions, such as payment processing services, are commonly integrated into e-commerce platforms to streamline transactions.

Payment processing services embedded into e-commerce platforms are also a common example of embedded finance. They refer to the integration of payment processing solutions directly into online shopping websites. This allows customers to complete transactions more quickly and easily without having to navigate to a separate payment gateway.

Many e-commerce platforms now offer integrated payment processing services, making it easy for businesses to accept payments online. These services are provided by payment processors who charge a fee for each transaction processed on their platform.

Some examples of payment processing services embedded into e-commerce platforms include:

• PayPal: PayPal is one of the most popular payment processing services and is available on numerous e-commerce platforms such as Shopify, WooCommerce, and Magento. Customers can securely make payments using their PayPal account or credit/debit cards.
• Stripe: Stripe is a payment processing platform that is available on several e-commerce platforms like BigCommerce, Squarespace, and Wix. It provides a seamless checkout experience and supports various payment methods, including credit/debit cards and digital wallets.
• Amazon Pay: Amazon Pay allows customers to use their Amazon account to make payments on e-commerce websites. It is integrated with numerous e-commerce platforms such as Shopify, Magento, and WooCommerce.
• Square: Square is a payment processing solution that offers its services to businesses of all sizes, including small e-commerce stores. It can be integrated with several e-commerce platforms like WooCommerce, Shopify, and BigCommerce.

By embedding payment processing services into e-commerce platforms, businesses can offer customers a more convenient and streamlined checkout experience, leading to increased sales and customer loyalty.

Insurance products embedded into travel booking sites.

Insurance products embedded into travel booking sites are another example of embedded finance. Some travel booking sites now offer travel insurance as an add-on product, making it easy for customers to purchase insurance when booking a trip. These insurance products are usually provided in partnership with insurance companies, who benefit from the increased distribution of their products through the travel booking site.

This type of embedded finance makes it easy for travelers to purchase insurance coverage for their trip without having to visit a separate website or deal with a third-party insurance provider.

The process of purchasing travel insurance through an embedded finance platform is straightforward. When a traveler is booking their trip, they will be given the option to add travel insurance as an additional product. The insurance coverage typically includes protection against trip cancellation, trip interruption, and emergency medical expenses while traveling.

By integrating travel insurance into the booking process, travel booking sites can offer a more convenient and streamlined experience for their customers while also increasing their revenue through the sale of insurance products. Additionally, customers benefit from having the peace of mind that they are covered in case of unexpected events during their trip. 

In summary

The future for embedded finance looks promising as more and more companies are realizing the benefits of integrating financial services into their existing products and services. This shift is also transforming the role of traditional financial institutions, which are now partnering with non-financial companies to offer white-labeled financial products. The rise of embedded finance is driven by the increasing demand for convenience and simplicity in financial transactions. By embedding financial services into everyday products and services, companies can offer a seamless experience to their customers, reducing friction and enhancing user engagement.

One of the biggest advantages of embedded finance is its ability to reach previously underserved markets. For example, by offering BNPL services at the point of sale, companies can provide credit to consumers who may not have had access to traditional credit products. Similarly, by offering banking services to gig workers and freelancers through ride-sharing apps and other platforms, companies can cater to a market that has been largely ignored by traditional banks.

As technology continues to advance, we can expect to see more sophisticated applications of embedded finance. For example, the integration of AI and machine learning into financial services could enable companies to provide personalized financial advice and tailored products to individual users. The use of blockchain technology could also offer new opportunities for secure and transparent financial transactions.

With embedded finance, we can expect to see continued innovation and growth in this space as companies explore new ways to integrate financial services into their products and services.

Frequently Asked Questions (FAQ) About Embedded Finance

What do you mean by embedded finance?

Embedded finance refers to the seamless integration of financial services into non-financial platforms or products, allowing users to access these services without leaving the platform they are using. This includes services like payments, lending, and insurance embedded directly into apps or websites.

What is the best example of embedded finance?

A great example of embedded finance is the “buy now, pay later” (BNPL) feature found on many e-commerce platforms. This service allows customers to make purchases and pay for them over time, all within the same shopping experience.

What is the difference between banking as a service and embedded finance?

Banking as a service (BaaS) provides the infrastructure for non-financial companies to offer banking services, while embedded finance refers to the actual integration of these services into non-financial platforms. BaaS is the backend technology enabling embedded finance.

Is embedded finance the same as open banking?

No, embedded finance and open banking are not the same. Open banking involves sharing financial data between banks and third-party providers through APIs, while embedded finance focuses on integrating financial services into non-financial platforms.

Is Venmo embedded finance?

Yes, Venmo can be considered a part of the embedded finance ecosystem as it integrates payment services within a social platform, allowing users to send and receive money without needing to switch to a separate banking app.

Why is embedded finance the next big thing?

Embedded finance is considered the next big thing because it enhances customer experience, creates new revenue streams for businesses, and meets evolving customer expectations for seamless, integrated financial services within their everyday digital interactions.