You interact with embedded financial technologies whenever you use a mobile payment service, request a rideshare, or place a mobile food order.
WeChat or Facebook Pay, taxi apps like Uber or Grab, and e-commerce systems like Amazon Pay or Shopifyall fall under Embedded Payments. It eliminates the need for customers to leave the platform to use financial services such as loans, payments, or insurance.
Is embedded finance changing businesses and the financial world?
Come, Let’s check!
What is Embedded Finance?
By 2029, embedded financial services are projected to create $384.8B in revenue, over 17 times more than the $22.5B earned in 2020. Embedded finance is the integration of financial services into non-financial offerings.
A department store’s branded credit card, an app that allows customers to pay with a single click or insurance offered by an online retailer are all examples of embedded finance. Customers are met with the financial options they need via effective embedded finance solutions, whether it’s a loan, payment program, insurance plan, or a simple way to make a payment. Some integrated financial services, such as airline credit cards, insurance for automobile rentals, and payment plans for expensive goods, have been available for some time.
These days, embedded finance is all the rage on the web, with many online stores providing banking services to their consumers without ever having to send them to a separate bank. This trend is made possible by “banking-as-a-service” providers that work outside of the financial sector and integrate financial services into the user interfaces of other businesses using application programming interfaces.
Businesses stand to gain a great deal from embedded finance, which is expected to undergo rapid growth in the next years as it enhances the consumer experience and opens up massive new markets.
Embedded Finance Market Overview
“It is estimated that the market size of global embedded finance across the entire value chain will grow from US$264b in 2021 to US$606b in 20252.”- EYEmbedded Finance Market Growth
Sometimes, physical payment (cash payment) causes discomfort due to a plethora of reasons as we are aware. It might make you reconsider a purchase. Hilarious but true!
Applications that facilitate the sharing of rides, such as Uber and Lyft, are examples of applications that incorporate in-app payments.
You can avoid paying with cash or a debit or credit card when you use one of such services; you can just tip the driver. Rather, you pay for the fare on the app once the ride is over.
Even Starbucks‘ devoted customers can use integrated payments. Users can place orders and make payments directly from their mobile devices using this app. In addition, they can earn points that can be turned into prizes for future purchases.
Embedded Card Payments
Businesses can streamline the payment process for contractors and employees by using debit cards. Companies have the option to accept payments made to their branded credit cards rather than checks or direct deposits.
A business can agree to cover some or all of the interchange charge for a white-label debit card with the card issuer. Paypal is one business that has streamlined payments by using cards.
Customers can choose to connect their bank accounts with their PayPal accounts. Another option is to apply for the cash card that the corporation offers. This card will allow customers to access their PayPal money directly. A customer with a cash card can make purchases or withdraw cash from an ATM right away, rather than waiting a few days for the funds to arrive in their bank account.
Embedded Lending
Borrowing money used to be as simple as going to the bank or applying for a credit card. The ability to apply for and get a loan at the time of purchase is now available through embedded lending. Klarna and AfterPay are two examples of embedded lending use cases. Both options allow customers to break down large online purchases into manageable monthly installments. As an example, a $100 payment can be broken down into four $25 installments.
Embedded Investments
Most people consider investing as something too technical and out of their league. That could get better with the help of embedded banking systems that streamline the investment process. The Acorns program is one such example; that enables users to invest their spare change by simply rounding up their purchases. Acorns makes investing easy and hassle-free. The tool handles the transfer of funds to the user’s account, so they don’t even have to think about it. Users of Acorns are spared the hassle of keeping tabs on the value of individual stocks or mutual funds because their portfolios are automatically updated in response to market swings.
Embedded Insurance
With embedded insurance programs, buying a policy does not require an intermediary like an insurance agent or broker.
Buying a car or a house used to necessitate insurance. It was also an independent phase in the procedure.
Certain businesses have discovered ways to incorporate the application for an insurance policy into the process of making a large purchase to make things faster and boost their profits. Tesla Motors is one such example. It offers a platform for insurance that allows users to quickly and easily obtain the right quantity of coverage. Furthermore, insurance policies sold directly by Tesla are often less expensive than those sold by third-party vendors.
Embedded Banking
Contrary to popular belief, embedded banking is distinct from embedded finance. There are numerous examples of businesses providing banking services, intending to displace the services offered by more conventional banks.
An example of embedded banking is the Lyft debit card, which allows drivers to be paid instantly by the ride-share company.
Additionally, the initiative allows drivers to open a personal savings account. Businesses may take advantage of Shopify’s embedded banking feature in a similar way.
The idea behind Shopify’s banking feature is to get entrepreneurs to get a business bank account instead of using their accounts.
How Does It Intend to Impact the Financial Technology Industry?
Better experience in consuming financial services for the consumer
Customers are now inundated with options, thanks to the proliferation of Embedded Finance firms and the expansion of financial services by our beloved brands. Both accessibility and the quality of currently available services are only going to get better in the future.
The trend of “Buy Now, Pay Later” (BNPL) is only going to grow.
More than half of the Embedded Finance market’s revenue will come from this service by 2026. Customer expectations for easy and frictionless payments are on the rise, which is contributing to this growth. Therefore, all-in-one apps that let users pay for utilities, make purchases, and even apply for credit will soon be the standard, rather than the exception.
Digital platforms will play a key role in the distribution of financial services
When compared to more conventional means of banking, digital platforms can provide superior customer service. Digital platforms are now expected to meet customers’ demands on a deeper level. They can promote innovation and play a key role in the distribution of financial services to consumers thanks to their extensive client knowledge.
Banks will partner with tech players
Financial institutions can make use of their extensive customer data by forming partnerships with digital platforms. Financial institutions can utilize this data to attract new clients, gain a deeper understanding of their current clientele, personalize their financial offerings, and encourage repeat business.
Data will drive innovative financial products
Banks can personalize their financial offerings for each client by analyzing data. They will be able to approve customers with the use of sophisticated underwriting made possible by new data sources like platform data. The result will be a slew of ground-breaking new financial solutions.
Vertical SaaS will continue to grow
Software as a service(SaaS) providers can now integrate financial services into their products with the help of Embedded Finance Infrastructure.
To address the vast majority of their issues, customers in vertical markets use purpose-built software. Consequently, the client relies on one firm for all of their software requirements. In most software as a service (SaaS) marketplaces, there is a single dominating operator that caters to the vast majority of customers.
Improved unit economics of financial services
More consumers can be acquired more cheaply and efficiently by financial institutions, and these customers are more likely to make recurring transactions. They can provide their consumers with the same financial solutions at a more cost-effective price point because this boosts their margins.
By bridging the gap between companies and banks, application programming interfaces (APIs) enable embedded finance, which in turn provides customers with a more unified and user-friendly experience. Customers may do all of their financial operations in the same web browser, eliminating the need to switch between different apps or websites.Suppose you’re a fan of a certain fitness app and have decided to pay for a premium membership to unlock more features and routines. It is possible to finish the payment process within the app itself, rather than being sent to a separate portal. In all likelihood, you remain oblivious to the fact that you are engaging with an additional financial layer.Embedded finance is a method of providing financial services to users through the user interfaces of non-financial apps and websites. You might think of it as an approach to incorporating monetary capabilities into the core code of a program.
In the same seamless experience that customers have when booking vacation rentals, hailing cabs, or shopping online, they can also access and execute insurance, financing choices, and payments.
What Barriers are Preventing the Adoption of Embedded Finance?
Although financial institutions are still focusing on deploying BaaS and embedded finance use cases, recent economic headwinds have limited technology investment. With customers’ demands for more frictionless interactions with financial services on the rise, BaaS and embedded finance could not come at a better time.
Their technology allows banks to connect with their clients’ existing applications, websites, and other digital tools. In this approach, companies may meet customers where they are rather than trying to change them.
The correct partnerships can help banks overcome obstacles and accelerate the journey toward open finance, seamless collaboration with ecosystem partners, and ensuring regulatory compliance and data security. Of course, banks need modern, open platforms to do all of this.
Organizations can now deliver more comprehensive bespoke proposals due to the advancements in BaaS and embedded finance models, which make their functionalities easier to integrate. Most importantly, compared to earlier methods, these models also provide a quicker solution. Leveraging these technologies removes the requirement to develop banking products from the beginning, according to eighty-one percent of decision-makers in our 2023 study. BaaS and embedded finance both facilitate faster time-to-market.
FAQ’s
How does Embedded Finance benefit consumers?
It provides convenience by allowing consumers to access financial services seamlessly within the apps or platforms they already use regularly, such as making payments or applying for loans without switching apps.
Is Embedded Finance secure?
Yes, security is a critical aspect. Providers typically adhere to strict security standards and regulations to protect financial data and transactions.
How does Embedded Finance differ from traditional banking services?
Traditional banking services are usually provided by banks through dedicated channels (branches, websites, apps), whereas Embedded Finance integrates financial services directly into other platforms.
What are the advantages for businesses adopting Embedded Finance?
Businesses can enhance user experience, increase customer loyalty, and generate additional revenue streams by offering financial services that complement their core offerings.
Can Embedded Finance personalize financial services?
Yes, embedded solutions often leverage data analytics and AI to offer personalized financial products and services based on user behavior and preferences.
Wrapping Up
The financial tech sector has experienced unparalleled development in the past couple of decades. It’s no surprise that “embedded finance” has already become a popular market trend. When it comes to digital banking and payments, embedded finance takes it a step further by allowing businesses and customers to access financial services anywhere, anytime through their websites or mobile apps. Let’s see what Embedded finance holds in 2025 and ahead.
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