Embedded Finance: Everything You Need to Know

It is expected that embedded financial services will reach a value of $230 billion in revenue by 2025. But what exactly is embedded finance, and how does it work?

Bartosz Sajewski

Embedded finance is a fast-growing trend that is likely to thrive in the future as businesses are searching for different ways to get around banks for traditional banking services. It is expected that embedded financial services will reach a value of $230 billion in revenue by 2025. 

But what exactly is embedded finance, and how does it work? Let’s have a more in-depth look at this topic and see the benefits, use cases, and examples of embedded finance. 

What Is Embedded Finance?

Embedded finance refers to the seamless integration of financial services adopted by non-financial companies. It is a new trend that integrates loans, debit cards, insurance, and investment instruments with almost any non-financial product.

We can say that this system is essential for eCommerce, where profit and customer loyalty are directly dependent on the transaction speed. The whole process of embedded finance boils down to the same goal to shift customers away from the traditional banks. 

The financial sector is rapidly evolving because of different factors, such as commodity payments, government regulations, and customer expectations. Non-finance companies can provide services to their customers by connecting fintech and banks to their platforms through APIs.

Why Is Embedded Finance Taking Off?

According to Lightyear Capital, embedded finance will generate over $200 billion by 2025. The key factor in this success would be customer expectation for flexible financing, the introduction of plug-and-play platforms, and the availability of new data resources that give new opportunities to the businesses.

It is a common idea that “every company will be a fintech company” in the future and it is exactly the embedded finance that is going to be the biggest fintech offering for most companies getting into this trend.

Benefits of Embedded Finance

Generally, small, medium and large enterprises can benefit immensely from embedded finance services.

Embedded finance helps companies easily optimise their user experience, gain access to alternative forms of financing, and generate higher revenue streams. These systems are compatible with both B2B and B2C business models. 

Besides that, millions of customers benefit from the convenience of embedded finance systems. For example, users don’t have to settle for sub-standard experiences anymore. They can now demand seamless interactions and hassle-free services. 

Now, let’s have a more detailed look at the benefits that Embedded Finance is offering us:

  • Additional sources of income

Using embedded finance tools as an additional option for your customers to pay for your products or services, you effectively increase the number of channels through which you can receive an income. 

  • Get more customer data

Customers need to share their data with you every time they make a purchase. They share their phone number, email, transaction information, etc. With the help of this information, you can improve your services and be more direct with users.

  • Increased competitiveness of your product

Integrating an embedded finance system into your service can improve the overall user experience for your customers. You can achieve this with the help of an easy-to-use interface. That way, your product will be way more attractive to the users.

  • Raised number of conversions

Your customers will start making significantly more purchases when they see that it is easy for them to understand how to complete a transaction. Therefore, it can help you to increase your conversion rate on your website or application. 

Five Different Use Cases of Embedded Finance

So, how can you use embedded finance tools to grow your business? Let’s take a look at five common use cases of the embedded finance

  • Buy now, pay later

The buy now, pay later system is creating a totally new line of credit for shoppers worldwide. The idea is simple - the system gives shoppers access to a wider range of products, which can be paid for over some time.  

This system empowers customers to change their shopping experience for good. It helps them to make better decisions and buy products they actually need.

  • Point-of-service landing

This system is evolving from buy now, pay later (BNPL). In this case, integrated lending takes loans one step ahead. These kinds of financial tools can be embedded by different businesses that are seeking to finance larger purchases. 

As a result of their operations, they often require further information. It can be data of creditworthiness, and it would be used to allow them to lend money more responsibly. 

  • Fintech-as-a-service

This system can be used for anything from invoicing to customer acquisition. In general, the whole range of financial technologies-as-a-service tools is increasingly being added to the company offerings in this field.

  • Investments and trading

Embedded finance tools also have great use in various investment applications. They allow users to connect with their banks to invest in the most efficient way possible for them, which means that it meets their current financial situation and spending habits.

This example of embedded finance use is very beneficial for financial service providers depending on the nature of their company.

  • Integrated insurance services

Every time when a customer purchases a new product or service, they need to make sure that their money is not being wasted. This is the most common use case where the integrated insurance mode comes in. 

With the help of embedded finance tools, businesses have significantly more opportunities to deliver insurance quickly to their customers. 

Examples of Embedded Finance

There are many real-life examples when we talk about the embedded finance system. Many non-traditional financial players like Google and Amazon are trying to get a market share in consumer financial services.

Besides that, several HR tech platforms are trying to make access to various financial services hassle-free. However, embedded finance is a completely new concept for many people worldwide.

A classic business example, in this case, would be integrating conventional payment services into non-banking companies and service providers.

For example, the alliance of the Mexican BBVA branch and ride-sharing service Uber. Drivers can receive payments within a few minutes because of the extended functionality of the merchant application. They can also get direct access to loans, discounts, and cashback at a gas station. 

Other than that, such services can also be used from the emission side. For example, a watchmaker company, Swatch, gives the opportunity to issue tokenized payment cards on their watches through SwatchPay. Apple and Amazon offer their own credit cards as well.  

How Is Embedded Finance Revolutionising Financial Services?

When companies implement promising and innovative financial solutions, it is essential for them to understand whether this solution will become a necessary part of their service or not. A simple error can lead to high losses. 

The whole system of embedded finance is designed for non-financial companies that have value propositions that expand significantly with embedded-related financial products and services. 

The experience of global giants in different verticals, from search engines to marketplaces to on-call services, shows that embedded finance companies have a bigger advantage in offering various financial services through their resources, distribution, and data. 

Here at TransactionLink, we build a one-stop-shop to help you build FinTech solutions. We offer an open banking solution that allows you to confirm your users’ identities and learn their personal information.

We help you confirm that your users have bank accounts and get information on all of their transactions from the past three months. You can later access this data through our API and use it to create your products and services.

Have a look at our AppStore and learn more about the products we offer to fuel innovation and assist in creating innovative solutions in the ever-growing FinTech industry. 

Table of content

  • What Is Embedded Finance?
  • Why Is Embedded Finance Taking Off?
  • Benefits of Embedded Finance
  • Five Different Use Cases of Embedded Finance
  • Examples of Embedded Finance
  • How Is Embedded Finance Revolutionising Financial Services?
Bartosz Sajewski