How Is Embedded Finance Revolutionising Financial Services?

The new fintech trend, embedded finance, is rising in popularity since more and more companies are trying to adopt fintech solutions into their variety of products. 

Bartosz Sajewski

The new fintech trend, embedded finance, is rising in popularity since more and more companies are trying to adopt fintech solutions into their variety of products. 

As a result, the market size of embedded finance has been growing rapidly over the last couple of years, despite it being such a young concept. Many non-financial companies plan to offer embedded finance services in the near future. 

So, how does this new trend, embedded finance, disrupt the fintech sector and revolutionise financial services, as we know? We will answer these questions in this article with our in-depth analysis of this topic. 

What Is Embedded Finance?

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

This system can be essential for eCommerce, where profit and customer loyalty directly depend on transaction speed. The whole process of embedded finance boils down to the same goal to shift customers away from the traditional banks. 

Have a look at the more in-depth article about Embedded Finance from our blog. 

How Does Embedded Finance Work?

In the world of Embedded Finance, three different components play a significant role in the whole process. These components are a digital platform, an Embedded Finance Infrastructure company (Fintech), and a financial institution such as a bank. 

A digital platform is generally a non-fintech company that owns a platform. It can be a mobile app, website, or even a desktop application. It is connected to the necessary Software Development Kit, which enables financial services on their platform. 

Financial institutions are mostly banks that provide capital and access to the core banking networks built by the embedded finance infrastructure. 

Embedded Finance Infrastructure company is a Fintech solution that creates core, end-to-end software tools, such as APIs and SDKs. They are also responsible for transaction processing and connecting financial institutions with digital platforms.

The combination of these three components makes it possible for non-financial companies to integrate financial services into their platforms in the most seamless and efficient way possible. 

Benefits of Embedded Finance

Embedded finance helps companies easily optimise their user experience and gain access to alternative forms of financing. The system is compatible with both B2B and B2C business models. 

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

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. 

  • 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. 

APIs for the Brand New Services

The recent technological model of embedded finance has been accelerating rapidly over the last couple of years. 

According to the LightYear Capital investment fund, embedded financial services will be worth up to $230 billion in revenue by 2025. This is over a 10X increase from the year 2020, which had a revenue of $22.5 billion in total.

Other than that, the stock market value of companies in this sector could reach $1 trillion.  

What Does the Future of Transaction Banking Look Like?

Today we see more and more connected and integrated financial services on the market. It is all the result of the solutions that allow customers experience banking inside the channels where they do their business. 

At the point of transaction, Embedded finance provides real-time visibility of cash. It provides a complete view of the banking experience across different platforms. This system helps to reduce the number of payment rejections and increases visibility for users. 

Corporates aim to get high-level transparency into status, reduce fraud, and make instant transactions to reach their goals. They need flexibility in managing their businesses to leverage the power of digital banking and scale their business. 

The whole system of embedded finance helps corporates fully understand risks on their balance sheet and enables banks to manage risks for their customers. It can act as a tool that is essential for building a sustainable and scalable business. With that being said, the future of transaction banking is mostly connected to embedded finance. 

3 Different Ways That Embedded Finance Is Changing Future

Let’s have a more in-depth look of different use cases for embedded finance system in real-life. 

  • Buy now, pay later

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

“Buy now, pay later” concept 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

Point-of-service landing 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. 

  • Integrated insurance services

Customers need to make sure that their money is not being wasted every time they purchase new product or service. 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. 

Next Steps With Transactionlink. How Can Your Company Engage With Embedded Finance in a Meaningful Way?

The main idea behind embedded finance is to help non-financial companies expand significantly with embedded financial products and services. Practice shows that embedded finance companies have a bigger advantage and flexibility in offering various services through their resources 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?
  • How Does Embedded Finance Work?
  • Benefits of Embedded Finance
  • APIs for the Brand New Services
  • What Does the Future of Transaction Banking Look Like?
  • 3 Different Ways That Embedded Finance Is Changing Future
  • Next Steps With Transactionlink. How Can Your Company Engage With Embedded Finance in a Meaningful Way?
Bartosz Sajewski