Embedded Finance

Neobanks are fintech companies that are challenging brick-and-mortar banks by offering financial services exclusively through a mobile app or website. These companies can offer traditional banking services like savings accounts, and generally make revenues off of merchant fees and ATM charges. Neobanks utilize embedded finance in order to be agile and remain one step ahead of their brick-and-mortar competitors, albeit with pared-down services.

Commercial fintech companies have become increasingly popular as the financial world shifts to a digital landscape. As fintechs are not technically banks, their ability to offer financial services with fewer regulatory hurdles allows fintech companies to offer opportunities that traditional banks are unable to match.

Platforms like PayPal or Square allow their users to pay directly from within their ecosystem, rather than relying on another company or bank to provide payment services.

Embedded banking is a close relative to embedded finance. It is the integration of financial services into a non-banking third-party platform through a series of APIs. It provides full banking services right at the point of need for the consumer, as opposed to a legacy bank location.

Another example is the ride-share company Lyft, which uses its own debit cards to make instant payments to its drivers. Drivers are also allowed to create separate savings accounts without leaving Lyft’s financial ecosystem.

Many well-established brands and consumer-facing platforms are integrating embedded payments into their ecosystem. Embedded payments allow consumers to fully purchase products at the touch of a button, allowing for faster, more seamless checkout experiences. No cash or physical cards are necessary as the entire process takes place on the digital platform.

Starbucks, Uber, and many other brands accept cashless payments. Their customers use mobile apps to pay for their services effortlessly in the blink of an eye.

Similar to embedded payments, embedded lending allows non-financial brands and companies to offer lending products or credit directly to their consumers through their platform. Companies can now have instant access to loans or credit to help scale their business, without ever having to step foot in a bank.

One of the more obvious use cases for embedded lending is the ability to offer buy now, pay later (BNPL) services to consumers. According to a survey by Insider Intelligence, nearly 70% of millennials and 42% of Gen Z users are more likely to buy a product if it has a BNPL option.

Brands can offer their own BNPL options or customers may proceed with instant lending services such as Afterpay to split into monthly instalments.

Insurance has always been a headache for both consumers and brands to figure out. Now, with embedded insurance, brands can offer both insurance and payment simultaneously to the consumer in one easy step during checkout. With most forms of insurance, it isn’t about saving money, it’s about convenience. Consumers do not want to go to other companies or insurance businesses to buy it. Brands are now able to provide insurance at the point of sale, which is beneficial to all parties involved.

An example is Tesla, which offers insurance plans without directing the customer to a third party. This allows the customer to buy car insurance at the point of sale at a lower cost. Travel insurance is another frequent example, practised by airlines and travel agencies.

Don’t be surprised if you are already involved in embedded investing yourself! In essence, embedded investing is when platforms or apps allow customers to invest in assets like stocks, funds, or cryptocurrencies without ever leaving their ecosystem.

Apps like Square’s Cash App and PayPal’s Venmo are key examples of this and are rapidly changing the way we view the world of digital and embedded finance.

Embedded card payments allow brands to issue their own debit or credit cards, which consumers can use to digitally pay for products.

One example of this is PayPal, which allows users to directly pay with their PayPal account, rather than transferring the money needed to a legacy bank account and paying with that. Clients then can pay with their Paypal debit card or with their mobile phone. Embedded card payments thus provide faster access to funds and an easier method of payment.

Embedded finance is the integration of financial services directly into a brand’s app or platform. It allows companies to provide financial services like payment, lending, insurance, and card payments directly at the point of sale.

Embedded finance is connected directly to the backend infrastructure of online platforms and apps via proprietary APIs. This eliminates the need for legacy banks or other financial institutions and streamlines consumer-facing processes into a seamless experience.

Embedded finance is important because it provides consumers with a seamless payment experience. It also allows brands to become their own end-to-end services destination and removes third parties from the process. It eliminates any friction between the provider and the consumer and provides a smoother and more efficient transaction process for both parties.

Embedded fintech is the financial revolution that is happening right before our eyes. In essence, embedded fintech can endow and enhance any application or platform with financial capabilities that can provide almost any banking services that a legacy bank can. Now all software companies (whether they are fintech or not) can embed financial services directly onto their apps.

Embedded banking allows brands to provide a segregated banking experience directly for their consumers. Companies like PayPal are creating digital bank accounts that are fast replacing those offered by legacy banks. Embedded banking allows apps or platforms to provide banking services in a mostly digital form that can be accessed without having to go to a physical bank.