Embedded finance is becoming a key component for brands to provide
their customers with a seamless experience where finance is involved.
What is Embedded Finance?
Embedded finance is the integration of financial services into a non-financial system, app or platform. While it may not be a familiar term, it is certainly changing the way we experience financial services: Every time we make a payment on a mobile app to order food, we are using embedded finance. When we use the ‘buy now pay later’ feature on an e-commerce site, we are using embedded finance. When we buy insurance for a new laptop directly at the retail store, we are using embedded finance. Whether we are aware of it or not, embedded finance has already made its way into our daily lives.
Embedded finance reduces our reliance on legacy financial systems, thus bringing a digital revolution via a new world of instant transactions and seamless experiences.
Benefits of Embedded Finance for Consumers
Convenience and speed: Through embedded finance, the world’s favourite brands now offer end-to-end experiences, from browsing to payment. No longer do we have to stumble through clunky legacy banking apps or complete a transaction on third-party platforms. Embedded finance makes it all happen at a single touchpoint. In a world where everything is about convenience, our desire for instant, uninterrupted access to financial services is rapidly becoming the norm rather than the exception.
Cost efficiency: Platforms utilizing embedded finance often have a large subscriber base and significant business volume. Payment facilitators and other companies that seek to tap into this base provide advantageous benefits to win the business, which in turn helps the consumers. Increased efficiency through technology is another factor that enables businesses to offer cost efficiency to their customers.
The Impacts of Embedded Finance on the Global Economy
Embedded finance has the opportunity to truly change the financial sector forever. Some analysts believe that by 2026, the embedded finance industry could be worth upwards of $138 billion. Other estimates value this market in the trillions of dollars over the next decade – an incredible rate of growth for an industry still considered to be in its infancy.
Embedded finance enables opportunities for more consumers than ever before and could single-handedly make a lasting impact on the global economy.
Opportunities and Challenges of Embedded Finance for Brands and Non-Bank Companies
While embedded finance benefits the consumer, can we say the same about the brands who implement it?
For the most part, the answer is emphatically yes.
Loyalty: The effort to utilize embedded finance by brands is driven by customer preferences. Consumers’ preferences are trending towards all-in-one functionalities, finance included. Brands that do not offer financial services in convenient and secure ways are in danger of losing their customers to brands that do. In short, missing out on embedded finance can be a major setback, while the reverse leads to a larger and more loyal customer base.
Cost, revenue & financial control: Embedded finance provides incredible benefits to brands including but not limited to brand loyalty, repeat customers, and lower overall costs. The biggest benefit of embedded finance is streamlining financial processes by eliminating the need for third-party companies’ financial services. By providing ancillary services without any third party, companies can not only reduce costs but also create new sources and revenue while remaining in control of their financial flow.
Data, data, data: Data extraction and analysis are also key parts of embedded finance that provide brands with insight into customers’ purchasing habits and preferences. This can help businesses create an even more customized and consumer-friendly experience that benefits all parties.
This isn’t to say that embedded finance does not have its challenges though. As with all new technology, there will always be a period of growing pains as brands and industries try to scale up to meet high consumer demands.
Widespread adoption of embedded finance may not be immediate, as traditional banks are known to be slow when it comes to improving their technology. Finally, embedded finance needs to have government and regulatory approval before being implemented. Some countries or regions could be slower at adopting embedded finance, especially if there are regulatory hurdles that must be overcome.
“In embedded finance, both the consumer and the merchants are the winners. The consumer gets a better offering at a cheaper price, spending less time and getting less headache. The merchants are able to secure their sales and, at the same time, they can upsell or provide other types of services that are related to their overall offering.”
Dr. Ozan Özerk
Founder of EMBank
Banking as a Service API-driven Embedded Finance Platform
Since the infrastructure of embedded finance is purely digital, Banking as a Service (BaaS) API is an essential component in setting up an embedded finance platform. The platform allows the company to offer legacy banking services. A BaaS API ensures data communication safety. By using a BaaS API-driven embedded finance platform, brands can embed financial services on their online platforms and apps.
To learn more, you can check Developer Portal for our Embedded Finance services.
* We, EMBank, will process your personal data indicated herein to register your application and contact you as per your preferences.
Embedded Finance Use Cases Examples
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
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.
How can EMBank help?
European Merchant Bank (EMBank) offers accessible financial products for fintech companies and local and/or regional SMEs across various industries. Established in Lithuania and licensed by the European Central Bank, EMBank provides a Banking-as-a-Service (BaaS) offering, combined with Safeguarding, Business, Payment, and Accumulative account types as well as payment options through SEPA, Swift, and Target2.
Call us today on +370 700 11200. Alternatively, please fill out our application form, or send an email to [email protected] to arrange a telephone or video call.
Please keep in mind that the above information has been prepared or assembled by the EMBank and is intended for informational purposes only. Some of the information may be dated and may not reflect the most current legal developments.
Frequently Asked Questions
What is embedded finance?
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.
How does embedded finance work?
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.
Why is embedded finance important?
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.
What is embedded fintech?
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.
What is embedded banking?
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.