Why embedded finance is the next revolution in fintech, and what are its most useful applications

If you’ve browsed through guides and articles on the most recent trends in fintech, you were bound to have seen these two words - embedded finance. From the best fintech startups of 2022 to how blockchain is changing finance - fintech is now experiencing an insurgence of innovation and disruption. And the addition of embedded financial services is one of the causes. But why embedded finance is the next revolution in fintech? In this article, our team of fintech designers was determined to find that out.

What is embedded finance?

The most simplistic embedded finance definition we’ve encountered sounded like that: “the integration of any financial service, tool, or technology into a product or service that belongs to a non-financial company.” What they ultimately do is enhance existing digital services and solutions by offering customers a more effective and modern user experience.

Embedded financial services became a reality thanks to the banking-as-a-service (BaaS) business model. By allowing non-banking institutions to connect to actual banks and their systems through APIs, BaaS providers can now deliver a more personalized and user-friendly experience while simultaneously promoting healthier competition in the financial sector and giving banks more room to promote their products and services.

Embedded finance examples and use cases

Three major financial services areas where “embedded” became the new norm are payments and regular banking, loans, and insurance. Below you’ll find the examples and popular use cases.

Embedded finance use cases
Embedded finance use cases

Embedded payments. Out of all embedded fintech areas, one you’ll be most familiar with is embedded payments. They enable you to access instant payments on any website or platform where you’re about to buy something with just a few clicks.

The tech is deeply integrated within the site’s or app’s infrastructure and remembers your banking details without compromising your safety. You may find services like Lyft with their debit cards for drivers among the more common embedded banking examples.

Embedded lending. Also known as Buy Now Pay Later (BNPL) payment method, embedded lending is a fintech service that makes possible delayed payments right when you need them the most - amid the actual purchase - without you having to visit a bank or a lender.

The business-to-business side of financial transactions can also have access to embedded lending, enabling companies to obtain a digitized trade credit with a significantly reduced wait time. Getting a loan for both regular people and businesses has never been easier.

Embedded insurance. Just like with payments and loans, embedded insurance guarantees you get the needed services at the right moment. This time it is insurance products that you can access right after you make a purchase you need to secure.

The best and most famous example of embedded insurance is travel insurance you can access when buying a train or a flight ticket. Another example is purchasing a home or a car with an immediate application for an insurance policy and a customized level of coverage.

Embedded finance companies

You most likely have heard of Visa and Mastercard if you own a debit or credit card. You can find the logo of either of these companies on it. They are both leaders in the embedded finance market, offering seamless embedded payments pretty much anywhere. You’re also familiar with Amazon, Apple, Facebook, and Google - all of them also utilize embedded banking in their services.

Other prominent companies whose work revolves around embedded financial services are Klarna, Affterpay, and Affirm, bringing one of the most popular e-commerce payment methods, BNPL. For example, Shopify, as an e-commerce platform, also uses this kind of payment approach. For embedded lending, there’s Tesla, Udaan, and Peeled. Tesla also offers embedded insurance.

Benefits of embedded finance

Embedded financial technology is nothing short of useful. Compared to conventional finance practices, there’s less restriction with embedded finance, meaning clients can access the needed service whenever and wherever they want. Below are other benefits it offers:

  • Better customer experience and convenience of being able to pay on the spot, plus you’re more likely to secure a client’s future purchase if you don’t have them roam away from your product;
  • Profitability - you can expect at least five times more revenue per customer if you have embedded payments on your website or app;
  • A wide variety of uses - it’s not only eCommerce that would seemingly benefit from embedded finance, but also wealth management and insurance companies, etc.;
  • Customer insights - embedded financial solutions help gather people’s spending habits.

So, why is embedded finance considered the next revolution?

In fintech, embedded finance is one of those trends that happened to grow quickly and steadily without steering off course, and it’s all because it perfectly represents our financial future - convenient, effective, and innovative.

It is also considered the next revolution for one simple reason. It completely changes the way we used to view financial transactions - slightly restrictive and only connected to official financial institutions, such as banks or insurance companies.

Now, embedded fintech services have given the means for non-banking organizations to capitalize on their advantages while also improving on user experience. And the convenience for users is what brought such success for embedded solutions in the first place.

All in all, if you want to build any type of digital solution, be that fintech, eCommerce, healthcare, or any other tool where you expect people to purchase your products or services, embracing embedded technology is the way to go.

Serhii Hyliuk

Head of Growth

Head of Growth and Customer Success. I'm interested in design, new tech, fashion, exploring new places and languages. My mission is to make our clients happy.

Head of Growth and Customer Success. I'm interested in design, new tech, fashion, exploring new places and languages. My mission is to make our clients happy.

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