What is embedded finance you may ask? Embedded finance is the future of finance. It allows businesses and organizations to integrate payments directly within their website or app without redirecting users to a third-party site. Embedded finance enables companies to provide their customers with access to faster, simpler, and more convenient shopping experiences and integrate a myriad of new services such as embedded investing, insurance, and lending.

In this article, we will cover everything you need to know about what embedded finance is and payment processing, and the benefits embedded finance has to their customer experience and business models. This also explains why embedded finance is already revolutionizing the way we integrate financial services into non-financial endeavours and e-commerce.

Embedded finance solutions and how they help customers

When users visit a website or app to purchase, they face two scenarios for paying for their products or services. In most cases, they are taken to a third-party website where they can provide their credit card details. If the retailer uses embedded finance, however, the customer can pay directly on the site without the need to leave.

Until recently, embedded payments required a large investment, not to mention time and the development of the financial tools that could make this possible. Today, APIs (Application Programming Interfaces, a way for two or more computer programs to communicate with each other) can serve as a gateway between customers, companies, and banks – thus allowing non-financial businesses to accept and process payments with much more ease.

But retailers are not the only ones taking advantage of embedded financing to boost their business. Many non-financial companies are now beginning to offer financial services. So, why is that the case?

Benefits of embedded finance for consumers

Embedded finance offers several benefits for customers. Firstly, it can make their shopping experience much faster, more convenient, and simpler because people only need to use banking services and transactions when required and without leaving the site. For example, they can purchase and apply for credit on the same website or use the same app to hire a service and pay for it instantly.

A key benefit of embedded finance is its ease of use. The reason is that this financial service removes many consumer pain points, resulting in customers becoming more likely to complete a buy because they don’t need to go elsewhere to, for instance, seek credit for their purchase. Embedded financial processes also result in better customer satisfaction, which can in turn, lead to brand loyalty and more opportunities for businesses, small and big, to make a profit.

Some popular embedded financial examples include services like Uber and Lyft, which allow app users to take a car ride without having to use cash or pull out a card when the trip is complete. Food delivery apps do this, too; they let you order and pay from your phone without ever leaving the program. But there are other uses, such as embedded lending, embedded insurance, and embedded banking services. So, let’s go through them in some detail.

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Best uses for embedded finance

Embedded finance can streamline financial processes and act as a single point of service for many services that were typically monopolized by traditional financial institutions. Here are some popular use cases for the sector.

1 – Embedded payments

If your company can provide embedded payment solutions for its customers, they will need to tap a few buttons, and they will be all set. Apps and websites that use embedded finance are generally deemed easier to use, more convenient, and have higher user satisfaction. They also motivate buyers to come back as, if they so choose, their favourite payment options can be saved within the system.

For some businesses, this is just the beginning. Alongside embedded payments, many also include loyalty programs. For example, the global coffee chain Starbucks has an app that lets people not just make orders and pay for them using their phone but also rewards them with points they can redeem for new purchases. Designer Shoe Warehouse is another example of a company running a VIP loyalty program that rewards customers for their purchases by letting them unlock tier prizes.

2 – Embedded lending services

Before, when someone needed to lend money, they would need to apply for a credit card or a loan from a bank. This was done separately from any point of purchase. Today, thanks to embedded finance, customers can get them both when they need to pay for a product or service.

For example, the ClearPay and Klarna payment platforms let consumers split their purchases into a few smaller installments to be paid monthly. Other companies are doing this, too, giving customers the chance to finance large purchases easily.

3 – Embedded card payments

Debit cards and branded cards are great ways to pay contractors and employees without having to issue direct deposits or use checks. Many businesses use white-label debit cards and pay the card issuer an interchange fee.

One of the most common examples of a company using embedded card payments is Paypal. Paypal links your company user account to your bank account and allows you to apply for a company cash card, too (the cash card gives them access to their Paypal balance).

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4 – Embedded insurance

By implementing embedded finance solutions, companies can eliminate the need for insurance brokers and agents selling policies. Before, you had to get insurance when you bought a home or car, and you did so wholly separate from the purchase process. Today, companies have found many ways to offer insurance policies within the same product acquisition, so you walk out the door with both your purchase and a safeguard for it.

For instance, when customers purchase a holiday pack, they can instantly get travel insurance. Or, when someone rents a car, they get basic coverage while using the vehicle. Manufacturers are also including numerous insurance programs for their products – which also tend to be cheaper than those from third-party providers.

5 – Embedded investments

Many banking programs are making the process of investing money relatively straightforward. Users no longer need to transfer money into specific accounts to create or maintain a portfolio. All they need to do is continue using certain apps that take care of it for them.

One rather innovative example of such a company is Acorns, an application that uses your spare change (rounding up your purchases) to invest in diversified portfolios. But many others are dipping their toes in embedded investments. Paypal, for instance, has recently also allowed customers to buy cryptocurrency from their accounts.

6 – Embedded Banking as a Service (BaaS)

There is a difference between embedded finance and embedded banking; the latter refers to companies creating and offering services designed to potentially replace savings and checking accounts. Instead of going through a bank, these businesses set up their accounts and give employees or contractors debit cards to access them.

We mentioned Starbucks’ app, which isn’t just for ordering and paying. By allowing customers to store cash in it, it’s also acting as banking as a service (BaaS) technology. Lyft is doing something similar, giving drivers their saving accounts and cards. Other leading brands have jumped on the opportunity, too; for instance, Walmart and Walgreens have their closed-loop payment systems.

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New opportunities for embedded finance

One of the most common questions asked are the benefits of embedded finance services and what role does embedded finance need to play in the future play in market value for banks, service providers and to their customers? Embedded finance, in the simplest terms, can streamline financial processes, but it’s also changing consumer habits quickly. Millions of people are already using the services and products we covered in this article. Hence, the potential for eCommerce, wealth management, and insurance companies to take advantage of embedded finance is enormous. The embedded finance market is not just about making customer experiences more convenient; the data resulting from these practices can also help companies understand the spending habits and needs of consumers and use it to drive business development.

If your company wants to design its own embedded finance strategies, it’s essential to analyze your business’ digital needs and identify your goals. Do you want to improve customer service? Or perhaps launch a new venture to fulfil a specific need? Embedded payments can improve consumer satisfaction, while embedded insurance would allow you to become a one-stop shop for your solution. You don’t need to have a financial product to embed finance projects. Companies that are not in the fintech industry can offer financial services, to.

There is one thing we know for sure: The future of the financial services industry is embedded finance and embedded financial services. As the practice of merging non-financial service providers with financial services are more widespread, we can expect many companies to try and discover novel ways to grow their businesses by bridging the gap with the use of new financial products in their business models and organization .

Fundsquire is a simple, tech-driven application supplying innovative cash flow financing for small and medium enterprises. If you are considering implementing an embedded finance offering, and need financing to implement innovative technologies for your business, don’t hesitate to contact us today. We can help you take control of your funding timeline and accelerate the growth of your start-up or scale-up.

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