What is embedded finance?
Embedded finance is the integration of financial services into a non-financial organisation’s products, via an application programming interface (API). It provides businesses with quick, seamless payment solutions and is becoming an increasingly popular tool in the financial industry, helping many organisations expand their services with more efficient, straightforward and convenient payment management.
But what exactly is embedded finance, what are the current trends and how will it change Fintech? We answer those questions and more, below.
Embedded finance FAQs
Embedded finance and open banking are connected but are by no means the same. Introduced in 2018, open banking forces banks to release data, such as payments and spending transactions, to other financial providers. Embedded finance has flourished from the springboard that open banking created, allowing for further customisability and the integration of wider financial services.
Embedded finance represents a significant change in the way consumers operate. Efficiency and personalisation are at the heart of embedded finance, and as consumers continue to follow this trend, the sector will only become more vital in the future.
The benefits of incorporating embedded finance into a merchant’s infrastructure include personalisation, new revenue streams, improved ease of use and increased customer loyalty, to name a few.
How is embedded finance changing Fintech?
Embedded finance provides many fintech businesses with quick, seamless payment solutions. For customers, it offers an efficient and uninterrupted payment experience, where they can manage transactions in one place – rather than switching between a banking app. In an increasingly digitalised world, where consumer demands have never been higher, embedded finance will be integral to the success of every financial services provider.
Market analysts predict the rise of embedded finance will soar in the US over the next two years. According to leading statistics organisation, Statista, payments in the embedded finance sector are expected to climb, over seven times higher, to $140.8 billion in 2025, from $16.1 billion in 2020. It doesn’t end there: the experts are also predicting the market value of insurance in the embedded finance space will rocket in the next three years, from $5 billion in 2020 to $70.7 billion in 2026.
Embedded finance examples
Many of us often interact with embedded finance on a day-to-day basis. Popular examples include buy now, pay later (BNPL) services, payment processing on e-commerce platforms and integrated insurance on travel booking websites.
Embedded finance has the power to revolutionise businesses and industries across the globe, and many are already leveraging the benefits. The ride-share company, Uber, is a prime example. Uber’s innovative use of embedded payment allows drivers and passengers to connect directly – a feature that has massively influenced the company’s growth and how taxi services operate all over the world. It hasn’t stopped there, with the launch of Uber Money in 2019 for its drivers. They’ve also introduced the Uber Credit Card in partnership with Barclays for customers.
Types of embedded finance
Embedded banking allows banks to provide bespoke, regulated products and services offered by traditional banks. It utilises Application Programming Interfaces (APIs) and web platforms to function. As the name suggests, embedded banking isn’t visible to end users however, users are able to experience several banking benefits seamlessly.
It’s often used in B2C and B2B business models and is popular with financial services such as lending and virtual accounts. 3S Money's International Business Account is one example of a digital payment system that can be easily incorporated into an organisation. It’s worth noting that embedded banking does not necessarily have to be fully integrated into a business structure to work seamlessly without users noticing.
We’re sure you’ll agree that embedded payments are one of the most useful financial developments over the past decade. Unnecessarily long payment processes are increasingly off-putting to consumers who are becoming more accustomed to the speediness of online services. Embedded payments remove that inefficiency by making payments as simple as possible. Global ecommerce company, Amazon, is a fantastic example of this, with their express ‘Buy Now’ button acting as an embedded payment link.
Compared to other forms of embedded finance, embedded lending is a fairly new trend in the Fintech industry however, it's claiming its place as one of the most ground-breaking developments in the sector. In short, embedded lending is when lending is presented to consumers through non-financial services or products. The goal is to help consumers apply for the credit they need, directly with the merchant. Increased security, straightforward payment structures and fewer delays are just some of the benefits.
Embedded insurance allows organisations to provide relevant risk protection to consumer purchase journeys in a swift, secure and simple manner. This type of embedded finance service keeps customers on their purchase journey and is normally provided as an add-on at the point of purchase – it’s a win for customers and a win for providers.
What trends are driving the growth of embedded finance?
Embedded finance is only just getting started. Innovation continues to drive the industry to new heights, helping businesses integrate financial services with further efficiency. With no sign of the trend slowing down, many might be wondering: what are the embedded finance trends driving the sector's consistent growth?
Technology is a key catalyst for growth when it comes to the world of embedded finance, alternative banking, and Fintech. With fresh technologies emerging and existing ones constantly being streamlined, it is likely that these new advancements will heavily impact the growth of the Fintech industry in the coming years.
There’s no doubt that consumers are becoming more time-conscious, and embedded finance systems are operating with this in mind. Integrated experiences are one of the key benefits of embedded finance, allowing for smooth and simple customer journeys that utilise an all-in-one structure. The popularity of integrated experiences continues to radically push the growth of embedded finance.
The financial crash of 2008 rocked the global markets and turned traditional banking structures on their head. Since the crash, the world of banking has evolved, and the Fintech sector continues to pave the way for radical revolutions in the embedded finance space.
New ways to generate revenue
It’s no secret that revenue is a key driver for businesses in a modern marketplace, while for customers, efficiency is a top priority. Investing in more user-friendly and efficient payment processes, such as embedded finance, is just one way organisations can generate further revenue and provide their customers with the service they deserve.
What does embedded finance mean for banks?
Many financial experts debate Banking as a Service (BaaS) vs embedded finance. With the rise of Fintechs, embedded finance puts pressure on traditional banks to evolve in line with the digital world. Various traditional banks are attempting to adapt and join the conversation, including the likes of Barclays, who’ve published a detailed report on the benefits of embedded finance.
Ultimately, embedded finance puts traditional banks at a crossroads. That’s why having a clear, embedded finance strategy will be necessary for banks to maintain relevancy and create new revenue streams in the future.
What are the benefits of embedded finance for businesses?
There are several benefits to using embedded finance within a business structure. Some of the most rewarding ones include:
- Lower costs
- Fewer infrastructure complexities
- Increased efficiency in customer journeys
- The creation of new streams of revenue
- Further control over services
- Wider customisability and personalisation for customers
- Beneficial insights into customer habits
Altogether, these benefits can be truly transformative for international brands and those seeking to scale in a tough global economic environment. Embedded finance can help companies flourish with customer loyalty and access to new consumers all over the world.
That’s where 3S Money come in.
3S Money is an alternative banking solution that prioritises speed, safety and ease of use, all while offering ground-breaking financial services for international customers. If you’re looking to push your business into a successful global position, you’re in the right place.
Learn more about 3S Money’s International Bank Account by getting in touch with our team. If you're ready to get started you can check your eligibility and receive a pre-approval in under 15 minutes.