Embedded finance is transforming the landscape of financial services by integrating them into non-financial offerings. This concept involves offering financial services seamlessly within the customer’s journey, creating a more convenient and interconnected experience.
Examples of embedded finance include:
- E-commerce merchants providing insurance.
- Coffee shop apps offering 1-click payments.
- Department stores introducing branded credit cards.
One significant driver of embedded finance is the rise of third-party “banking-as-a-service” companies, which use Application Programming Interfaces (API) integrations to embed financial services directly into the user experience of non-financial companies.
This shift is seen as a game-changer, with 88% of companies implementing embedded finance reporting increasing customer engagement and 85% stating that it helps acquire new customers.
Embedded Finance Examples and the Future
The types of embedded finance are diverse, encompassing embedded banking, payments, credit cards, lending, investing, and insurance. Embedded banking, for instance, involves non-financial companies offering their users branded checking accounts and associated debit cards. This can enhance loyalty and engagement by providing faster access to funds and exclusive perks.
Embedded payments simplify checkout, allowing consumers to save payment methods for later use with a button click. Branded payment cards, including credit and debit cards, are becoming more prevalent, offering additional avenues for customer engagement and loyalty.
Embedded lending, such as “buy now, pay later” services, enables users to access favorable loan options at the point of sale, increasing consumer access to lending and boosting business sales. Embedded investing allows non-investment service companies to offer investment options, while embedded insurance enables users to purchase insurance during online transactions.
Startups like Walnut, Unit, and Checkout.com are capitalizing on the embedded finance trend, offering services including banking, investments, and insurance. The embedded finance market is projected to produce $384.8 billion in revenue by 2029, representing a substantial growth opportunity.
Also Read: Embedded Finance for FinTechs
The future of embedded finance holds four key changes for the fintech industry:
- Rearranged relationships between financial providers and consumers
- New revenue streams through embedded services
- New types of competition
- A new era of partnerships between financial providers and non-financial brands
This evolution will increase competition, innovative revenue streams, and a more interconnected financial ecosystem.