What Is Embedded Finance and Why Is It Important28
Embedded Finance—also known as integrated finance—represents a paradigm shift in how financial services are delivered to consumers and businesses. This innovative approach allows non-financial companies to seamlessly incorporate financial products directly into their service offerings, creating a more cohesive customer experience.
At its core, embedded finance democratizes access to financial services previously exclusive to banks and traditional financial institutions.
Through strategic partnerships with fintech companies, businesses across all sectors can embed financial services directly into their customer journey and offer sophisticated financial solutions without the regulatory and infrastructural burdens of becoming a financial institution.
This model enables companies to enhance user experience, generate additional revenue streams, and improve customer retention by offering financial solutions at the right moment within the purchasing process.
The global embedded finance market is expanding rapidly. According to Lightyear Capital, this sector was valued at $22.5 billion in 2020 and is projected to reach €230 billion by 2025, growing at an annual rate of nearly 60%.
The Technology Behind Embedded Finance
Unlike traditional financial services, embedded finance eliminates friction in transactions by providing real-time, integrated solutions.
The embedded finance revolution is powered by "banking-as-a-service" (BaaS) infrastructure and sophisticated API integrations. These technologies enable non-financial entities to incorporate banking services directly into their digital ecosystems without redirecting users to third-party platforms and offering tailored financial solutions.
This contextual delivery of financial services - presenting options precisely when customers need them in their purchasing journey - significantly enhances user experience while creating new revenue opportunities for businesses.
Four Primary Applications of Embedded Finance
- Embedded Payments: Frictionless Transaction Experiences
Embedded payment solutions allow e-commerce platforms and digital marketplaces to process transactions natively within their interfaces. This eliminates the need for customers to leave the site to complete a transaction, reducing cart abandonment rates and enhancing the checkout experience.
Today's consumers benefit from numerous payment options including Credit and debit cards, Loyalty points redemption, Direct bank transfers, Digital wallets like PayPal and Cryptocurrency payments.
The true innovation lies in the ability to save payment credentials securely within these platforms, enabling one-click purchases that dramatically streamline the customer journey and reduce cart abandonment rates.
- Embedded Lending: Point-of-Purchase Financing Solutions
Embedded lending eliminates traditional loan application processes by offering financing options directly at the moment of purchase. This is especially crucial in the B2B sector, where companies often require flexible payment options to manage cash flow efficiently.
- Embedded Insurance: Contextual Protection
Embedded insurance enables businesses to offer customized insurance solutions directly within their platforms, reducing the need for third-party brokers and streamlining the user experience.
This means that tech retailers could sell smartphones with instant theft and damage insurance coverage at checkout, or travel booking platforms could offer trip protection and cancellation insurance as an add-on.
For example, Chubb, a global insurer, works with banks and fintechs to offer integrated insurance solutions, helping organisations build trust with customers through integrated insurance offerings.
- Embedded Banking: Financial Services Infrastructure
Perhaps the most comprehensive application, embedded banking enables non-financial companies to offer complete banking functionality under their own brand, without being a licensed financial institution. This solution enhances customer loyalty and simplifies financial management.
These solutions typically include:
- Branded IBANs or virtual accounts
- Fund management capabilities
- Transaction processing
- Financial management tools
For example, Shopify Balance provides merchants with a digital bank account that eliminates the need for traditional banking relationships while streamlining business operations and enabling them to receive payments, manage funds, and access cashback rewards.
The Business Case for Embedded Finance Integration
The growing demand for seamless, integrated financial solutions presents significant opportunities for companies across industries. For businesses considering embedded finance solutions, the value proposition extends beyond simple product expansion:
- Increase revenue by offering financial services that complement their core offerings.
- Enhance customer experience through frictionless, one-stop financial solutions.
- Gain valuable insights into user behavior by analyzing transactional data.
The Future of Embedded Finance: Growth Projections and Trends
As we said at the beginning of this content, the embedded finance sector has already demonstrated remarkable growth. Several factors are driving this extraordinary expansion:
- Accelerating digital transformation across industries
- Growing consumer expectations for seamless experiences
- Advancements in artificial intelligence and machine learning
- Increasing availability of financial data
- Regulatory developments supporting open banking initiatives
As these technologies continue to evolve, we anticipate embedded finance solutions becoming standard components of business offerings across virtually all consumer-facing industries.
As AI and Big Data continue to advance, embedded finance will become even more personalized and efficient. Companies that adopt this model early will gain a competitive edge, as customer expectations shift toward integrated, on-demand financial services.
Start Your Embedded Finance Journey with Opyn Pay Later
Ready to enhance your business offering with embedded financial services? Buy Now Pay Later (BNPL) represents one of the most successful implementations of this concept.
If you're a B2B company, Opyn Pay Later can help you unlock the benefits of embedded finance by providing flexible payment solutions to your business customers. In fact, Opyn Pay Later allows sellers to offer deferred and instalment payments with maximum flexibility to their B2B customers, for both digital and physical purchases. The process is extremely simple: the merchant only needs to enter the amount and the customer's tax identification number to securely send a payment request.
Industry research confirms the effectiveness of these solutions, with studies showing 50% of buyers would increase their spending when offered payment flexibility.
As said by our client I-Tech: "Opyn Pay Later provides all B2B sales services by supporting our company from start to finish. This saves me time: so I can focus on the tasks that are important to my business. This is why Opyn is the ideal partner for any company that wants to grow.”
Our flexible Buy Now Pay Later solution enables you to offer your business customers payment flexibility while maintaining your cash flow and expanding your service capabilities.
Discover Opyn Pay Later: transform your payment experience and unlock new business potential today!
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