Embedded Finance: What It Is and How It's Impacting Businesses
The way we manage our finances is changing under the impact of the digital-oriented world. While consumers still need to visit traditional banks and fill out lengthy paperwork to obtain loans, manage daily finances, or make investments, we’re increasingly moving to the all-digital remote approach.
Businesses are now partnering with embedded finance companies to offer online financial products where customers are already shopping or browsing. As our world has shifted to a more digital environment, embedded finance has become the norm almost everywhere to make shopping, borrowing, investing, and wealth management more convenient and accessible.
Follow this guide to learn what embedded finance is, how it works, and how it benefits customers and businesses. You’ll also get a chance to explore some real-world examples of embedded finance.
What Is Embedded Finance?
Embedded finance refers to the integration of financial products or services into non-financial products or services. This might look like a travel agency that offers travel insurance, or it could be as simple as an e-commerce store that provides payment plans. However, businesses use embedded finance to offer all kinds of other finance solutions, including payments, lending, investing, and more.
While some types of embedded finance have existed for years (such as getting rental insurance when renting a car), digital platforms are expanding how they offer and present financial services to customers. They now include modern wealth management practices like mobile budgeting or short-term payment plans. And they include embedded finance in the existing customer journey to ensure a high level of convenience and helpfulness for consumers.
How Embedded Finance Works
Many companies integrate finance offerings into their regular processes, from simple payments to more complex investment and insurance offerings. They do so by using application programming interfaces (APIs) obtained from a financial institution through its financing software or embedded finance platform.
For example, a customer can encounter embedded finance when buying a laptop from a company that allows them to add a warranty or split the purchase into multiple payments. Rather than visiting a separate website for personal product insurance or a loan to buy the laptop, the financial solutions they need are right in front of them on the laptop company's website.
Some of the most common embedded finance solutions include:
- Embedded payments — Just about every business with an online presence will allow some way for customers to make payments online. For example, making payments on Amazon is considered an embedded payment because you can complete the transaction directly from the Amazon website or app.
- Embedded payment plans — Instead of paying the full amount all at once, some businesses provide buy now, pay later (BNPL) plans through companies like Klarna or Afterpay so customers can split their purchase into a set number of payments over a specified period.
- Embedded loans — Further, some businesses partner with banks or fintech companies to offer loans during checkout that allow customers to make instant decisions on loans or credit cards to use toward their purchases.
- Embedded investing — Apps like Acorns or Robinhood allow customers to invest through the app rather than accessing various brokerage accounts or meeting with a financial adviser.
- Embedded insurance — Some companies may offer insurance so customers can buy everything at once instead of contacting an insurance company at a separate time. For example, travel agencies may sell travel insurance, and car makers may offer car insurance you can purchase simultaneously with your vehicle.
Key Components of Embedded Finance
Let’s explore some of the embedded finance trends and use cases mentioned above in more detail to gain a better understanding of how embedded banking and finance services work.
Payment Processing and Digital Wallets
Most businesses offer embedded payments so customers can make payments online safely and easily. Consumers can typically choose between payment methods such as credit/debit cards or online bank transfers, but the process remains much the same regardless of their choice.
The website will automatically direct the customer to a payment processing page, where they can enter basic payment information, or use their biometric authentication to autofill the data on their behalf. The payment platform initiates the payment with the processor initiates the payment and removes money from the customer’s payment account.
Many businesses also offer digital wallets, which simplify the payment process even more. If a customer has their payment information stored in a digital wallet, they have a few quick options for making online payments. They can use a QR code, PIN, or their card’s CVV to avoid entering most of their payment information. Many providers now allow obfuscation with single or multi-use virtual card numbers for the consumer’s data privacy.
Lending and Credit Services
There are a variety of ways that businesses can offer lending and credit services through their checkout pages. You might choose to offer “buy now, pay later” installment plans, loans, or credit cards. Having these services available directly through your business eliminates the need for customers to contact financial institutions.
Businesses can implement embedded lending and credit services fairly easily using APIs that help connect to a financial institution’s network. APIs allow a business to maintain consistency across branding and provide a more tailored customer experience by keeping the customer on its website rather than redirecting to the financial institution’s platform.
Insurance and Risk Management
Large purchases may take more thought and planning, and many customers like to protect their expensive items. This could prompt consumers to seek insurance after they leave your store or website. However, embedded finance allows you to enhance your customers' experience by offering insurance with your products or services.
Embedded insurance eliminates the need for customers to look elsewhere to protect their goods or services. They can finish everything in a single place, and you can enjoy the benefits of elevated customer satisfaction and trust.
Investment and Wealth Management
Embedded investing is not as common as other types of embedded finance. Still, it has grown in popularity recently as investing apps and new fintech platforms have emerged to provide an easier way to manage and track investments.
Traditional banks and investment platforms can often get too technical and overwhelming for new investors. Their platforms may be outdated and limited in scope, resulting in less customer-friendly navigation. Or, they might throw a lot of jargon at you and expect you to know what it means.
Investing apps with embedded investing options emerged as a more feasible alternative. They simplify and streamline the investment process, allowing both new and experienced investors to easily access multiple brokerage accounts and investment options in one place.
The Impact of Embedded Finance on Businesses
Embedded finance has the potential to transform the entire finance market and economy, creating advantages for businesses, financial institutions, and customers.
Explore some of the most significant benefits of embedded finance below.
Enhanced Customer Experience
Embedded finance tools, such as payment plans or warranty coverage, bring more convenience to customers. Instead of visiting in-store locations or sending money or checks in the mail, customers can use embedded finance to purchase an item in just a few steps — and from a single location.
The digital format of embedded payments is particularly convenient for repeat business or subscription billing. Instead of entering their payment information every time they want to buy a new item or prolong their subscription, customers can save their payment information with the embedded finance tools.
Digital wallets also have a similar concept in that the customer only needs to enter a PIN, their card CVV, or biometric authentication to enter all their payment information automatically. This saves a lot of time and effort in the long run.
Embedded finance also offers security through the use of APIs, which secure connections between payment networks and keep customers' financial information safe during transmission and payment processing.
Improved Customer Acquisition
The enhanced customer experience offered through embedded finance can attract customers and keep them coming back for convenient and accessible purchasing solutions. But that's not the only way in which financial institutions and businesses can elevate customer acquisition with embedded finance.
Banks can reach a much larger pool of customers by partnering with businesses across industries. They get to advertise their financial products every time a customer buys something from their partner. This strategy also reduces the overall customer acquisition costs.
On the other hand, banks help businesses attract customers who may not have the lump sum to purchase their products. As embedded finance offers different payment plans, it increases the likelihood of more people buying a business's product or service.
Increased Revenue
Since embedded finance expands both a business’s and a bank’s audience, this automatically creates more revenue opportunities. If a customer visits your business’s website but doesn’t find any feasible options for their financial situation, they may not move forward with a purchase. Payment plans, loans, or credit options make it possible for these customers to buy what they want when they want, which increases the business’s and bank’s chances of making money.
Add-on financial products like rental insurance or appliance warranties also build trust with your clients. They indirectly communicate the value of what your customers are buying and show the consumer that you want them to get the most out of their purchase. Offering convenience, efficiency, and helpful products combine to help make customers happy.
In addition, the bank or financial institution that provides the financial product or service may pay a fee to the business every time a customer buys the product. Therefore, the business may receive the revenue from the customers’ purchases, as well as from the bank.
Real-Life Examples of Embedded Finance
Embedded finance is just about everywhere. Online shopping is so prevalent today that most people use embedded finance regularly without realizing it. Below are just a few embedded finance examples contributing to the changing finance ecosystem.
Starbucks
Starbucks developed its embedded finance strategies after 2008 when over-expansion caused the company’s growth to stall. The company created a mobile app coupled with a rewards program in 2009 to recover and begin bringing in more revenue again.
The Starbucks rewards program now has over 28 million active users, contributing over half of Starbucks’ revenue. Following the initial success of the Starbucks rewards program, the company made some changes to the mobile app that more deeply integrated embedded finance. This included phased implementation of mobile payments, in-app preorders, and drive thru orders.
Customers can also use the app to preload funds for their purchases. They can connect their payment method or purchase gift cards and load them into their account. While both choices are convenient, members who use preloaded funds get double rewards. This incentivizes customers to set money aside continuously for spending at Starbucks.
Shopify
While Shopify is most widely known as a SaaS company for e-commerce businesses, much of its revenue comes from additional products sold to merchants for extra support, such as financial products. The company’s embedded finance strategy began with Shopify Payments, which allowed stores to process online payments more directly.
However, that was just the first step in offering financial product solutions to merchants. In 2016, Shopify introduced Shopify Capital, which provides business loans for Shopify stores. Finally, Shopify began offering bank accounts and debit cards through Shopify Balance, which allows its merchants to manage their daily finances in conjunction with receiving payments and seeking lending.
The combination of all three financial products has created a one-stop shop for e-commerce stores using Shopify. In addition, Shopify has benefitted by expanding its revenue streams.
Uber
Like many other online businesses, Uber started with embedded finance by offering online mobile payments for passengers to schedule and pay for rides. However, the company expanded its financial offerings to elevate the overall convenience, especially for drivers.
Uber Money arrived in 2019 to give passengers and drivers a place to manage money earned and spent with Uber. Drivers could get real-time access to their earnings with a debit account and debit card, so they didn’t have to wait to transfer funds into a separate bank account. In addition, the company partnered with Barclays to offer the Uber Credit Card. Although the credit card is now out of business, the rest of the platform found success.
Passengers and drivers could also use the Uber Wallet feature to view transaction history for earnings and spending, as well as browse other financial products (such as the Uber Debit Card and Uber Pay for drivers who want to integrate more payment methods for riders) and preload funds for future rides or food deliveries through Uber Cash.
Leverage a Payment Optimization Tool Today
If your business is setting up a website or looking to improve a current one, embedded finance can help make payments more convenient for customers. And more convenient payment options mean fewer barriers to purchase, which could help you improve conversion rates and increase revenue.
Whether you need to accept one-time payments or set up a subscription business model, Revolv3 can help you provide a variety of payment methods. At Revolv3, we understand how important it is to get payments right the first time, which is why we use dynamic routing to increase payment success rates. Plus, we only charge for the successful payments.
Contact us today to request a demo and learn more about how Revolv3 can help you build an effective embedded finance strategy.
The way we manage our finances is changing under the impact of the digital-oriented world. While consumers still need to visit traditional banks and fill out lengthy paperwork to obtain loans, manage daily finances, or make investments, we’re increasingly moving to the all-digital remote approach.
Businesses are now partnering with embedded finance companies to offer online financial products where customers are already shopping or browsing. As our world has shifted to a more digital environment, embedded finance has become the norm almost everywhere to make shopping, borrowing, investing, and wealth management more convenient and accessible.
Follow this guide to learn what embedded finance is, how it works, and how it benefits customers and businesses. You’ll also get a chance to explore some real-world examples of embedded finance.
What Is Embedded Finance?
Embedded finance refers to the integration of financial products or services into non-financial products or services. This might look like a travel agency that offers travel insurance, or it could be as simple as an e-commerce store that provides payment plans. However, businesses use embedded finance to offer all kinds of other finance solutions, including payments, lending, investing, and more.
While some types of embedded finance have existed for years (such as getting rental insurance when renting a car), digital platforms are expanding how they offer and present financial services to customers. They now include modern wealth management practices like mobile budgeting or short-term payment plans. And they include embedded finance in the existing customer journey to ensure a high level of convenience and helpfulness for consumers.
How Embedded Finance Works
Many companies integrate finance offerings into their regular processes, from simple payments to more complex investment and insurance offerings. They do so by using application programming interfaces (APIs) obtained from a financial institution through its financing software or embedded finance platform.
For example, a customer can encounter embedded finance when buying a laptop from a company that allows them to add a warranty or split the purchase into multiple payments. Rather than visiting a separate website for personal product insurance or a loan to buy the laptop, the financial solutions they need are right in front of them on the laptop company's website.
Some of the most common embedded finance solutions include:
- Embedded payments — Just about every business with an online presence will allow some way for customers to make payments online. For example, making payments on Amazon is considered an embedded payment because you can complete the transaction directly from the Amazon website or app.
- Embedded payment plans — Instead of paying the full amount all at once, some businesses provide buy now, pay later (BNPL) plans through companies like Klarna or Afterpay so customers can split their purchase into a set number of payments over a specified period.
- Embedded loans — Further, some businesses partner with banks or fintech companies to offer loans during checkout that allow customers to make instant decisions on loans or credit cards to use toward their purchases.
- Embedded investing — Apps like Acorns or Robinhood allow customers to invest through the app rather than accessing various brokerage accounts or meeting with a financial adviser.
- Embedded insurance — Some companies may offer insurance so customers can buy everything at once instead of contacting an insurance company at a separate time. For example, travel agencies may sell travel insurance, and car makers may offer car insurance you can purchase simultaneously with your vehicle.
Key Components of Embedded Finance
Let’s explore some of the embedded finance trends and use cases mentioned above in more detail to gain a better understanding of how embedded banking and finance services work.
Payment Processing and Digital Wallets
Most businesses offer embedded payments so customers can make payments online safely and easily. Consumers can typically choose between payment methods such as credit/debit cards or online bank transfers, but the process remains much the same regardless of their choice.
The website will automatically direct the customer to a payment processing page, where they can enter basic payment information, or use their biometric authentication to autofill the data on their behalf. The payment platform initiates the payment with the processor initiates the payment and removes money from the customer’s payment account.
Many businesses also offer digital wallets, which simplify the payment process even more. If a customer has their payment information stored in a digital wallet, they have a few quick options for making online payments. They can use a QR code, PIN, or their card’s CVV to avoid entering most of their payment information. Many providers now allow obfuscation with single or multi-use virtual card numbers for the consumer’s data privacy.
Lending and Credit Services
There are a variety of ways that businesses can offer lending and credit services through their checkout pages. You might choose to offer “buy now, pay later” installment plans, loans, or credit cards. Having these services available directly through your business eliminates the need for customers to contact financial institutions.
Businesses can implement embedded lending and credit services fairly easily using APIs that help connect to a financial institution’s network. APIs allow a business to maintain consistency across branding and provide a more tailored customer experience by keeping the customer on its website rather than redirecting to the financial institution’s platform.
Insurance and Risk Management
Large purchases may take more thought and planning, and many customers like to protect their expensive items. This could prompt consumers to seek insurance after they leave your store or website. However, embedded finance allows you to enhance your customers' experience by offering insurance with your products or services.
Embedded insurance eliminates the need for customers to look elsewhere to protect their goods or services. They can finish everything in a single place, and you can enjoy the benefits of elevated customer satisfaction and trust.
Investment and Wealth Management
Embedded investing is not as common as other types of embedded finance. Still, it has grown in popularity recently as investing apps and new fintech platforms have emerged to provide an easier way to manage and track investments.
Traditional banks and investment platforms can often get too technical and overwhelming for new investors. Their platforms may be outdated and limited in scope, resulting in less customer-friendly navigation. Or, they might throw a lot of jargon at you and expect you to know what it means.
Investing apps with embedded investing options emerged as a more feasible alternative. They simplify and streamline the investment process, allowing both new and experienced investors to easily access multiple brokerage accounts and investment options in one place.
The Impact of Embedded Finance on Businesses
Embedded finance has the potential to transform the entire finance market and economy, creating advantages for businesses, financial institutions, and customers.
Explore some of the most significant benefits of embedded finance below.
Enhanced Customer Experience
Embedded finance tools, such as payment plans or warranty coverage, bring more convenience to customers. Instead of visiting in-store locations or sending money or checks in the mail, customers can use embedded finance to purchase an item in just a few steps — and from a single location.
The digital format of embedded payments is particularly convenient for repeat business or subscription billing. Instead of entering their payment information every time they want to buy a new item or prolong their subscription, customers can save their payment information with the embedded finance tools.
Digital wallets also have a similar concept in that the customer only needs to enter a PIN, their card CVV, or biometric authentication to enter all their payment information automatically. This saves a lot of time and effort in the long run.
Embedded finance also offers security through the use of APIs, which secure connections between payment networks and keep customers' financial information safe during transmission and payment processing.
Improved Customer Acquisition
The enhanced customer experience offered through embedded finance can attract customers and keep them coming back for convenient and accessible purchasing solutions. But that's not the only way in which financial institutions and businesses can elevate customer acquisition with embedded finance.
Banks can reach a much larger pool of customers by partnering with businesses across industries. They get to advertise their financial products every time a customer buys something from their partner. This strategy also reduces the overall customer acquisition costs.
On the other hand, banks help businesses attract customers who may not have the lump sum to purchase their products. As embedded finance offers different payment plans, it increases the likelihood of more people buying a business's product or service.
Increased Revenue
Since embedded finance expands both a business’s and a bank’s audience, this automatically creates more revenue opportunities. If a customer visits your business’s website but doesn’t find any feasible options for their financial situation, they may not move forward with a purchase. Payment plans, loans, or credit options make it possible for these customers to buy what they want when they want, which increases the business’s and bank’s chances of making money.
Add-on financial products like rental insurance or appliance warranties also build trust with your clients. They indirectly communicate the value of what your customers are buying and show the consumer that you want them to get the most out of their purchase. Offering convenience, efficiency, and helpful products combine to help make customers happy.
In addition, the bank or financial institution that provides the financial product or service may pay a fee to the business every time a customer buys the product. Therefore, the business may receive the revenue from the customers’ purchases, as well as from the bank.
Real-Life Examples of Embedded Finance
Embedded finance is just about everywhere. Online shopping is so prevalent today that most people use embedded finance regularly without realizing it. Below are just a few embedded finance examples contributing to the changing finance ecosystem.
Starbucks
Starbucks developed its embedded finance strategies after 2008 when over-expansion caused the company’s growth to stall. The company created a mobile app coupled with a rewards program in 2009 to recover and begin bringing in more revenue again.
The Starbucks rewards program now has over 28 million active users, contributing over half of Starbucks’ revenue. Following the initial success of the Starbucks rewards program, the company made some changes to the mobile app that more deeply integrated embedded finance. This included phased implementation of mobile payments, in-app preorders, and drive thru orders.
Customers can also use the app to preload funds for their purchases. They can connect their payment method or purchase gift cards and load them into their account. While both choices are convenient, members who use preloaded funds get double rewards. This incentivizes customers to set money aside continuously for spending at Starbucks.
Shopify
While Shopify is most widely known as a SaaS company for e-commerce businesses, much of its revenue comes from additional products sold to merchants for extra support, such as financial products. The company’s embedded finance strategy began with Shopify Payments, which allowed stores to process online payments more directly.
However, that was just the first step in offering financial product solutions to merchants. In 2016, Shopify introduced Shopify Capital, which provides business loans for Shopify stores. Finally, Shopify began offering bank accounts and debit cards through Shopify Balance, which allows its merchants to manage their daily finances in conjunction with receiving payments and seeking lending.
The combination of all three financial products has created a one-stop shop for e-commerce stores using Shopify. In addition, Shopify has benefitted by expanding its revenue streams.
Uber
Like many other online businesses, Uber started with embedded finance by offering online mobile payments for passengers to schedule and pay for rides. However, the company expanded its financial offerings to elevate the overall convenience, especially for drivers.
Uber Money arrived in 2019 to give passengers and drivers a place to manage money earned and spent with Uber. Drivers could get real-time access to their earnings with a debit account and debit card, so they didn’t have to wait to transfer funds into a separate bank account. In addition, the company partnered with Barclays to offer the Uber Credit Card. Although the credit card is now out of business, the rest of the platform found success.
Passengers and drivers could also use the Uber Wallet feature to view transaction history for earnings and spending, as well as browse other financial products (such as the Uber Debit Card and Uber Pay for drivers who want to integrate more payment methods for riders) and preload funds for future rides or food deliveries through Uber Cash.
Leverage a Payment Optimization Tool Today
If your business is setting up a website or looking to improve a current one, embedded finance can help make payments more convenient for customers. And more convenient payment options mean fewer barriers to purchase, which could help you improve conversion rates and increase revenue.
Whether you need to accept one-time payments or set up a subscription business model, Revolv3 can help you provide a variety of payment methods. At Revolv3, we understand how important it is to get payments right the first time, which is why we use dynamic routing to increase payment success rates. Plus, we only charge for the successful payments.
Contact us today to request a demo and learn more about how Revolv3 can help you build an effective embedded finance strategy.
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