Embedded finance: Who is already benefiting from it? 

Our thinking on embedded finance

Posted on 20th December 2021

Embedded finance will drastically change financial services, but the changes that it and Banking-as-a-Service are already making should not be underestimated.

Embedded finance Who is already benefiting from it

Too often, conversations around embedded finance veer into predictions for the future. One day it will deliver these benefits to those consumers. This number of businesses will be embedding finance in that number of years. 

But we don’t talk enough about the amazing developments happening now. Plenty of businesses have revolutionised their offering through embedded finance and are already reaping the rewards that come with it. 

Here we wanted to put the spotlight on those businesses - some you’ll know already, others you may not. 

But first let’s take a look at what we mean by “embedded finance”. All financial services can be embedded, but payments, banking, lending and insurance are currently the industry’s four largest segments:

Embedded payments: Embedded payments are payment rails that are fully integrated within a non-financial product. This means a customer/user is not taken out of the service to make or confirm a payment. Payments can be split and routed in different ways depending on the company’s requirements, and a Payment Initiation Service allows customers to automatically consent to moving money directly from their bank account. 

Embedded banking: Banking services such as bank accounts, savings products, investment and wealth management can also be embedded into non-financial businesses. This allows businesses to add banking services to their product ecosystem and build a closer relationship with their customer. The term ‘embedded banking’ is sometimes used interchangeably with embedded finance, but embedded finance covers more services. 

Embedded lending: Embedded lending allows companies to offer loans to individuals and businesses. The necessary credit checks, financing and related services are provided by a third party but the service is integrated within the business’s own ecosystem. 

Embedded insurance: Insurance is another element of finance which can be embedded into businesses with no background, or licencing, in insurance. The most obvious use case are retailers which sell goods people frequently want to insure (cars, jewellry, high-cost electronics), benefitting from keeping everything in-house. 

What are some examples of embedded finance today? 

Now you’re familiar with the main segments of embedded finance, let’s have a look at exactly who’s using it. The examples below are just a small handful of the hundreds of companies making embedded finance work for them. 

Uber: Uber is one of the most recognisable examples of a seamless, embedded payments journey. When you use Uber, you do not have to add your card details every time you book a trip. In fact, you are not even taken to a payment screen to authorise the payment - the whole journey runs within the Uber app. 

Through embedding payments infrastructure, Uber is able to store a customer’s card details (with the customer’s permission) and use them to make a payment when the customer books a trip. Everything remains fully branded and the process is completed in a single press of the fingerprint.  

Shopify: Shopify is a perfect example of a firm taking advantage of embedded banking. Shopify has been a method for small businesses to accept payments for a number of years, but last year they launched Shopify Balance, a full bank account within Shopify to help merchants manage their cash flow, track expenses and pay bills. 

They noticed how lots of small business owners were using their personal accounts when accepting business payments, which made things difficult when it came to accounting and financial planning/analysis. Situations like this are precisely where embedded finance adds value. An area of peoples’ financial lives can be substantially improved, and an innovative business’s offering can be dramatically enhanced, by allowing them easy access to integrated financial services. 

Tesla: Tesla has begun rolling out their insurance arm via embedded finance. In California, anyone purchasing a Tesla can obtain insurance directly through the firm themselves, as opposed to finding a Third Party Provider. This means they are insured instantly at the point of purchase and Tesla gains access to all claims-related data, which enables them to better understand their customers and even build better cars. 

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Given the enormity of embedded finance’s potential, it’s understandable that a lot of the current conversations are forward-looking. But if predictions and speculation leave you thinking that embedded finance is a pipedream, you’re already missing an opportunity. One that your competitors may already be working on. 

Make no mistake, embedded finance is here already. 

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