What is Embedded Finance and Why Do You Need It

While the first wave of financial industry innovations used to be about going mobile, the second wave is about embedded finance services.

Yet, despite being a hot topic, the concept of embedded finance in fintech still sounds confusing to many. About 91% of surveyed companies are aware of the term, but only partially understand what embedded finance is (source ). Only 5% understand fully what it means.

As a financial software development provider , Binariks has contributed to embedded fintech projects and knows much about embedded banking uses across industries. This article on embedded financial technologies is a concise guide based on our expertise and additional research on why embedded finance is the next big thing.

What is embedded finance?

Embedded finance in fintech is the integration of payment, lending, banking, and insurance features into non-financial products. Instead of going to a separate banking app, users can order services and complete financial transactions within the same solution.

Three characteristics of an embedded finance app explained

Overall, there are three must-have characteristics of every embedded business finance solution:

• The main app isn't a fintech solution. The word 'embedded' implies that fintech capabilities are added on top of a web or mobile app initially used for another purpose. These are usually marketplaces or vertical SaaS solutions.
• Customer journey continuity. Users don't have to leave the platform to complete financial, banking, or insurance operations. They start their journey, go through all its steps, and convert in the same place (read more about customer journey map ).
• The use of contextual data. When an app prompts users to make a move, it already offers the relevant action based on the situation and data analysis. The application takes into account who the user is and what they want to achieve. Such transactions are frictionless, meaning minimum additional actions or risk of rejections.

If an application meets these requirements, we can say it's an embedded finance app.

"Non-financial companies increasingly are embedding financial services into their digital customer experiences—including payment options, financing, insurance, banking and investing. They're striving to deliver the right services at the right time to seamlessly move transactions forward, create relevant cross-sells and improve conversion rates."

Phill Rosen

Founder and CEO of Even Financial

One of the common examples of embedded finance products is in-app payments. A customer chooses a meal and pays for it in a single app. In-app "on credit" or "in installments" payments are another use case in e-commerce. Embedded technology is gaining popularity for healthcare payments as providers implement patient portals and telehealth solutions (source). Users can instantly pay for healthcare services online, avoiding cumbersome bank transactions.

"Embedded finance doesn't only have applications for consumers but also for businesses. The startup success stories for embedded finance usually involve companies that help consumers solve a big problem, for instance, how Stripe is a payment gateway for SMEs. Other B2B use cases that are less talked about is how ecommerce marketplaces could offer financial services that enable merchants to get paid, for instance."

Anthony Oduu

CTO and co-founder at Verto

A chain of embedded finance participants consists of an end customer, an online platform where the transaction is made, an enabler of finservices, and a regulated entity that is the subject of supervision by authorities.

Types of embedded finance

Embedded finance in fintech examples are very versatile, from SMEs to large healthcare providers. Still, most apps fall into several broad categories, such as:

Embedded banking

Thanks to embedded banking solutions, non-financial companies can offer users a branded checking account. It enables them to hold funds and complete payments without leaving the main platform.

Such banking opportunities are the most beneficial for sellers or service providers that use the platform to conduct business. For example, Shopify Balance enables Shopify store owners to get paid faster and avoid opening a separate business bank account.

Embedded payments

In-app payments free users from the need to enter their credit card details manually. They can connect and save the preferred payment method to use it for 1-click transactions. It enhances user experience, reduces bounce rates, and stimulates more frequent purchases and loyalty. A common example of embedded finance payments is the Starbucks app that saves customers' debit or credit cards for future transactions.

Branded payment cards

Branded payment cards are a popular option in B2B platforms. These are usually corporate platforms for finance automation like Ramp. Such platforms enable businesses to order branded cards for their employees to have more control over their corporate spending and provide extended financial services.

Embedded lending

Before an embedded lending infrastructure appeared, consumers needed to request traditional bank loans when they lacked money for big purchases. Such loans had high interest rates and were time-consuming to take. Embedded lending has made lending a breeze. Now, embedded finance providers can make lending a part of the checkout process with the buy now, pay later solutions like Klarna or Afterpay. When a buyer checks out, they can choose to pay in installments without interest.

Embedded insurance

Embedded insurance means people can get insured right on a non-financial website or app during checkout. It's usually implemented through partnerships with fintech companies that have embedded insurance as an option. When users are about to pay for the product or service, they see a prompt offering insurance as an add-on. Checking the tick is enough to add it to the total order.

Who distributes embedded finance?

Embedded finances are distributed by providers who work with various stakeholders to make their embedded financial solutions happen. Providers include retailers, software companies, telecom companies, and marketplaces that integrate embedded finance solutions into their platforms.

The distribution is made possible by other stakeholders, namely technology providers and financial institutions that offer balance sheets. Let's focus on them in more detail.

• Technology providers create and maintain technology that makes embedded finance possible with the help of API and other instruments. These include fintech companies, banking-as-a-Service (BaaS) providers, technology companies and startups, and banks that offer access to their technological solutions.
• Balance sheet providers are banks, insurance companies, and other financial institutions. They are the embedded finance providers who offer distributors access to funds, licensing, legal regulation, and risk and compliance management.

Examples of embedded finance

These companies have started as providers of different services, from online purchases to ride-sharing. But working on their software, they've decided to power the apps with embedded consumer finance features. Here's what they've got:

Uber

The Uber platform that connects drivers with riders provides users with convenient embedded payments. They can choose between paying with cash and a range of payment methods, including debit and credit cards, PayPal, Venmo, and digital wallets. If users want to pay online, they can do it right in the app. They only need to add the preferred payment method and choose it when ordering a ride.

Shopify

Shopify supports many embedded business finance solutions like Shopify Pay or Shopify Balance. Yet, in this article, we want to highlight the Shopify Capital lending platform.

This platform enables merchants using Shopify to tap into fast funding for payroll, inventory, or marketing. Sellers can get funding quickly based on their track record of sales. Since Shopify relies on the existing data about applicants, they don't need to go through lengthy application processes. The funding is granted in days, and businesses return it as a percentage of their future sales.

Amazon

While Shopify offers loans to merchants, Amazon has the EMI (Easy Monthly Installments) service for buyers. Consumers can request, acquire, and repay loans on the platform where they view and purchase products.

For example, a buyer purchasing a TV on Amazon can ask for EMI payments at the checkout. The platform will split the price into monthly installments automatically. When completing a transaction, buyers don't need to have the entire amount in their banking account. Amazon uses the pre-approved overdraft facility to deduct the necessary amount from the account monthly.

Other embedded finance companies

Besides the listed use cases of embedded finance, there are embedded finance providers fully dedicated to embedded banking. These vendors gradually replace traditional banks and insurance companies with their fintech software. They are the new market leaders dictating fintech trends.

Embedded finance industry analysis

The embedded banking industry is becoming more versatile and generates embedded finance sub-trends. Discover how embedded fintech looks in numbers and what applications of this technology dominate below.

Embedded banking and finance market size

Embedded fintech is only gaining traction but has already reached a market value of $22.5 billion in the US only (source). By 2025, the rise of embedded finance will continue. The market size will increase to $230 billion (source).

The fact that 55% of non-financial businesses plan to offer embedded financial services in the next two years (and 18% within the next 12 months) proves the immense growth of embedded financial services (source). Only 8% of responders weren't sure about implementing embedded finance, comprising a minimal share of the participants.

The expected rise of embedded finance market is attributed to several factors, including:

• The rise of transaction costs in embedded financial flatforms
• Modern consumers' expectations of seamless and convenient experiences with financial services
• Technological advances (API, cloud computing) that make it easier to use embedded finances
• Changes in the regulatory environment towards open banking and other laws that encourage non-traditional financial services

Plans to offer embedded finance to customers analysis

The key subcategories of the embedded financial sector are:

• Payments (consumer payments and business payments) that dominate the market
• Insurance
• Consumer lending and business lending
• Banking and cards (account issuing and card issuing)

The graph below illustrates the changes happening from 2020 to 2025.

Embedded finance market value prognosis

Hence, businesses are the most likely to invest in embedded payment and insurance capabilities in the next few years. If your company wants to compete in this market niche, you should consider adding such functionality to your app.

Top 5 embedded finance trends

Based on a recent publication in Forbes and other research, the embedded finance industry is shaped by the following trends:

1. Plug and play APIs

What only entered the market in the 2010s has now become a leading trend in the fintech industry. Today there are tons of fintech providers offering services via API. Companies can pick services from multiple providers and combine them to meet unique customer and business needs with their products.

The growing popularity of APIs has made using them much easier and dropped the tech barriers to embedding fintech. Non-fintech companies looking for embedded fintech capabilities can effortlessly get them through API integrations. It cuts the development time necessary to implement such features into existing products.

2. B2B applications

Talks about embedded banking usually boil down to the practical uses of built-in fintech in B2C products like Uber. However, embedded finance features have also started to appear in B2B solutions more frequently. Shopify, with its lending capabilities for merchants, is a good example.

Since the US B2B market keeps growing and will exceed $4,600 billion by 2025, the number of B2B services, including those with embedded banking features, will also increase. Hence, we will likely witness more platforms with fintech features for B2B companies soon.

3. More domains

So far, four domains use embedded financial solutions the most, including retail and eCommerce (73%), travel and entertainment (53%), food and beverage (27%), and transport and logistics (47%) (source). The healthcare, energy, utilities, and automotive sectors are still on their way to fintech with much lower adoption rates.

At the same time, the Follow The Money research by Forbes, sharing insight from Weavr embedded payments company, names health, real estate, education, and employment as the industries with the highest embedded fintech potential.

Given these findings, we can assume that healthcare and some other domains will increase their share in the fintech market. So get ready to see more unexpected combinations of standard services with embedded fintech.

4. Consumer payments

Consumer payments refer to the technologies allowing merchants to access customer payments across platforms. This embedded consumer finance technology involves various payment channels (keyed entry, online checkout) and methods (credit/debit card/wallet). Consumer payments are one of the top embedded finance use cases for most companies.

Currently, the market of consumer payments is very versatile, with large payment companies like PayPal, new startups like Payrix, and even legacy embedded finance providers. As of 2023, consumer payments are responsible for at least 60%of the entire embedded finance sector, and the number will only grow with new startups entering the market.

5. Buy now, pay later (BNPL)

Buy now, pay later (BNPL) is an interest-free installment payment in which a bank breaks a customer's payment into several smaller payments that are to be paid according to an established schedule.

BNPL services are estimated to reach $437 billion worldwide by 2027 (source). BNPL is popular with consumers because it makes online services more accessible in the current uncertain economic climate. Buy now, pay later is very popular for the B2C business model, but it is also on track to becoming more popular for B2B.

Embedded finance in healthcare

Our team views the healthcare sector as one of the most promising fields for the growth of embedded financial services. In-app financial services greatly benefit patients and medical teams, keeping all operations in one place. Read our in-depth article on this topic to learn what embedded finance in healthcare looks like.

Binariks has already completed several projects with embedded finances in healthcare, and they have proven to be highly efficient. So if you run a healthcare company, embedding financial services is a worthwhile upgrade.

Why build embedded finance software?

The spread of embedded finance services is an inevitable step in the digital transformation in banking and other industries. Yet besides following the global trends, businesses invest in embedded banking product development and integration for purely selfish reasons. Offering an all-in-one platform to their users, they can boost customer engagement, outperform competitors, and reap some other benefits of embedded finance listed below.

Better control over payments

With embedded finance, you won't need an intermediary to process payments and provide other financial services to your customers.

It gives you control over the payment workflow of users to ensure that everything happens smoothly. Apart from enhancing the customer experience, you can collect additional information about customer behavior patterns. Based on these findings, you can fine-tune your product to encourage more conversions.

Added value for customers

Instead of standard platforms where users order services to pay for them, take loans, or complete other transactions separately, customers can enjoy the whole pack of services in one place. It creates added value and makes the product look more advanced in the eyes of consumers.

Investing in embedded banking development, you supercharge your core platform to sell its functionality at a higher cost. The best thing about it is that consumers willingly pay more when the offer is worth it.

Higher customer retention

Software with embedded finance services is more convenient and, therefore, more likely to keep customers. Besides, the revenue from financial services enhances customer monetization while increasing the customer's lifetime value. After being acquired, customers stay with you much longer and return to your company to order something again. This way, by embedding financial capabilities, you make your platform more profitable.

Increased attach rates

Personalization in banking is one of the must-haves of embedded finance products. The software collects information about user activity and preferences in real-time to tailor the experience based on this data. As a result, the customer may get a recommendation to buy an add-on when they would benefit from it most. Such offers boost attach rates while feeling native and relevant to consumers.

Competitive edge

By layering in financial services when other businesses in your market niche don't, you enhance your market position. Customers see that your solution offers extra features not available in other products.

Thanks to the competitive advantage, you can engage more consumers and be better positioned for future market success. You lead the race in digital transformation. Currently, 5% of the surveyed B2C and B2B marketplaces, SaaS brands, and gig economy platforms offer embedded financial services, but 92% will implement them in the next five years (source). Hence, it is time to benefit from a competitive edge while still possible.

Rsks of embedded finance adoption

Embedded finance comes with vast opportunities, and benefits of embedded finance are imminent for customers and providers alike, but this comes with a set of risks. Here are the most prominent risks of implementing embedded finance products:

Risks related to data security

Embedded finance providers have to collect very sensitive data, such as confidential business data and their customers' personal data. Data breaches and unauthorized access come at a very high cost for providers; therefore, they must ensure outstanding security measures.

Reputational risks

Because customers are used to traditional financial services, they sometimes lack trust in the seamless experiences that embedded finances provide. Therefore, the lenders of embedded financial services often have to prove their trustworthiness to their customers. If the service encounters issues, it may damage not just the provider's reputation but also the reputations of other partners involved.

Regulatory risks

Embedded finance providers are tasked with navigating complex regulatory environments on international and national levels. The exact framework that the business has to comply with depends on the characteristics of the embedded finance service. When it comes to embedded financial services, there is no one-size fits all regulatory environment. The complexity of the regulatory environment directly correlates with the complexity of business and the scope to which it is a risk to its customers.

Fraud and financial crime risks

Since embedded services operate in financial environments, they are suspected of fraud, money laundering, and other types of financial crimes. Anti-fraud measures and monitoring practices are a must for this reason. Businesses must comply with anti-money laundering (AML) to minimize such risks.

Best practices

Embedded finance services operate in a unique environment with many different stakeholders and significant risks involved. For this reason, implementing embedded finance requires careful planning and collaboration. Some of the best practices for implementing embedded finance are:

1. Choose trusted, well-known partners

Partnering with reliable technology providers and financial institutions is the key to success of your embedded finance service. Great partners offer you technological solutions and provide you with access to funds, risk and compliance management, and other tangible and intangible resources. Moreover, well-known partners also enhance your reputation from the get-go.

2. Focus on customer pain points

One of the main benefits of embedded finance is the seamless experience it offers to the customers. To ensure the experience is seamless and convenient, you have to address main pain points that customers are likely to encounter, such as data safety concerns, integration of the service into the overall user journey, hidden fees and pricing, and functionality issues. You should provide clear and concise information to your customers at every step of their journey.

3. Optimize your embedded finance service for scalability

You should keep potential growth in mind when working on embedded finance solutions as the service has a great chance of expanding. Both the technology and the infrastructure should be designed with leveraging in mind. This involves leveraging APIs and creating modular architecture for growth and flexibility.

How to win in embedded finance

Despite all its benefits and the availability of API-based services, you should remember that embedded banking implementation requires professional expertise, including business analysis, coding, design, and maintenance at different stages. That's why you should consider Binariks as a reliable partner to benefit from embedded finance the most.

Binariks is a web and mobile app development provider specializing in fintech software. We create digital banking, money transaction, and loan management platforms from scratch or can assist you with API integrations.

Binariks can:

• Run requirement discovery and business analysis for your project
• Recommend the most suitable finance solution based on your unique needs and find a way to implement it
• Integrate the selected third-party service with your platform
• Develop any additional features or refactor existing software
• Test the embedded finance service
• Maintain your system and implement upgrades

Our company supports tech companies working on custom embedded business finance solutions and non-fintech providers. With our flexible collaboration models, we can assemble a dedicated team , hire remote specialists, or provide scope-related services to suit any business needs.

Looking for help with embedded finance development or other tech tasks? Let's talk about it !

Final thoughts

Embedded consumer finance is a trend affecting many industries, from eCommerce to healthcare. You can see it in ride-sharing apps like Uber, B2B marketplaces, and many other services. What does it mean for decision-makers?

If you decide on the future development of your company, consider implementing embedded finance capabilities in the products you offer. This will raise customer engagement, increase revenue, and make your brand more competitive.