What is Embedded Finance? Discover 7 Examples to Learn From

Embedded finance is shaking things up. It’s changing when, where, and how we use financial services. This means big opportunities for all sorts of companies to reach more people. 

About 88% of businesses that use embedded finance see more customer engagement, and 85% say it helps them get new customers!

To help you stay informed, we’re gonna run you through the ins and outs of embedded finance teaching you what it's all about, the different types, and what the future might hold for embedded financial services.

What is embedded finance?

Embedded finance means integrating financial services and banking to non-financial apps and services. Companies are mixing things like banking, lending, insurance, and investments into what they offer by using APIs connected to financial partners.

In the UK alone, the embedded finance industry is set to reach USD 7.76 billion by the end of this year. This goes to show how quickly this payment trend has become integrated into everyday digital experiences, making money management more accessible and convenient for everyone.

How does embedded finance work? 

Embedded finance is taking off thanks to four big shifts:

1. Shift to ecommerce: Shopping online is the new normal. Businesses are slipping embedded finance solutions right into their platforms to make life easier. Online stores offer "Buy now, pay later," branded credit cards, and rewards at checkout to tempt you to buy more. Even apps like Uber and Fiverr are joining in, adding digital wallets and investment tools to keep you hooked.
2. Tech takeover: Fintech and APIs are like peanut butter and jelly—they just go together. It's now super easy to mix financial services with non-financial platforms. Digital onboarding, electronic Know Your Client, and real-time data make transactions a breeze. APIs allow software services to offer flexible payments, in-app billing, and credit lines like it's no big deal.
3. Picky consumers: We all want things quick and easy, right? With smartphones, fintech apps, and digital everything, we're getting used to smooth and simple financial services. Non-traditional financial service providers are stepping up to meet these high expectations.
4. Helping the underserved: Traditional financial institutions can be like exclusive clubs, leaving many out in the cold. Embedded finance is changing that. Imagine getting insurance options right in your ride-sharing app. It's making finance more accessible for everyone, especially those who don’t have the time or know-how to look for these services themselves.

So, there you have it! Embedded finance is all about making your financial life easier, more accessible, and a lot more integrated into the apps and services you already love.

Benefits of embedded finance

Embedded finance has some pretty cool perks that make life easier and more streamlined. Here are three biggies:

• One-stop financial shopping: Why juggle a bunch of apps when you can do everything in one place? Imagine booking a ride and getting insurance in the same app. It’s like hitting the financial services jackpot without even trying. Convenience is king!
• Enhanced security: When you’re not spreading your financial info across multiple platforms, it’s easier to keep it safe. Think of it as putting all your valuables in one super-secure vault instead of hiding them all over the house. Fewer points of entry mean fewer chances for trouble. But don't just take our word for it. Statistica found that around 74% of people aged 55 to 64 were worried about data privacy when interacting with brands online. Even among younger people aged 18 to 24, around 59% shared the same concern.
• Builds trust and customer loyalty: When customers find companies embedding financial services, they'll be more likely to stick around. It’s like finding a cafe that makes perfect coffee and has free Wi-Fi. You keep going back because it’s just that good. Companies love this because loyal customers are the best customers.

Drawbacks of embedded finance

But, as with everything, there are some downsides to consider:

• Customer overload: Ever been to a restaurant with a menu so long you can’t decide what to eat? That’s what embedded finance can feel like to some people. Too many options can leave customers feeling overwhelmed and unsure about what to pick.
• Security and privacy pitfalls: Having all your financial services in one place can be great for convenience, but it’s a double-edged sword. One security breach and all your data could be at risk.
• Regulatory compliance: Keeping up with financial regulations is no picnic. One slip-up can lead to big headaches for companies. It’s like playing a game where the rules keep changing, and you have to keep up or face the consequences.

Examples of embedded finance services

Embedded finance is changing the game for retail and hospitality businesses like yours. Here are some different types of embedded finance solutions:

Embedded banking services

First up on the list is one of the most common embedded finance solution out there. Imagine if your POS system not only tracked sales but also managed your cash flow and payments. Well, that’s what embedded banking services do.

Companies like Epos Now offer services like Epos Now My Business which are mobile business accounts that integrate seamlessly with payment processing, so you can handle transactions without needing a separate bank account.

But what does this really mean for small business owners? Well, it means less time worrying about your finances and more time focusing on what you love, running your fabulous company. No more juggling different accounts or worrying about where your money is coming from or going to.

Embedded payments

Have you ever ordered a ride or food through an app and paid for it right there? That’s embedded payments. Services like Uber and Lyft let you complete transactions within their apps, making the whole process smoother and faster. Even Starbucks lets you order your iced matcha latte with vanilla (or whatever other tasty drink tickles your fancy) and pay through their app, earning rewards with every purchase.

Branded payment systems

Branded payment systems are like having a company-branded wallet that makes spending and managing money easier. They're personalised tools created by companies to streamline transactions and offer extra benefits.

For example, Epos Now Business Cards are perfect for businesses. They give direct access to funds stored in their business accounts, making it simple to handle expenses and payments in one go. It's all about making business finances smoother and more efficient, tailored specifically to meet the needs of today's entrepreneurs. Plus, our POS system plays nice with accounting apps like QuickBooks and Sage, so you can keep your financial game strong without breaking a sweat. It's all about making business life easier for today's hustlers, which is especially important given the UK's Making Tax Digital law.

Embedded lending

Embedded lending is all about getting a loan right when you need it, without the hassle of traditional bank processes (like those pesky credit checks that can dent your credit score).

Imagine you're shopping online and see an option to split your payment into smaller chunks over time—that's embedded lending in action. Services like Klarna and Afterpay allow you to do just that, making it easier to manage your budget without delay.

For retail or hospitality business owners, Epos Now Capital offers embedded lending for quick access to cash. Whether you need funds for purchasing inventory, upgrading equipment, or handling unexpected expenses, it's designed to provide flexibility and convenience. It not only helps manage immediate financial needs but also opens up new revenue streams by integrating financial products directly into business operations.

Embedded investing

Embedded investing puts the stock market at your fingertips. Apps like Robinhood, Cash App, and Acorns let you buy, sell, and trade stocks or crypto without needing a separate investment account or advisor.

This makes investing more accessible and understandable for regular folks, as it's integrated into platforms they already use for other financial stuff. It's like having your savings account and stock portfolio in the same place, making money moves easier for everyone.

Embedded insurance

Ever wondered how easy it could be to get insurance while buying something else? Embedded insurance makes it happen. For example, say you're buying a Tesla (we're a little jealous if you are!), and right there in the purchase process, you can opt for their insurance coverage with no extra steps needed.

Likewise, when booking flights or accommodations through Expedia, Booking Holdings, or Hotels.com, they often offer travel insurance as part of your booking process.

Embedded fintech

Most embedded finance is about putting banking stuff into everyday apps. Embedded fintech goes a step further—it's when banks add cool fintech technology right into their own apps or websites, like your bank letting you manage subscriptions or buy crypto without switching apps.

Before, creating new products took ages. Now with embedded fintech, they can roll out new ideas quicker. Less risk, more agility—banks are getting savvy!

Embedded financial institutions 

There are three main types of companies making it all happen in embedded finance. You've got your technology providers, balance sheet firms, and embedded finance distributors.

• Technology providers: These companies are the digital pros behind the scenes, setting up the infrastructure that lets companies blend financial services into their offerings. Think of APIs (like connectors for software), cloud platforms, and middleware firms that smooth out the tech kinks. Companies like Synapse and Unit are rocking this space, making it easy-peasy for non-financial folks to offer cool finance stuff without needing a PhD in banking.
• Balance sheet providers: Here’s where the money comes in. These are the licensed financial experts who create the actual financial products—like banking services, credit lines, and insurance policies—that non-bank companies can then plug into their apps and platforms. They handle all the heavy lifting, from regulatory stuff to keeping your money safe. Challenger banks, banking-as-a-service providers, and specialised lenders are all part of this crew.
• Embedded finance distributors: Finally, you've got the companies taking financial services and sprinkling them into everyday business. Think traditional retailers like Asda and Sainsburys offering everything from credit cards to check cashing right in their stores. Software firms are in on it too, embedding financial tools into your favourite accounting and billing software. Even marketplaces and gig worker platforms like Uber are getting in on the action.

The future of the embedded finance industry for business owners in different sectors.

So, embedded finance is shaking things up in both financial and non-financial worlds. Here’s how:

Changing customer relationships:

Companies that weren't financial before are now offering financial products. This means traditional banks need to share customers with these new players. More competition could lead to better products and services. It’s like everyone’s upping their game.

Cha-ching! New money streams:

By adding financial services into every day buying experiences, companies are making bank. Think of all the new ways to make money—like letting you invest while shopping online. It’s like finding money in your sofa cushions but for businesses.

More competition, more options:

As more non-financial companies get into the finance game with these business models, traditional financial companies need to rethink how they do business. Cue the rise of niche banks and cool new ways for businesses to offer banking perks to employees. It’s a whole new ball game.

Team up or get left behind:

Banks and brands are teaming up big time. These partnerships mean brands can offer finance services without hiring a whole finance team. Smart move, right?