The number of different categories and types of embedded finance are rapidly multiplying.
Understanding them just by knowing their definitions is difficult. But looking at examples of embedded finance use cases helps.
Let's look closer at several important embedded finance products.
What is embedded finance?
Embedded finance refers to the integration of financial services into non-financial institutions.
These services include banking, payments, lending, insurance, and more. And they are usually integrated at the physical or digital point of sale (POS) without a redirection to a separate payment location.
In other words, they are frictionless and seamless.
This adds to their main benefits, which are generating new revenue streams, strengthening customer relationships, and enhancing customer loyalty.
Embedded finance solutions (with examples)
Embedded banking
Embedded banking refers to the integration of core banking services or products into another platform or service. These include proving deposit accounts, issuing credit cards, and more.
A retail website, for example, might have embedded banking capabilities that enable users to apply for credit, make payments, or access financial management tools straight from the website.
B2C embedded banking examples
Mobile banking apps can be linked with commercial partners to allow customers to have a bank account, check balances, set up direct debits, report a lost credit or debit card, transfer funds, and more.
Some retail apps have inbuilt banking services, such as debit cards, savings accounts, or cashback reward programs. These incentivize customers to use their apps for both shopping and banking.
B2B embedded banking services examples
Payment processing companies might offer fraud detection and dispute resolution for businesses to utilize within their platforms.
Accounting software providers can offer embedded finance products such as bank account reconciliation, expense tracking and financial reporting.
Embedded payments
Embedded payments are payment processing services directly integrated into other platforms, such as a websites, mobile apps, or point of sale (POS) systems.
This eliminates the need for a separate payment gateway or supplier. And it provides several benefits for customers and businesses, including:
- Reduced payment or cart abandonment
- Lower transaction fees
- Reduced fraud
- Improved data collection
Examples of embedded payments
POS systems and websites now regularly embed payment services, such as debit card or credit card processing or digital wallets. These allow merchants to accept payments directly within the system.
Some social media platforms provide peer-to-peer (P2P) payments or digital gift cards. These allow users to send and receive money or credit directly on the platform.
Embedded cards
Embedded cards (also known as virtual cards) are digital representations of physical credit or debit cards. They can be used to make payments online or in-person.
Mobile wallet cards are another type of embedded card. They digitally store card information on their mobile devices and provide NFC or QR codes for purchases. Well-known examples include Apple Pay and Google Pay.
Some merchants offer digital gift cards that can be emailed or texted to recipients. And some travel companies, including airlines or hotels, offer digital travel cards for purchases and rewards points.
Branded payment cards
Branded payment cards (also known as co-branded cards) are credit or debit cards that bear the logo and branding of both a financial institution and a non-financial partner. The latter party is often a retail store, airline, or hotel.
Customers can benefit from branded payment cards in a variety of ways. These include receiving discounts or other unique advantages.
Payment apps
Mobile apps with embedded payments like retail apps are becoming increasingly popular.
Ride-sharing applications provide embedded financial services, such as credit or debit cards linked to their platforms.
They also include other embedded services such as insurance coverage for their drivers and passengers.
Embedded financing (lending)
Embedded lending is the integration of lending (including loans or other credit products) into non-financial products or services.
They usually appear on e-commerce platforms, mobile apps, or point-of-sale systems. And they include fees, interest rates, and terms associated with loans or credit products.
Examples of embedded financing
Buy now pay later (BNPL) is one of the most well-known forms of embedded financing. It allows users to purchase items immediately but defer the payment.
Unlike a lot of traditional lending methods (such as credit cards), it often doesn't include lengthy credit checks or interest on repayments (if made on time).
It is particularly popular and well known in the business-to-consumer (B2C) world, where the most famous provider is Klarna.
Businesses-to-business B2B BNPL is the same as B2C BNPL in principle but not in practice. This is largely down the reasons why businesses use BNPL - i.e., for business, not pleasure...
So, B2B BNPL often facilitates higher revenue for customers, which in turn helps channel higher revenue to their BNPL provider. This is not the dynamic at play for B2C BNPL.
Embedded B2B financing more broadly also includes a range of other options not used in B2C, including:
- Business loans
- Invoice financing (including invoice discounting and invoice factoring)
- Trade credit
- Venture debt
Embedded Insurance
Embedded insurance is insurance built into non-insurance products or services. It is especially useful for relatively large or expensive purchases, such as cars or homes.
It streamlines the process of acquiring coverage for clients and can reduce insurance costs.
Embedded insurance examples
Retail insurance can offer features such as extended warranties, purchase protection property insurance and more. Amazon is one example of of a platform that offers this.
Travel insurance is offered at point of sale for many airline and accommodation products. One example in the latter category is Airbnb. B2B specialist options are also available for corporate travel.
Health insurance coverage for their independent contractors, providing them with access to affordable healthcare services. These can be embedded in employment or HR portals, gym members' platforms, health and fitness apps, or specialist health insurance platforms.
Embedded Investment
Embedded investment refers to the integration of investment services or products into another platform or service, such as a banking apps or financial management tools.
It allows customers to invest stocks, bonds, mutual funds, or exchange-traded funds (ETFs), etc., without having to use a separate investment platform or service.
Embedded investment examples
Some platforms allow customers to automatically invest their spare change by rounding up their purchases to the nearest dollar and investing the difference. These apps are often integrated with banking apps or other financial platforms.
Cryptocurrency investment platforms allow customers to invest in digital assets like Bitcoin or Ethereum. This makes it easier for customers to invest in cryptocurrencies.
Similarly, some e-commerce sites have embedded the use of investment products for payments, such as gold or cryptocurrencies.
Conclusion
Embedded finance providers, which include fintechs and traditional financial institutions, offer white-label financial services that businesses can offer their customers.
Fintechs are appreciated for their flexibility, speed, and customer-centric approach. Traditional financial institutions are valued for their reputations, regulatory compliance, and resources.
Its various forms include embedded banking, embedded payments, embedded cards, and embedded financing, which integrates lending into non-financial products or services.
There's also embedded insurance, which incorporates insurance into non-insurance products, and embedded investment, which integrates investment services into other platforms.
In the future, new categories and variations of existing embedded finance solutions are bound to appear. When and as they do, you'll be able to learn about them here.
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