Embedded finance: The future of fintech.

It’s a lot easier to book a ride somewhere than it used to be — and we can thank embedded finance for that. Most consumers first discovered this hot topic in fintech when they used Uber to easily book and pay for a ride right in the same app, thanks to advances in payment technology.

These advances were made possible because, for the first time, digital payment rails were made available to software companies so that they could include payments as part of their software offerings. Now B2B companies are joining the embedded finance journey to make their offerings more accessible and convenient.

Airbase’s accounting software is an example of the evolution of embedded finance. Access to various payment rails allows for payments via ACH, international wire transfer, or corporate card without leaving the Airbase accounting platform, with dynamic workflows supporting the pre- and post-accounting functions.

As more people realize the value and convenience of embedded finance, it’s becoming a hot topic in fintech, with EY predicting that the global market value will reach $606B by 2025 — a marked increase from $246B in 2021.

How does this embedded finance strategy work, and what does it mean for you? Let’s take a look at the types of embedded finance, how they work, and how they’re impacting fintech.

What is embedded finance?

Embedded finance is the integration of financial services directly into the products and services of non-financial platforms. A broad definition of embedded finance ranges from retailers offering in-house credit options to online platforms incorporating banking services.

The ultimate goal of an embedded finance offering is to streamline financial transactions, making them more accessible, convenient, and tailored to the specific needs of users.

Ideally, the customer experience is so seamless that the user doesn’t notice the revolutionary technology behind the scenes.

How does embedded finance work?

Embedded finance uses application programming interfaces (APIs) to seamlessly connect non-financial platforms to financial services. Through these integrations, users access a wide array of financial products and services without leaving the platform they are using.

This functionality can include everything from payments to commerce and business management to banking services and investment options.

Other technological advancements that have sparked the rapid growth of embedded finance include the widespread availability of cloud computing, which has simplified data storage and processing.

Advances in digital identification management also play a pivotal role by providing robust authentication processes to reduce risk.

Examples of embedded finance.

Embedded payments.

One of the most common forms of embedded technology capabilities in finance is embedded payments. Startups like Stripe and Square have revolutionized online transactions by providing businesses with easy-to-integrate payment processing solutions.

Stripe, for instance, enables businesses to accept payments directly through their websites or applications.

Leading e-commerce platform Shopify integrates Stripe’s embedded payment processing solutions so merchants can accept payments right from their online stores. It’s a seamless user experience that makes transactions easier for merchants and purchasers.

Uber’s payment processing also means drivers can receive earnings promptly and manage them through the app, bypassing the usual delays.

This integration not only improves the financial well-being of Uber drivers but also showcases how these embedded finance services and solutions can provide essential banking services to users within a non-financial context.

Embedded banking.

Embedded banking is the integration of banking services into non-banking digital platforms, so users can access financial products and services without interacting directly with traditional banking or traditional financial institutions.

This innovative approach aims to create a more user-friendly and integrated financial experience, so users don’t have to switch between various apps or websites to manage their finances.

Chime is an example of a company that leverages embedded banking to redefine traditional banking services by offering a range of financial products within its app.

Chime provides users with features like no-fee checking and savings accounts, early direct deposit, and a user-friendly interface. Users handle their day-to-day banking needs without leaving the accessible and convenient Chime platform.

Corporate payment cards.

An online corporate payment card is a dynamically generated card number that functions similarly to a physical credit card online, so you can use your bank account and make payments wherever credit cards are accepted.

These cards offer increased security by enabling real-time spending controls and monitoring, reducing the risk of unauthorized transactions.

Additionally, they streamline expense management, providing efficient and centralized tracking of corporate spending without the need for physical cards or extensive manual work.

The Airbase advantage.

Airbase’s virtual cards, backed by powerful software and embedded in Airbase’s automated spend management platform, provide businesses with a convenient and efficient way to handle employee spending.

In Airbase, you have the power to set limits, track expenses in real time, and generate detailed reports. You can also earn cash back with every transaction.

Embedded investing.

Embedded investing marks a revolutionary paradigm shift by making investment opportunities more accessible.

Eliminating barriers.

This innovative approach of embedded investing eliminates the barriers that often deter potential investors from traditional investment platforms, creating a more inclusive and user-friendly experience.

By embedding investment services directly into non-financial applications, individuals can explore and enter financial markets without the need for separate investment accounts or specialized tools. This not only simplifies the user experience but also encourages a broader audience to access financial services and participate in wealth-building activities.

Startups like Robinhood exemplify the success of embedded lending and investing, offering commission-free trading directly within their app.

This model has garnered widespread popularity, especially among younger generations, as it aligns with the growing demand for accessible financial tools.

The integration of investment services into everyday applications transforms these platforms into comprehensive financial hubs, empowering users to make informed investment decisions. As embedded investing continues to gain traction, it has the potential to reshape the investment landscape.

BNPL (buy now, pay later).

Buy now, pay later (BNPL) services like Afterpay enable users to make purchases and pay for them in installments, often with monthly payments with no interest, no credit checks, and no fees if they pay on time.

This payment option not only enhances affordability for customers but also serves as an attractive alternative to traditional credit cards and working with financial institutions for loans.

Additionally, BNPL can contribute to increased sales for merchants by reducing financial barriers and appealing to a broader customer base.

BNPL caveats.

Despite these advantages, it’s essential for users to manage their monthly payments responsibly to avoid potential debt accumulation. The payments still add up!

How embedded finance is changing the fintech industry.

Embedded finance fosters innovation within the finance industry by directly bringing banking and investment tools to where users already interact. Here are some of the advantages driving this shift.

Accessibility and convenience.

Embedded finance makes financial services more accessible and convenient because they live on platforms people already use.

This eliminates the need to switch between multiple apps or websites to manage finances.

Access to accurate analytical data.

The integration of financial services into non-financial platforms provides unprecedented access to data.

This data can be leveraged for more accurate risk assessments, personalized financial recommendations, and improved overall customer experience and decision-making.

Improved user experience.

By embedding financial services into platforms people already use, companies create a more natural user experience.

Users can complete transactions, manage their finances, and access a range of financial products without leaving the platform they are using.

Access to new revenue streams.

The ease of integrated financial services encourages increased user engagement and loyalty, contributing to a more robust and loyal customer base.

As users conduct transactions within the platform, businesses can leverage this activity to introduce value-added services, loyalty programs, and targeted marketing initiatives to retain customers.

New partnerships and collaboration opportunities.

Through these collaborative efforts, non-financial entities can tap into the financial services sector, traditionally dominated by banks, and establish themselves as key players in the evolving landscape of embedded finance.

This diversification not only enhances the financial sustainability of non-financial companies but also contributes to the ongoing evolution of the embedded finance products and services ecosystem.

The broader impact of embedded finance.

Beyond the immediate applications, embedded finance is contributing to a more connected and user-centric financial world.

As the financial service industry continues to evolve, the collaboration between fintech and non-fintech entities will likely give rise to even more innovative solutions, further transforming how we interact with financial services.

Embedded finance solutions are not merely a technological integration but are also a catalyst for financial inclusion, providing a seamless bridge for individuals and businesses to access myriad financial services.

What does the future hold?

As consumers seek more seamless and integrated experiences with digital businesses, the embedded finance market is poised to play a pivotal role in the future of fintech.

Embedded finance’s influence extends beyond traditional banking and payment methods, fostering a new era where embedded financial services are seamlessly woven into the fabric of everyday life.

The examples provided highlight the diverse applications of embedded finance, from payments and banking to investing and beyond.

More than a trend.

Embedded finance is more than a trend — it represents a fundamental shift in how we perceive and engage with financial services, promising a future where financial empowerment is within reach for everyone.