Embedded finance is transforming various sectors, including e-commerce, ride-hailing apps, and business software platforms, by integrating financial functionality directly into their products and services. This trend represents a significant shift in how financial services are delivered and experienced by consumers and businesses alike.

What is embedded finance?

Embedded finance is transforming the modern business landscape through the integration of financial services into non financial platforms, apps and services. By using this approach, companies that are not traditional financial institutions can curate banking, lending, insurance and investment offerings and directly serve them to their customers through their existing interfaces. According to the research, the world wide embedded finance market will expand at a quick pace and currently worth $82.32 billion in 2023, proving its growing significance in today's digital economy.

Key components:

• APIs: Optimizing financial services through APIs plays a key role in the integration of financial services, allowing businesses to interact with financial institutions and to access payments, lending and other services though an API.

• Cloud computing: With cloud computing, you can access the infrastructure to store and process large volumes of data that helps scale the financial services on a business.

• Security protocols: are essential to protect customer data and ensure compliance with regulations.

• Regulatory compliance: Compliance with regulations enables companies to operate in a maze of financial services regulations, such as anti-money laundering (AML) and know your customer (KYC) regulations.

How does embedded finance impact customer experience?

Embedded finance is the seamless integration of financial services into non-financial platforms and apps, and how consumers interact with financial products is changing. Integrating with mobile phones increases convenience, personalisation, and accessibility, ultimately improving customer satisfaction and loyalty.

Redefining convenience

Financial transactions are embedded into customers' daily activities by embedded finance services to streamline them. The result is that you eliminate having to switch between multiple apps and platforms to get financial tasks done, creating a hassle free experience. For example, e commerce platforms are now providing instant loans or installment at checkout which is making the buying process easy and improving the customer journey. By this way this integration is providing seamless integration for customers so they can easily do transactions faster and easier within the platforms they already use; this will provide great convenience and UX for customers as well.

Personalization and customer-centricity

The biggest advantage is that it can use customer data smartly. Businesses can provide hyper personalized financial solutions and tailor made recommendations by analyzing user behavior, transaction history and preferences of each individual. The level of personalization at this point makes financial decision making for customers simple, convenient and engaging. For instance, an embedded finance powered retail platform can take into account a user’s purchase history, browsing habits and demographic details to recommend highly personalized credit cards to a user, thus improving the overall customer experience.

Enhanced accessibility and financial inclusion

Embedded finance dramatically improves access to financial services, making them accessible and accessible to a much wider audience. Geographical barriers are broken down and financial services are available round the clock through platforms customers use every day. The growth of this accessibility has the capacity to decrease the amount of unbanked or underserved individuals, and thus increase inclusive financial access. Joint research by Solaris and Roland Berger shows that 41% of European consumers prefer embedded finance solutions over traditional banks as they are more convenient to access financial services. Embedded finance offers new age customers the convenience of paying for everyday activities with cashless and convenient payment options, thus significantly improving the customer experience.

What benefits does it bring to businesses?

They are able to integrate financial services directly in their platforms, to create an easy and convenient experience for customers. This integration converts existing products or services into complete solutions and helps build stronger customer loyalty. Customers are more likely to return and sign up to the brand’s service when they have the ability to utilize payment plan and instant credit options without ever having to leave the platform. But this convenience, not only encourages repeat business, but also attracts new users, who are in search of a streamlined experience, thus strengthening the customer relationship.

Embedded finance enables businesses to diversify income sources by offering financial products alongside their primary offerings. Companies can generate revenue through transaction fees, interest from lending products, or insurance premiums. Businesses can tap into new markets and enhance their financial sustainability, positioning themselves for long-term growth.

Adopting embedded finance provides businesses with a significant competitive edge in the crowded market. Companies that embrace this model demonstrate a commitment to innovation and responsiveness to evolving customer needs. By offering integrated financial services, they can enhance the overall value proposition of their products and services. This not only differentiates them from competitors but also aligns them with consumer expectations for convenience and accessibility. As more businesses integrate financial solutions into their offerings, those that do not risk falling behind in the race for customer engagement and satisfaction.

We invite you to take a look at some embedded finance examples and case studies presented by Fiat Republic.

What can we expect in the future?

Technological advancements, particularly in blockchain and artificial intelligence (AI), are set to revolutionize the embedded finance landscape – blockchain technology has the potential to enhance security, transparency, and efficiency in financial transactions, while AI can enable more personalized and sophisticated financial services within non-financial platforms. 

As the sector matures, regulators will need to adapt to ensure consumer protection and financial stability while fostering innovation. This may lead to new frameworks specifically designed for embedded finance, potentially easing the integration of financial services into non-traditional sectors like real estate.

When digital-native generations become the dominant consumer group, the expectation for frictionless financial services within everyday platforms will grow. This demand will likely push more industries to adopt embedded finance solutions, expanding beyond retail and e-commerce into less digitized sectors.

Choosing the right embedded finance partner

When identifying provider capabilities, look for a partner with solid funding power and risk capacity, especially if your project involves lending or insurance services. Assess their ability to onboard users quickly and scale solutions to accommodate your growing needs. Evaluate their risk management capabilities, ensuring they have robust mechanisms for assessing assets and payment data. 

When evaluating technical expertise, prioritize partners with proprietary technology and expertise in finance, data science, and user experience. Look for those offering easy-to-implement APIs and comprehensive documentation. Consider their track record in developing financial solutions and their experience with regulatory requirements in your target markets. 

Additionally, assess the partner's communication style and customer support capabilities. Choose a provider that values transparent communication and offers clear pricing structures. By carefully evaluating these factors, you can select an embedded finance partner that aligns with your business goals and enhances your offerings.