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In today’s fast-paced, mobile-first world, it’s essential for businesses to prioritize customer convenience. Embedded finance is one creative (and often profitable) way that companies can accomplish this goal. With embedded finance features, non-financial companies can offer key services—like credit and banking products—while customers are already at the point of sale.

Whether a person is buying a pair of sneakers online or hailing a ride on their smartphone, consumers have grown to expect seamless financial transactions right where they’re located. And embedded finance is how many businesses—especially those that don’t sell financial products—are providing these services. 

Embedded finance helps non-financial companies offer services like payments, lending, insurance, and banking directly through their own platforms. Understanding this technology can help your business improve customer satisfaction, unlock new revenue streams, and stand out in the digital marketplace.

Understanding embedded finance

Embedded finance refers to the integration of digital banking and financial products or services into a non-financial company’s platform or mobile app. More plainly, it means offering financial products—like credit, payments, or insurance—to customers right when and where they need them.

From a customer perspective, embedded finance provides added convenience and, in some cases, access to a financial product they might not find easily on their own. Meanwhile, for B2B platforms, retailers, and other businesses, embedding financial capabilities can unlock cross-selling opportunities while enhancing customer satisfaction and brand loyalty.

How does embedded finance work?

At its core, embedded finance is powered through APIs (application programming interfaces) and banking-as-a-service (BaaS) platforms. These services give non-banks the capability to “plug in” financial tools into their existing platforms without the burden of maintaining their own financial institution charters. When customers use these embedded services, they never leave the familiar platform where they initiated their original purchase. Behind the scenes, however, licensed financial institutions or third-party fintechs are powering the transactions and services.

Here are a few real-life examples of embedded finance in action.  

• A retailer integrates BNPL (Buy Now, Pay Later) services like Afterpay or Klarna into its platform or mobile app.
• A department store offers a branded retail store credit card featuring discounts, rewards, and other benefits. 
• Lyft drivers use embedded banking services (including an in-app checking account and debit card) to access instant earnings, manage funds, and request cash advances.
• Starbucks customers use the brand’s mobile app to store their credit or debit card information for one-tap payments while earning loyalty rewards. 

By embedding financial services directly into their platforms, companies can offer more convenient, personalized, and stickier user experiences. And this trend is only gaining momentum. Experts predict the global embedded finance market will reach $7.2 trillion by 2030, according to Harvard Kennedy School.

Difference between embedded finance and fintech

At first glance, the terms “embedded finance” and “fintech” may sound interchangeable. But there are key differences that are important to understand. 

• Fintech refers to companies that develop financial technologies for consumers and businesses including tools for payments, budgeting, investing, lending, and more. Examples of fintechs include Stripe, Plaid, and Robinhood, among others. 
• Embedded finance is the integration of financial technologies into non-financial platforms through APIs. It refers to the financial service, not the developer.

In short, most embedded finance capabilities wouldn’t be possible without the fintech companies that develop and maintain the technologies. And fintech partnerships can help solve regulatory hurdles for non-financial companies that wish to offer embedded finance products as well.It’s also important to understand how BaaS (banking-as-a-service) providers fit into this landscape. BaaS allows regulated financial institutions to deliver services through non-bank businesses. For example, when Uber (a non-bank) offers debit cards to drivers, it partners with a regulated banking partner like Branch as a BaaS provider to deliver those services.

4 Types of embedded finance (with examples)

1. Embedded banking

Embedded banking brings banking functionality into non-bank platforms. Key features may include account creation, debit card access, deposits, money transfers, and more.

Examples of embedded banking include: 

• Shopify Balance offers merchants a business account, debit card, and rewards for eligible business-related purchases—all without leaving the Shopify system.‍
• Lyft Direct business debit card and banking app provides drivers with instant access to earnings, cash back, and other perks. These benefits reduce driver incentives to switch to competitors.

2. Embedded payments

Embedded payments are perhaps the most common example of embedded finance. This technology lets customers pay within an app or platform without being redirected to an external site (and without having to pull out their wallet to re-enter a credit card number). Instead, customers can save their payment method to use again for future purchases. 

An example of embedded payments is: 

‍Starbucks integrates payment capabilities and rewards into its app. This enables customers to earn stars, reload their balance, and check out in a single mobile location.

3. Branded payment cards

Many companies offer co-branded credit or debit cards which they tailor directly to the needs of their customers. Branded payment cards have been around for many years. But fintech has expanded capabilities in this space and increased opportunities for companies to offer embedded credit to customers—especially in the B2B space.

Example: 

‍BILL offers a corporate card with scalable credit limits, built-in expense controls, and seamless integration into its financial operations platform.

4. Embedded lending

Non-financial business platforms can embed personal or business loans, working capital, and other credit tools directly into the customer experience. This technology enables companies to offer customers more payment options by turning customer pain points into convenient problem-solving opportunities. 

Examples of embedded lending include:

• Buy Now Pay Later platforms like Afterpay and Klarna let consumers split retail purchases into smaller payments. 

Lendio’s embedded lending marketplace helps digital platforms offer curated funding options to small business users in a single, convenient location—unlocking new revenue for site owners and new funding opportunities for small businesses.

Benefits of embedded finance

As a business, offering embedded finance to your customers isn’t just about convenience. It’s a way to create a competitive advantage and standout in the marketplace. 

Some of the top advantages of offering embedded finance tools to customers include: 

• New revenue streams: Embedded financial services empower you to monetize your platform through transaction fees, revenue sharing, or white-label financial products.
• Increased customer loyalty: The integration of financial tools simplifies the overall user experience. This reduces friction for customers and keeps users engaged by offering key financial services where and when they need them.

Competitive edge: As more businesses embrace the inclusion of embedded financial services into their platforms, consumer expectations are evolving. Meeting those expectations can help your business stand out and remain relevant in the marketplace.

Challenges of embedded finance

Despite the upsides, implementing embedded finance comes with hurdles as well—especially where compliance and data management are concerned. Some of the top challenges companies commonly face in this area are: 

• Regulatory risk: It’s important to partner with reputable, licensed providers to stay compliant with financial regulations. 
• Data privacy and security: Customers and regulators expect transparency and safety when your business handles sensitive financial data. ‍
• Integration complexity: Choosing the right fintech, API, and BaaS partners is critical for a smooth rollout and long-term scalability where embedded finance products are concerned.

Future of embedded finance

Embedded finance is still somewhat early in its development. Nonetheless, its impact is already reshaping how businesses serve customers. And experts predict that momentum will only continue to grow. 

Emerging trends in embedded finance include:

• More personalized financial tools tailored to user behavior. 
• Wider adoption by small and mid-sized businesses. 
• Deeper industry disruption in industries like B2B, retail, and travel.

To prepare, consider exploring potential fintech partnerships and evaluate your customer journey for potential embedded finance opportunities. Most of all, be sure to choose wisely when it comes to integration providers—especially where data security, privacy, and compliance are concerned.