The way businesses manage payments is rapidly evolving. Today, customers can pay for a cab or shop for groceries online through platforms that have payment solutions seamlessly built in. This concept, known as embedded finance, is transforming how financial services are delivered, making transactions smoother and more convenient for users.
For customers, it offers fast, accessible, and customizable payment options. For businesses, it provides greater control over transactions, enhances the value of their platform, and helps improve customer retention.
Read on to learn more about how embedded finance is reshaping the business landscape.
What is Embedded Finance?
“Embedded finance” refers to integrating financial services such as payments, lending, insurance, or investments into non-financial platforms, enhancing user convenience by reducing friction in accessing these services.
For Example:
Ride-hailing apps: In-app payments via stored cards or wallets
Retailers: “Buy now, pay later” (BNPL) services at checkout
SaaS platforms: Integrated banking services for SMEs, such as invoicing, payroll, or expense management
E-commerce websites: Stored payments on frequently used retailers
Rewards programs: Customers earn points or cash back
Social media platforms: Product integrations
Third-party companies that use Application Programming Interfaces (APIs) enable businesses to embed financial products directly into their platforms without redirecting to a bank page. It is a win-win for both customers and businesses. Revenue generated through embedded financial services is expected to reach 385 billion dollars by 2029, 17 times more than in 2020. Moreover, effective embedded finance integration enhances customer experience, enabling them to access financial services when needed.
Types of Embedded Finance
Let’s take a look at the different types of embedded finance.
Investments
Once you complete your KYC with a SEBI-registered intermediary, you can invest in various instruments like stocks, mutual funds, and more. If you have a diverse portfolio, you may find managing multiple accounts across different platforms challenging.
By integrating multiple investment features on a single platform, businesses provide various investment options to customers, such as stocks, bonds, etc., eliminating the need to switch platforms. Customers get easy access to diversify their portfolios, and businesses can earn revenue through transaction fees.
Digital Wallets
Embedded finance enables businesses to incorporate digital wallets where customers can store money and purchase things on their platform without being redirected to a separate payment page. This streamlines financial transactions, enhancing customer experience and helping improve customer retention.
Subscription Management
Managing monthly subscription renewals for a streaming service can be challenging for both users and service providers. For users, remembering to renew on time adds unnecessary hassle, while for providers, manually tracking and processing these renewals can lead to inefficiencies and missed opportunities for customer retention.
Embedded finance streamlines the subscription process. With it, users can set up recurring payments directly on the streaming app or payment platform, ensuring uninterrupted access to their favorite shows. When the renewal date arrives, the payment is automatically debited, eliminating the need for manual intervention and enhancing the user experience.
Bill Payments
Another popular example of embedded finance is bill payments on non-financial platforms. Embedded finance enables businesses to integrate utility and other bill payments into their platform, ensuring customers no longer need to switch between multiple apps to manage different bill payments.
Businesses can further enhance their platform by enabling automatic recurring payments for timely bill settlements without manual intervention.
Payments
Businesses can leverage embedded finance technology to provide multiple payment methods like debit or credit cards, QR codes, UPI, and digital wallets. This streamlines the purchase process, enhancing customer experience and reducing friction at checkout.
Lending
With embedded lending, businesses can provide instant credit options to customers directly on the platform. The automated software handles identity verification and credit score evaluations, offering tailored interest rates based on their profiles.
Through embedded financing, the lending process no longer requires excessive paperwork and waiting a certain number of days for approval.
Insurance
Just like embedded lending, embedded insurance is also gaining traction. It allows businesses to seamlessly offer insurance options to customers directly on their platform, often with automated recurring payments for added convenience. For example, e-commerce companies may offer delivery insurance for a premium, or platforms like PhonePe, through their ecosystem, enable users to purchase health and life insurance via partnerships with insurance providers.
Let’s better understand the potential of embedded finance in business banking through different use cases:
Gig Economy Platforms
The most popular use case of embedded finance is on gig economy platforms. Gig workers have unique demands that traditional banking systems cannot efficiently meet. These demands include instant access to earnings, financial management, insurance and investment needs.
Embedded finance enables these platforms to provide these financial services to gig workers, ensuring easy management and increased productivity.
E-commerce Marketplaces
E-commerce marketplaces are becoming increasingly popular among tech-savvy customers. With embedded finance, e-commerce platforms can offer multiple payment options for faster checkouts and integrate digital wallets to store money and use it for future purchases.
Embedded finance enables vertical SaaS companies to add financial products to their software, increasing their utility and revenue.
Consider an example of a restaurant management vertical SaaS company. The company can enable users to manage orders, payments, and reporting on a single platform by integrating payment processing services through embedded finance. This increases its range of solutions and generates additional revenue through transaction fees.
Payroll and Employee Benefit Providers
Payroll and employee benefits providers are ideal use cases for embedded finance. They can leverage embedded finance to implement faster wage access, overtime access, and access to employee benefits, such as life and health insurance, on a single platform.
Benefits of Embedded Finance
The major benefits of embedded finance include:
Operational Efficiency
Embedded finance increases business platforms’ operational efficiency by eliminating payment delays associated with traditional banking structures.
Enhanced Customer Experience
Embedded finance improves customer experience, as customers don’t have to navigate between web pages or platforms for payment and other financial services.
Increased Revenue Streams
With embedded finance, businesses can enjoy an additional revenue stream through transaction fees, insurance premiums, or selling other financial products.
Improved Customer Retention
Implementing embedded finance improves customer engagement and retention by offering multiple financial services on a single platform. 88% of companies report increased customer engagement, and 85% report new customer acquisition through embedded finance.
Access to New Markets
Embedded finance provides businesses access to new markets and a diverse customer pool at low acquisition costs. For example, an e-commerce company can use embedded finance to tap into a new market like airline ticket booking.
Embedded finance, coupled with advanced payment gateway solutions, has introduced a new era of convenience and efficiency in business banking. For customers, it provides a one-stop solution to all their banking and payment needs, offering seamless transactions and enhanced accessibility.
For businesses, it opens up additional revenue streams, facilitates smoother payment processes, and provides entry into new markets. With more businesses adopting embedded finance and integrating payment gateways, these solutions are set to make financial services more accessible, affordable, and efficient for all stakeholders.
