Embedded finance refers to the seamless integration of financial services adopted by non-financial companies. This merger between non-financial entities and embedded finance services has revolutionised the way we interact with money and businesses alike.
The recent growth in embedded financing services has disrupted the role of traditional banking institutions. Previously, many of our financial interactions, such as loans or payments, were only made possible through the use of banks.
Nowadays, non-finance companies can provide financial services to their customers by connecting fintech and banks to their platforms through APIs.
No matter what industry you find yourself in, you can incorporate banking products onto your platform, without the need to comply with strict regulations and licenses.
For example, retailers can now embed financial lending services onto their platform and give their customers the option to split online purchases into monthly instalments, also known as buy now, pay later.
Banking as a Service, also known as BaaS, refers to a model in which licensed banks can provide non-financial companies with an embedded integration of banking services.
More specifically, BaaS is the end-to-end model that allows third parties and digital banks to connect, via APIs, and create white label banking services or innovative banking products.
Non-financial companies can improve their user experience and benefit immensely by offering their customers banking services.
Previously, financial services, such as lending or payments, used to be exclusive to traditional financial institutions. These services require a banking licence, which in turn requires a lot of capital and strict regulations.
Going through all this paperwork isn’t in the best interest of non-financial companies; they aren’t interested in becoming a bank, they are focused on providing customers with their own alternative services.
This is where Banking as a Service comes in, with BaaS, any business can provide their customers with a seamless user experience that integrates financial features into their platform.
Non-financial companies aren’t subjected to any of the regulatory duties of financial institutions, yet they still enjoy the benefits provided by an enhanced user experience.
Embedded finance is for everyone – for companies of all sizes and sectors.
It gives non-financial brands the chance to offer tech-savvy customers new and exciting opportunities. These embedded finance services offer simplified transactions, new lines of revenue, and the ability to deepen existing customer relations.
However, embedded finance doesn’t just bridge the gap between businesses and consumers, it helps bridge the gap on a B2B basis too. Many fintech companies dedicate themselves to facilitating payments and loans between buyers and suppliers.
Embedded finance doesn’t limit itself to payments, it includes insurance, lending, and even investment. It’s provided SMEs, the growth engines of our economy, with an opportunity to access alternative forms of financing.
The growth of the fintech and embedded finance industry is paralleled by the growing benefits it brings to both businesses and customers alike.
Commercial customers aren’t the only ones reaping the benefits from embedded financing, so are buyers and suppliers.
Invoice financing services help businesses plug sizable cash flow gaps in balance sheets by advancing any outstanding invoices.
Going through a more traditional financing route, such as a bank loan or overdraft, could take weeks or even months for the cash to materialise.
Previously, you would go to the bank, take out a loan, and use this money from outstanding invoices to cover expenses or pay contractors.
Invoice financing cuts out the awkward middleman. It provides tailored financing that meets the personalised needs of your business.
Embedded invoice financing is a seamless and integrated way to get advances on the cash that you are already owed.
This type of embedded finance offers companies a way to increase their operational efficiency, which in turn increases turnover and provides an opportunity for growth.
Embedded finance is the terminology used to describe the adoption of financial services into non-financial business processes, whereas embedded fintech can be used to describe the adoption of fintech services (like money management or data breach and identity protection) into the business processes of financial institutions.
In order to keep up with the abundance of fintech companies emerging, banks need to offer their customers digital and integrated experiences.
An overwhelming majority of Millennials and Gen Zers rely on their mobile banking apps to access their checking accounts. Banks need to facilitate their customers with a digital platform that is worthwhile, competitive, and modern.
Rather than conceptualising, testing, and then launching these services, financial institutions utilise the services of embedded fintech. In many ways, the finance market has evolved from pure competition to diversified collaboration.
Embedded finance, and the fintech sector in general, is witnessing unparalleled growth. The industry is quickly expanding and becoming ever more prominent in our everyday lives. In order to understand what is fuelling this phenomenal growth, let’s look at some of the most recent trends in embedded finance…
New opportunities to generate revenue
Up until a few decades ago, the banking landscape remained relatively intact. Longstanding financial institutions made up the status quo and banks were the only ones with their own custom tech stacks.
Fast-forward to the present day and hundreds of emerging fintech companies are finding new ways to increase revenue and create innovative streams of profitability. This constant search for new revenue models is another trend fuelling the growth of the industry.
Greater trust in innovative finance services
Previously, banks were the only respected and trusted financial institutions. However, global events like the financial crisis of 2008 marked the beginning of the deep distrust in banks.
Not only have consumers begun to increase their trust in new and innovative forms of embedded finance but their trust in traditional banking institutions has simultaneously been declining.
High demand for integrated experiences
Large market changes are primarily driven by changes in consumer behaviour. Customers now expect their experiences to be as easy, concise and digitalised as possible.
Modern society is fast-paced and direct, so it’s only natural that customers seek out these qualities in their day to day experiences.
Individuals don’t want to call a taxi, locate the driver, and pay in cash. They want the entire experience with the click of a single button.
Adoption of new technological advancements
Technology is progressing at an exponential rate, meaning that the more we advance technologically, the quicker the pace of acceleration. As digitalisation increases, so does the relevance of embedded finance.
Automation is faster and more accessible than ever. Banks can scale BaaS so rapidly that more and more companies adopt these technological advances every day.
Embedded finance allows non-finance companies to manage and sell financial services to their customers through a seamless integration provided by banks, fintechs or other regulated entities.
Companies in any industry can embed financial services such as payment facilitation, embedded lending, or all-inclusive insurance into their non-financial business process.
Banking as a Service or BaaS is the service extended by licensed banks to non-financial companies through the use of APIs.
Through BaaS, third parties and digital banks can use APIs to directly connect to a bank’s system and create new financial products or white label banking services.
Small, medium, and large enterprises can benefit immensely from embedded finance services.
Whether you work on a B2B or B2C basis, embedded finance helps businesses optimise their user experience, generate higher revenue streams, and even gain access to alternative forms of financing.
Apart from businesses, millions of customers benefit from the convenience of embedded finance too. Users will no longer settle for sub-standard experiences. They demand seamless interactions and hassle-free services.
This satisfaction, in turn, drives customer loyalty and encourages repeat purchases.
Our embedded finance platform
With our embedded finance platform, you can oversee invoices, timesheets, and contracts, all from a single centralised system. You can use real time metrics to manage your business and have full visibility of the money coming both in and out.
Our financial services are easily managed with one application, making the entire invoice financing process as seamless and convenient as possible.
