Embedded Finance

What is Embedded Finance?

Embedded finance refers to the integration of financial services into non-financial platforms or
applications. It allows customers to access financial services without having to leave the
platform or application they are already using. This integration is made possible through
application programming interfaces (APIs) that connect financial institutions to third-party
platforms, enabling financial transactions to be carried out seamlessly.

Embedded finance solutions are becoming increasingly popular because they provide a more
convenient and efficient way for business customers to access financial services. This integration
has the potential to create a more inclusive financial system, where business customers can
access financial services in a way that suits their needs.

Embedded finance platforms provide the infrastructure for organizations to integrate financial
services into their offerings. These platforms typically provide a range of APIs that allow
businesses to integrate various financial services, such as onboarding, payments, loans, line of
credit, and more.

Benefits of Embedded Finance for Businesses

Embedded finance offers several benefits for businesses:

• Expanded customer base: By offering financial services to their customers, businesses
  can attract new customers and expand their customer base beyond traditional business
  channels.
• Increased customer loyalty: Providing customers with a more comprehensive range of
  services can help businesses increase customer loyalty and retain existing customers.
• Additional revenue streams: By offering financial services, businesses can generate
  additional revenue streams and increase their overall revenue.

Opportunities of Embedded Finance for Businesses

Embedded finance offers several opportunities for businesses:

• Creating new products and services: By integrating financial services into their products
  and services, businesses can create new products and services that can be offered to
  their customers.
• Diversifying revenue streams: By offering financial services, businesses can diversify their
  revenue streams and reduce their dependence on their core business.
• Enhancing customer experience: By offering financial services that are integrated into
  their products and services, businesses can create a seamless customer experience and
  improve customer satisfaction.

Use cases

Embedded finance offers several use cases for banks that lend to SMEs. Here are some
examples:

1. Point-of-sale financing: Banks can provide financing options to merchants at the point of
   sale, enabling customers to finance their purchases. This can increase sales for
   merchants and provide customers with more flexibility in how they pay for goods and
   services.
2. Merchant cash advances: Banks can offer merchant cash advances, providing merchants
   with access to funds based on their expected future revenue. This can help merchants
   manage their cash flow and invest in their businesses.
3. Invoice financing: Banks can offer invoice financing to merchants, providing them with
   funds in exchange for their outstanding invoices. This can help merchants manage their
   cash flow and avoid the need to wait for customers to pay their invoices.
4. Supply chain financing: Banks can offer supply chain financing to merchants, providing
   them with access to funds to pay their suppliers. This can help merchants to manage
   their working capital and build stronger relationships with their suppliers.
5. Payment processing: Banks can offer payment processing services to merchants,
   enabling them to accept a range of payment methods. This can help merchants to
   expand their customer base and increase sales.
6. Fraud detection and prevention: Banks can provide merchants with fraud detection and
   prevention services, helping to mitigate the risk of fraudulent transactions. This can help
   merchants to protect their businesses and maintain the trust of their customers.

Overall, embedded finance can provide banks with new ways to support their merchant
customers and drive growth in their lending businesses. By leveraging technology and
integrating financial services into non-financial platforms, banks can offer more seamless and
convenient financial solutions to their customers.

Embedded finance vs banking as a service (BaaS)

While both embedded finance and BaaS involve the integration of financial services into non-
financial platforms, there are some key differences between the two.

BaaS refers to the provision of banking services through APIs to other companies, allowing them
to offer banking services to their customers without having to become a licensed bank. BaaS
providers typically offer a range of services, including deposit accounts, payments, and lending.

Embedded finance, on the other hand, refers to the integration of financial services into non-
financial platforms. While this can include banking services, it can also include other financial
services, such as insurance and investments.

One way to think about the difference between BaaS and embedded finance is that BaaS
enables companies to become banks, while embedded finance enables companies to offer
financial services without becoming banks.

Banking as a service embedded finance

There is also a growing trend towards the integration of BaaS and embedded finance. This
involves the use of BaaS providers to provide the infrastructure for embedded finance
platforms.

This combination allows businesses to offer a range of financial services through their platforms,
without having to become licensed banks themselves. This can provide a more streamlined and
cost-effective way for businesses to offer financial services to their customers.

Embedded finance is a trend that provides businesses with an opportunity to offer a more
comprehensive range of services to their customers. By partnering with financial institutions
and integrating financial services into their products and services, businesses can attract new
customers, increase customer loyalty, and generate additional revenue streams. As more
businesses begin to offer embedded finance services, we can expect to see the trend continue
to grow in popularity.

Related Terms