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Guide:

Embedded Finance

In recent years, the FinTech industry has grown in leaps and bounds. It’s no wonder that a new trend known as “embedded finance” is already rapidly gaining momentum in the market. Embedded finance goes beyond simple retail banking and digital payments by facilitating both consumers and businesses to access financial services everywhere, on-demand through their mobile applications or websites. In this blog post, we’ll explain embedded finance conceptually before examining the solutions it provides, its market forecast, its advantages over traditional banking models and why it works so well with today’s economy. We’ll also look at some top embedded finance companies and explore how banks are successfully utilizing embedded finance technology.

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Author: Paul Shumsky

Last updated December 18

Contents

Solution and Market Overview, Forecast

Embedded finance is a new approach to financial services. It involves the integration of financial processes into non-financial products or ecosystems. This integration aims to create a smooth customer journey.

How does it work? A business finds a partner in banking or financial service providers. The bank’s products are integrated into the business through Application Programming Interfaces, known as APIs.

This setup allows businesses to provide extra value. They can offer financial services without becoming a regulated institution themselves and provide consistency to their customers.

The World Bank defines embedded finance as “the seamless incorporation of financial products or services into nonfinancial products.” Some professionals also refer to this process as “contextual banking.”

Why is this important? Because it’s changing the way we do things! In fact, in 2021 alone, this sector generated $20 billion in revenue in US markets, according to McKinsey reports.

2011 was special, too, because Apple introduced Siri, which since then has become synonymous with virtual assistants globally!

What’s next for this industry? Well, experts anticipate that its market size will double within just three to five years.

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What Solutions Does Embedded Finance Provide?

Imagine stepping into a store, picking up an item and making a partial payment to reserve it. But you couldn’t take the product home until it’s fully paid for. That was the traditional layaway system many years ago.

Embedded finance is like a breath of fresh air in such situations. It blends finance seamlessly with the everyday technology that we use, including our smartphones! This innovation has unveiled new ways for consumers to purchase and enjoy their desired products instantly - while they pay over time!

So how does this magic happen?

Companies today have embraced embedded finance technologies to cater to the ever-evolving demands of customers. Thanks to these advancements, services such as ‘buy now, pay later’ are just at your fingertips during online checkout

In essence, customers can avoid the wait-time or need to save up ahead of a big purchase. Rather than reserving items via old school deposits or layaway systems, one can grab them straight away, all while having flexible payment options tailored just right.

And there are companies doing exactly that – Afterpay being one prime example. Offering four interest-free installment plans allows buyers access to products immediately while spreading costs over manageable portions without extra charges!

Another great example of this would be Klarna, an online business that offers lending solutions along with its retail partners directly at checkout. The customer fills out a straightforward application form for financing immediately during their purchase process. An immediate decision follows, and once approved, customers make monthly payments back to Klarna instead of a more conventional bank.

In essence, leveraging Embedded Finance not only saves time but also reduces complexity while securing customer loyalty. This is possible due to the ease of transactions and convenience brought about by this innovative financial integration method. All these eventually lead to an improved overall shopping experience, attracting more potential customers and hence growth.

Embedded Finance Market Overview

The impact of embedded finance is being felt all over the globe. So, what’s exactly going on in this emerging market? Its value in 2022 was a staggering $66.8 billion. This isn’t where it stops—the projections estimate that by 2032, it will reach an astonishing $622.9 billion!

To better understand this growth pattern, it won’t be an understatement to say that its yearly increase is about 25.4% annually from 2023 up until 2032.

There are different types of services within embedded finance, such as payments, lending, investments, and insurance, each having its unique role and impact.

It makes waves in various industries like retailing and e-commerce, transport and logistics, healthcare services, and even media and entertainment are also included.

Countries around the world can feel its effects, but regions such as North America, Europe, Asia-Pacific, and LAMEA have come under more focus. North America led the pack in 2022 with the highest growth rate. Regulatory authorities here have been eyeing this sector. 

They’re working on laws and rules that would encourage innovation and competition within embedded finance. This proactive approach by North American regulators is stimulating market growth.

Meanwhile, another region to keep your eye on is Asia-Pacific. Many predict it will be the quickest growing area in the near future. Why? Partly due to a massive digital shift across several sectors there, including finance itself.

In addition to that, more people in these countries now use smartphones and internet services regularly than ever before. An increase in online payments also plays its part in creating an ideal climate for embedded finance solutions.

Therefore, while North America currently dominates matters surrounding embedded finance adoption and transformation, it wouldn’t surprise industry experts if Asia-Pacific sped ahead at some point in the near future, thanks to their digital advancement initiatives.

A closer look reveals that companies aren’t just offering these services; they’re customizing them, too. Take the case of lending platforms powered by Artificial Intelligence (AI) or investment programs driven by machine learning. These technologies not only make services user-friendly but also tailor them to suit each customer’s needs.

Another interesting aspect is the role of the Internet Of Things (IoT). By integrating IoT with payment options, firms are revolutionizing how we interact with money virtually.

Yet another player in this game-changer is cloud technology. Cloud-based banking platforms come in as an easy solution to handling multiple complex operations at once! So, all sectors find it hard to resist these embedded financial practices, which makes for an increased demand for such services.

So here you have it: embedded finance isn’t just about making our lives easier – it’s redefining what convenience means for modern consumers and reshaping market trends for everyone.

Advantages of Embedded Finance

Embedded finance is a game changer for businesses. It allows them to give customers personal credit solutions all day, every day. This might seem complex and expensive, but with embedded finance, it’s an easy task.

Imagine you run a major store chain – instead of just selling goods, you could lend money, too. Your lending products are designed to fit each customer’s needs perfectly. The best part? To customers, it feels as if the loans directly come from your familiar brand, which enhances their trust.

Another advantage involves ridding businesses of traditional disjointed tech and transaction data. In simpler terms, about 70% of business leaders feel that there exists a gap between their treasury functions and payments. This could be due to varying factors but primarily results from outdated practices.

With embedded finance in play, businesses can integrate payment processes effectively into existing products or services they offer. Try visualizing digital transactions as racing across different channels, gaining speed with each hop - ensuring accuracy every time without any delays or hiccups.

Embedded finance also benefits both companies and their customers by offering streamlined processes for dealing with financial matters. Simply put, embedded finance allows transactions and access to funding to be handled more easily.

Imagine a store that sells toys. With conventional means, they have to wait before getting paid for customer purchases or lending. But with embedded finance, these businesses gain faster access to these funds. They can use this money straight away - perhaps if they want to introduce new toys based on the latest trends.

What’s more noticeable is how this leads directly to increased profits while reducing costs associated with introducing new clients into their system or dealing with their payments – simply because of its easy procedures.

Moreover, it stirs up opportunities for exploring novel ways of generating income that might not have been visible otherwise. So all in all, as we observe around us at present times, the several advantages that come along when adopting embedded finance make it evident why most are opting for such transformation today.

Certainly, this convenience has its allure, but embedded finance isn’t merely about ease in operations; there’s more under the hood than meets the eye. Let’s talk about security concerns that often hover over online transactions.

With an embedded finance approach, such fears can be eased significantly as companies ensure robust storage and
AI can analyze large amounts of data very quickly. This allows banks to pinpoint suspicious activity quickly and stop it before they lose any more money.

safety of users’ data complying with stringent GDPR guidelines.

This means you wouldn’t have to lose sleep worrying if your sensitive information will fall prey to the internet. Embedded Finance treads on a path that offers boosted growth and expansion, especially fitting for businesses - both established firms and budding startups alike.

It’s like having your pocket-sized financial institution wherever you go! Just envision being able to nurture your venture at any time without logistical constraints tied to traditional banking systems.

Adding all these up makes one thing clear: Embedded Finance marks an evolution in today’s Fintech landscape, cruising steadily towards tomorrow and leaving behind outdated practices all the while fulfilling customer expectations.

Why Embedded Finance Works

Embedded finance is an exciting concept. Think about the way a car dealership or big box store offers financing at the point of sale. That’s one example of embedding financial services in your buying journey.

Now, apply this idea to our digital age. When people buy things online, they often click the ‘pay now’ buttons on websites - it’s another simple instance of embedded finance right there where you need it.

Recently, this method has exploded thanks to digital transformation and the growth of digital platforms like Super-apps from Grab in Southeast Asia and WeChat and Alipay from China. Marketplaces such as Airbnb with Air Cover also follow suit by seamlessly offering insurance as part of their service package.

Today, mainstream adoption has seen payments via these platforms contributing more than 60% to all embedded finance transactions in the US alone, according to a 2022 report from Bain Capital. But it doesn’t stop there; opportunities for expansion are endless - From lending to investment options and wealth management across customer-oriented businesses (B2C) beyond consumer payments or even business-to-business (B2B) domains.

Find out how Velmie can help your organisation take advantage of embedded finance.

Top Embedded Finance Companies

Embedded finance is becoming a big deal. It’s a way for companies to integrate financial services into their business models seamlessly. This trend is rapidly changing how businesses operate, creating unique advantages and driving innovation in the sector. Let’s consider some trailblazing companies in this space.

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Stripe is a major player in this field. This company helps other businesses provide their financial services on their platforms. This includes accounts, cards, and even lending services. Payment is integrated right into these business platforms for ease and convenience. It’s all about providing a smooth experience - from joining the platform, making payments and finally receiving earnings.

Then we have Plaid. Now, Plaid offers a slightly different set of solutions but stays true to the theme of embedded finance. Its technology secures connections between consumer bank accounts and businesses they interact with digitally, which is very important in our interconnected internet age. Plaid makes it easier for businesses to offer not just payments but also other financial products. The possibilities continue to expand as more people embrace digital financial services.

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TreviPay is known for payment and credit management solutions specifically tailored to B2B operations. They have smartly woven themselves into e-commerce technology platforms, providing avenues for invoicing at checkout with flexible payment terms. Essentially, they modernize the B2B e-commerce experience while conserving expenses on transaction fees as compared to traditional credit card charges.

Then there is Marqeta - an ambitious firm that created this incredible global platform issuing modernized cards. So what does it do? Well, it offers an open API giving firms access to its uniquely innovative system of managing payment programs along with credit card processing tasks as part of their service offerings without any hassle.

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Fiserv found a way to put banking and payments everywhere to make lives easier. Their system covers diverse areas ranging from managing payments to controlling financial risks such as credit and debt management.

Fiserv provides a platform to manage everything  — paying, borrowing, and even sending money abroad through their Android or iOS apps. The company’s performance speaks volumes about its worthiness in the finance field, too. In 2022 alone, they made an impressive $17.73B in revenues while netting $2.53B in profit.

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Yapily is like a builder of financial bridges. With its help, businesses can connect with various banks effortlessly via digital channels known as APIs.

Yapily also offers an advantage when one needs information from many banks at once - like checking how much money is in each account or verifying customer identities. Everything gets gathered together clearly by Yapily’s system.

Let us shift focus now to another company - Resolve. Picture owning a manufacturing concern but worrying about payments due in 60 or 90 days. That’s where Resolve shines; it serves as your financial timekeeper on behalf of clients who want flexible payment terms.
 
Wrapping up, both these startups exemplify why embedded finance has become so popular nowadays among businesses globally: ease of access and seamless integration offering multiple solutions under one roof.

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Finicity takes real-time financial data and turns it into insights. They provide secure access to consumer’s financial data for businesses. Companies use these insights to improve their financial services, thus propelling them into the world of embedded finance.

Another company is Synchrony, which operates as a credit card provider for consumers and businesses alike. Its offerings include various loans and promotional financings through a subsidiary bank alongside an exclusive healthcare credit card named CareCredit. 
This card assists users needing health, beauty, or wellness care financing. In essence, its specialty lies in offering diverse kinds of payments along with online banking services. The rate of growth Synchrony has seen over the years shows its strength in this sector - it reported annual revenues of $17.52B and net profit reaching up to $3.01B in 2022 alone.

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Walnut Insurance, Parafin and QwikCilver are also some of the top embedded finance companies changing how businesses operate. 

Walnut Insurance offers a range of insurance products to businesses, big and small. The neat part is their technology helps weave these insurance solutions right into existing platforms used by businesses every day. This makes it easy for any business to introduce and manage modern insurance services.

Next there is Parafin - a company that made buying so much easier with one-click financing! It offers an all-in-one solution that covers everything from sourcing capital to underwriting transactions quickly. And the best part is that users appreciate how smoothly everything works - right from origination to keeping track of performance in real time.
Then there is QwikCilver – the gift card guru! Offering prepaid cards for individuals and solutions for firms alike, it puts smiles on countless faces through its offerings - both physical and electronic. 

Partnering with popular brands like Shoppers Stop and Flipkart certainly helped them climb up the chart! In addition, they also have Woohoo – a gifting hub covering diverse categories, making it just the perfect present pick!
Briefly put, these companies have redefined traditional concepts by leveraging cutting-edge technology, offering their customers something far beyond the ordinary.

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Balance offers revolutionary services within e-commerce payments. They cater to both merchants and marketplaces for their B2B operations. What makes Balance unique is how it simplifies payments. 

From traditional methods like ACH and credit cards to future-ready options such as payment automation or financing, all are part of their platform. Even tracking invoices becomes easier with automatic reconciliation at disposal.

Coming to the digital assets field, Zerohash shines brightly while also being a notable player in the embedded crypto infrastructure - much like Cybrid company holding MSB licenses from FinCEN and FINTRAC – key organizations regulating financial systems around the globe.

However, Zerohash particularly excels in extending an efficient platform for businesses looking at digital assets integration into their existing setups.
 
In summary, Balance provides seamless transaction processes, whereas Zerhohash integrates crypto space efficiently, boosting your investment potential manifold and ensuring maximum return on investments.

Looking to start using embedded finance
technology at your company?

Reach out to us to see how Velmie can help with API integration and payment orchestration.

Banks and Fintech that Successfully Use
Embedded Finance Technology 

Embedded Finance technology is playing a pivotal role for banks and Fintech firms alike, pivoting them towards great success. Banks have found an ally in this technology. Not only does embedded finance help retain existing customers, but it also attracts tech-savvy newcomers seeking just such convenience from their financial service providers. 

FinTech companies, too, display feats of excellence using embedded finance tech as they deeply integrate their services within other apps that consumers use on a daily basis, making financial tasks easier than ever before. This hands-on approach to finances dispenses with outdated banking habits and embraces change tailored for today’s digitally inclined customer base. This is largely due to embedding financing mechanisms within easy-to-use contexts that help banks secure their future while FinTech firms add value across sectors beyond traditional boundaries. 

Some of the well renowned Banks and FinTech firms that are implementing embedded finance in their operations are listed below.  

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Many prominent companies are successfully employing the concept of embedded finance technology. Among them, Citi Retail Services stands out with its new suite of products known as Citi Pay. This new range aims to blend seamlessly into the current payment channels utilized by retailers.

Citi Pay provides two offerings at present. The first one is a purely digital facility named ‘Citi Pay Credit.’ It’s an entry point for Citi into exclusively online payments. The card helps businesses present special prices and immediate credit approval while checking out.

Coming up shortly will be the second product, ‘Citi Pay Installment Loan.’ Proponents say this tool could reshape people’s shopping habits with a buy-now-pay-later model whose installments can span from half a year to five years.

A study that Citi commissioned revealed something intriguing: 85% of individuals in America express the desire for more diverse methods to pay when they shop. 

Despite inflation and high costs denting sales, companies are exploring inclusive ways like embedded financing to tide over tough times and invest wisely in future technologies. This would allow easier transactions without friction and provide an enhanced customer experience, resulting in increased conversions.

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JPMorgan Chase is strengthening their services by partnering with Gusto, a cloud-based payroll firm. The aim is to provide better services to small and medium-sized businesses. This collaboration denotes an upgrade on the Chase Payment Solutions platform. A special feature referred to as API, taken from Gusto’s technology, will be incorporated into this platform.

So what’s the benefit here? It simplifies tasks for business firms; banking, payments and payroll procedures are now accessible in one place with just one sign-in at chase.com. Gusto CEO Josh Reeves voiced his excitement about this feature by saying “It’s the same experience, with the same login... all becomes easier when it’s in a one-stop shop-type environment”. 

Chase recognized that advancing this technology themselves would need lots of time and work and decided to instead work alongside software startup Gusto, which was the smarter move. This step brought Chase up-to-speed with other fintech giants like Square and PayPal, who have already made good use of such combined financial resources.

What does this mean for Small and Medium Enterprises? Well, they get tools that make taxing processes simpler while saving them precious time and money. This initiative tactfully targets requirements specific to small scale industries, thus enhancing engagement using an embedded finance strategy.

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Goldman Sachs, a leading global finance institution, is making impressive strides with embedded finance technology. Together with Modern Treasury, a FinTech company in the business of money movement, they are revolutionizing how payments operate.

This partnership aims to simplify and enhance the move towards embedded payments. They have devised an integrated solution that amalgamates Goldman Sachs’ powerful transaction banking prowess through TxB with the user-friendly operations platform of Modern Treasury.

Here’s what key players had to say about this development. Eduardo Vergara from Goldman Sachs said their collaboration would aid clients by integrating their robust payment abilities right into client platforms.

However, many mid-sized companies looking to digitize payments encountered challenges like compliance issues, managing third-party relationships and integrating accounting, which discouraged them at times. 

Dimitri Dadiomov of Modern Treasury believes it doesn’t have to be so difficult - he says present-day money movement is driven by software and underscored that along with Goldman Sachs award-winning APIs, his team could fill in any gaps left behind by traditional methods thereby enhancing financial transitions for everyone involved.

The beneficial results from this integration have been tangible since late 2021, as verbalized in the press release. Both teams continue working together on the same product suite, all aimed at attaining customer satisfaction.

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Mastercard, a worldwide leader in digital payments, is also not far behind other banking channels and is making strides in the field of embedded finance technology. The company has joined forces with Fabrick, a pioneer in Open Finance from Europe.

Expanding their partnership, both companies plan to use their resources for enhancing digitization across businesses and fintechs positioned all over Europe. It’s not just about collaborative plans but true investments; Mastercard now owns a part of Fabrick as well!

Fabrick isn’t merely stationed in one place, either. They’re doing what they do best from locations dotting Milan to Madrid to Zurich and London– enabling cutting-edge services in ‘Open Finance.’ Their platform bolsters innovative payment solutions globally.
Speaking numbers can be mind-boggling, but more than 400 counterparties are networking via Fabrick, which generates over 330 million API calls per month! Such astounding figures highlight constantly emerging opportunities networked through their platform.

Mastercard’s Country Manager in Italy quoted his support for working with such an illustrious collaborator like Fabrick. He considered this alliance as instrumental in redefining digitized business landscapes ahead while delivering beyond par digital payment experience customers yearn for nowadays.

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We live in a digital world where new advancements are continuously made. In the finance sector, some of today’s forerunners adopt smart methods to stay ahead. One such high flier is Visa - as many know it, a titan of digital payments.

Visa recently paired with Weavr, a specialist in plug-and-play finance. Their joint vision is to help enhance how B2B SaaS companies get hold of and wield embedded finance solutions.

For instance, think about financial plugins that knit perfectly into your software – just like an App downloaded on your smartphone. These so-called ‘embedded by design’ financial products form part of Weavr’s solution along with Visa capabilities stitched into the mix.

The coverage doesn’t end there. It also takes care of important aspects like compliance rules, regulatory measures and securing data. The beneficiaries in this partnership are not just financially focused businesses but non-financial ones, too! Everyone from providers offering ERP solutions or HR management platforms to B2B commerce industries can reach out and grasp these benefits.

Emma Kerr from Visa puts it beautifully: “Our goal has always been expanding access to financial tools... that’s why we are very excited working alongside firms like Weavr.”

In summary, together as allies, they chart a path to making finances simpler for all.

Conclusion

Overall, embedding a financial solution into other industries can be hugely beneficial - not only does it make processes easier for both customers and businesses alike, but it also saves time and money, which in turn boosts productivity as well as provides unparalleled convenience for users who demand quick access on the go. This is clearly an effective way for businesses to grow their profits while simultaneously aiding customer experience; this includes large corporations looking to incorporate self-service offerings or startups attempting to streamline operations through automation. There’s no doubt that embedded finance solutions will continue making waves in fintech markets throughout the years!

Get actionable insights from industry experts on Fintech market trends in 2024

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What Solutions Does Embedded Finance Provide?
Embedded Finance Market Overview
Why Embedded Finance Works
Advantages of Embedded Finance
Top Embedded Finance Companies
Banks and Fintech that Successfully Use Embedded Finance Technology 
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