Embedded Finance: What It Is? Can it Change the Future of the Financial Industry?

Over the last decade, the definition of financial institutions has been changing. We are used to thinking of financial services as the domain of banks and specialized firms. But recently, that has been changing. Embedded finance is the concept that financial services can be offered by all kinds of traditional non-financial software and applications. FinTechs recently have been offering digital banking services that are significantly better than traditional banking services. 

One of the best examples of embedded finance is Uber, as it allows its customers to pay for their rides within the application, instead of having to use their physical card or having to take out their wallet and pay with cash. Some e-commerce vendors are also offering the option of “Buy Now Pay Later,” which also signifies automatic loans from the store rather than getting a loan from the third-party provider.

The concept behind this is that extra products and services related to primary products can be bundled together. This eliminates third parties from financial transactions. Finance is no longer a separate domain, instead, they’re becoming part of product offerings. 

 There’s a wide variety of applications for embedded finance, these include:

  • E-commerce service providers offering loans and payment processing
  • Ridesharing companies offering digital wallets and debit cards
  • FinTechs offering loans and debit/credit cards
  • Tech companies offering online payment options (PayPal, Payoneer, etc), P2P payments, and cards
  • Car dealerships offering embedded insurance.

Embedded finance offers improvements for both businesses and customers. Businesses of all kinds can generate revenue from different models. Modern financial technologies are also inexpensive and allow for lower profit margins. Embedded finance is also better for user experience since these applications can create a more unified customer journey and use big data to provide personalized products and services. 

If tackled right, embedded finance can become the future of the financial industry. Traditional financial institutes such as banks, credit card providers, and insurance providers will need to implement digital transformation or join with FinTechs to provide the perfect combination of human touch and technology.