5 ways you can leverage embedded finance

November 15, 2023

In the ever-evolving world of finance, fintech companies are at the forefront of innovation. One of the most exciting developments in recent years is embedded finance. It’s truly a game-changing trend as it represents the fusion of finance with nonfinancial products and services. It's transforming the way we manage our money and interact with financial institutions across various industries.

Embedded finance offers several advantages for businesses including:

  • Efficiency: By integrating financial services, businesses can streamline operations, reducing the need for manual intervention, paperwork and delays.
  • Cost reduction: Businesses can eliminate intermediaries, reducing transaction costs and improving their bottom line.
  • Enhanced customer experience: Embedded finance simplifies transactions, making it more convenient for customers. They can access financial services where and when they need them.
  • Data insights: With embedded finance, companies can gather valuable data about customer behavior, spending patterns and preferences, enabling them to make data-driven decisions.

The future of finance is embedded and fintechs lead the way

Whether you're a financial app, marketplace, payment provider, banking solution for underserved communities or vertical SaaS platform, embedded finance offers a world of possibilities. Read on as we dive into five unique use cases and discover how fintech companies are leveraging embedded finance.

  1. Becoming financial mission control
    In our recent research with the Harris Poll, we learned that small-business owners often string together five to six (or more) different software tools to manage their business finances – and they hate it. Today, vertical SaaS platforms offer integrated bank accounts, payment processing, invoicing, expense management and payroll services. They can also provide business loans, supply chain financing and risk mitigation through insurance solutions. Integrating data analytics and insights allows businesses to make more informed decisions. Embedded finance can become the financial mission control for businesses, streamlining their operations and reducing the need to use multiple software tools.
  2. Supercharging financial management
    If you're already helping your customers manage some aspect of their finances, then embedding banking and other financial products into your product has the potential to supercharge your offering. For example, if you help your customers find and apply for financing, offering bank accounts could allow you to assess their cash flow, which in turn could help you better assess their risk level. As a result, you could help them find more affordable rates and targeted terms.
  3. Expanding revenue streams
    Marketplaces and e-commerce platforms can significantly benefit from embedded finance solutions. They can offer merchant financing, on-demand payouts and lower transaction fees to sellers. Additionally, they can provide payment processing, working capital loans and cross-border transaction capabilities. These services can streamline processes, improve user engagement and generate additional revenue streams.
  4. Simplifying financial management
    Payments and payroll providers, like Square and Gusto, are moving vast amounts of money for their customers. By offering integrated banking services, you can simplify financial management for users. This includes providing basic banking services, on-demand payouts, lower transaction fees and credit building. These offerings can attract and retain users while generating revenue through interest, fees and commissions.
  5. Bridging the financial inclusion gap
    For fintechs focusing on banking services for underserved groups, embedded finance plays a crucial role in providing access to basic banking services, offering low- or no-fee accounts and facilitating micro-loans and micro-savings. These platforms can also assist with bill payments, remittances and credit-building opportunities. By addressing financial pain points, they can improve financial inclusion and financial literacy.

Challenges and considerations for implementing embedded finance

As the fintech landscape continues to evolve, staying updated with emerging trends and navigating challenges will be crucial for businesses aiming to harness the full potential of embedded finance.

  • Regulatory compliance: Fintechs, especially startups, may lack the regulatory expertise needed to navigate the complex financial landscape, including complying with data privacy laws, consumer protection and licensing specific to their industry needs.
  • Risk management: Financial services inherently involve risks like fraud, cybersecurity threats and credit risk. By partnering with an established financial services provider with robust risk management and security practices, fintech are better positioned to mitigate risk more effectively.
  • Infrastructure, scalability and flexibility: It's important that your embedded finance solution is scalable, adaptable and future-proof, yet that doesn't come without its own challenges. Do you have the technology you need to do it on your own, or will you need to tap into a partner's resources? When it comes to flexibility, having the right APIs and tools can allow you to create unique financial solutions for your target audience.

As embedded finance becomes more widespread, we can anticipate even more diverse and personalized financial solutions, making it easier for users to manage their finances, access credit and build a secure financial future. Keep an eye on the fintech space as it continues to shape the future of finance through embedded solutions.

About the Author
Barbara Negron, Sr. Director Business Development, Strategic Partnership Embedded Finance, Banking as a Service, FIS
Barbara NegronSr. Director Business Development, Strategic Partnership Embedded Finance, Banking as a Service, FIS

Capture opportunities with embedded finance
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