The way money is handled is changing. Big banks may not be the future leaders of the financial world, and the new leaders may surprise you. With embedded finance, people may never need to interact directly with a bank again.   

What is Embedded Finance?

Embedded finance involves integrating financial services into non-financial products and services such as retail and e-commerce platforms (Amazon, for example), ride-hailing apps (Uber), and social media platforms (Facebook). 

Whether you realize it or not, you are using embedded finance if you use the Starbucks app to upload money onto your Starbucks virtual wallet to use for ordering. Same for when you pay for an Uber ride from the airport, or buy a product from Facebook.

How Does Embedded Finance Work?

Embedded finance typically works through the use of an application programming interface (API) that allows for secure communication between a digital platform and a payment processing system. For example, a user enters their payment information within a digital platform or application, which is then transmitted to the payment processing system for authorization and processing.

The process usually goes from customer to business and there are fintech companies and banks operating behind the scenes to make the whole process work. 

What Are the Benefits of Embedded Finance?

One of the benefits of embedded finance is that customers can have an enhanced customer experience. For example, if you have money uploaded to your Starbucks virtual wallet, it makes purchasing quick and easy for you as the customer.

Companies like Starbucks give customers who pay in this manner a financial incentive by allowing them to earn double rewards for spending with funds from their Starbucks virtual wallet. This creates brand loyalty and helps them get a better experience as the company uses their data to make informed decisions of what people want.

Businesses benefit from embedded finance as well. For example, Starbucks benefits tremendously from using embedded finance. Because funds are pre-loaded by their customers, it incentivizes customer loyalty (because their money is already budgeted directly for Starbucks).

Additionally, since it’s a direct deposit from the bank, Starbucks gets to skip out on costly transaction fees. The stored card values also act free lending with 0% interest, fewer regulatory requirements because they cannot be redeemed for cash and they don’t need to be insured. Finally, Starbucks has even more data on their hands, and can use this to make powerful data-driven strategic business decisions. 

Who Can Take Advantage of This Opportunity?

Retail businesses, software businesses, online marketplaces, platforms, telecom companies, and original equipment manufacturers (OEMs) are well positioned to participate in the embedded finance revolution. Not only does it create a powerful revenue stream, but it also provides a wealth of data and customer insights that can be leveraged to open up new opportunities.

Who Are the Players in Embedded Finance?

While the above companies are well-positioned to take advantage of embedded finance to increase their revenue, there are additional players that will work with the companies to make embedded finance work.

Fintech companies

Fintech companies are part of this revolution because they provide the platform that allows businesses to offer financial services through their business. The technology providers act as a middle man between the banks and the businesses through the use of APIs.

Traditional financial institutions

Traditional financial institutions like banks will “manufacture” the financial products by providing funds that can be used for lending. They also provide the necessary regulatory licenses as well as risk and compliance services.

How Can My Business Participate in Embedded Finance?

Businesses can participate in embedded finance by working with Fintech companies to integrate financial products into their existing software, apps, websites, or platforms.

PaySimple can help

More than just an API, PaySimple is here to be your embedded payments partner delivering everything you need to launch, manage, and scale payments within your platform or app. Our proven integration playbook easily guides partners through discovery, onboarding, development, and launch.

The entire process is effortless with dedicated partner support at every phase and continues with a dedicated growth team to help you achieve your revenue targets with marketing materials and sales training.

The Bottom Line

Business is changing, with many companies leveraging embedded finance to improve customer experience and increase their bottom line. If you want to stay ahead of the revolution, it’s important to consider this as part of your business strategy.