By Deepak Shukla, founder and CEO of Pearl Lemon Accountants
Most people still picture financial services as something separate. You go to a bank for banking, a lender for credit, an insurer for coverage. That neat separation is starting to blur. Embedded finance is what happens when those services get folded directly into the products people are already using.
You’ve probably used it without thinking twice. Paying inside a platform instead of being redirected somewhere else. Getting offered financing right at checkout. Adding insurance in a couple of clicks while you’re already mid-purchase. It feels like part of the product because it is part of the product. That’s the whole point.
And this isn’t some niche shift happening on the edges. It’s moving quickly, and in some sectors it’s already the default. The market projections look big on paper, sure, but what matters more is how normal this has become in day-to-day use.
Why Non-Financial Businesses Are Moving Into Financial Services
This isn’t really about companies wanting to play bank. It’s more about control. Or maybe ownership is the better word. When a business embeds financial services, it stops handing off key moments in the customer journey to someone else. Payments, credit, even basic financial workflows, they all stay in-house. That changes how the whole experience feels.
Retention is the obvious one. If customers are managing more of their activity in one place, they’re less likely to leave. Not impossible, just less likely.
Then there’s revenue. And not the usual kind tied to subscriptions or one-off sales. Financial services introduce a different layer. Sometimes small per transaction, sometimes more meaningful depending on the model. Over time, it adds up.
Experience is the quieter driver here. When everything sits under one roof, businesses can shape the journey end to end. No awkward handoffs, no sudden shifts in interface or tone. And this is no longer early-stage behaviour. A large portion of companies are already offering some form of embedded finance. What used to feel like an edge is slowly becoming table stakes.
Where the Real Revenue Comes From (And Where It Doesn’t)
On the surface, the model looks straightforward. Add payments. Offer financing. Collect fees. Job done. In reality, it’s a bit messier than that. Yes, there’s direct revenue. Transaction fees, interchange, lending margins, all of that is real and, in some cases, substantial. Payments alone carry a lot of weight here. But the bigger impact tends to sit slightly off to the side.
Customer lifetime value goes up because people stick around longer. Churn drops, sometimes quietly, because leaving becomes more inconvenient. And then there’s data, which is often overlooked at first but ends up being incredibly useful for pricing, underwriting, and product decisions.
That said, not every feature pulls its weight. Some don’t make much money at all. A common mistake is assuming embedded finance will pay off quickly. Without enough volume or a strong use case, the returns can take time. Longer than expected, in a lot of cases.
Banking-as-a-Service (BaaS) Explained Without the Jargon
Behind most of this sits something called Banking-as-a-Service, or BaaS. It sounds more complicated than it is.
At a basic level, BaaS lets non-financial companies offer financial products without becoming fully regulated banks themselves. The heavy lifting, licensing, infrastructure, and compliance frameworks are handled by partner institutions. That’s what makes this whole model workable.
APIs tie everything together. Products can be rolled out faster. And businesses can focus on how things look and feel to the user, rather than building financial systems from scratch, which is not exactly a small task.
BaaS has quietly become one of the main enablers of embedded finance. Without it, most of this simply wouldn’t scale.
The Hidden Risks in BaaS and Embedded Finance Partnerships
This is the part that tends to get glossed over. Relying on third-party providers comes with trade-offs. If a BaaS partner runs into operational issues, shifts its pricing, or faces regulatory trouble, that ripple effect hits your product too.
Sometimes immediately.
There’s also complexity that doesn’t show up on day one. Revenue splits, technical dependencies and contractual limits. These things can start to matter more as you grow. And then there’s concentration risk. If too much sits with one provider, scaling can become awkward. Or slow. Or both.
The space itself is still finding its shape. There are more players now, more competition, but it’s far from settled. Which means businesses need to think a bit more carefully about who they partner with and why.
Compliance: The Part Most Businesses Get Wrong
There’s a persistent idea that compliance can be fully outsourced. It sounds convenient. It’s also not true.
Even if a partner handles the regulatory infrastructure, the business offering the service still carries responsibility. Customer protection, transparency, oversight, all of that still sits with you.
This is where things tend to unravel.
Companies move quickly, launch financial features, and only later realise what they’ve actually signed up for from a regulatory perspective. By then, fixing it is rarely simple. And rarely cheap. In some cases, it means reworking entire systems.
As embedded finance grows, so does scrutiny. Regulators are paying closer attention, and expectations are tightening. Compliance isn’t just a box to tick anymore. It’s part of the foundation.
Trust: The Deciding Factor for Customer Adoption
Customers are open to using financial features inside non-financial products. Up to a point.
That point comes faster than most businesses expect. If something feels unclear, slightly hidden, or just a bit off, trust drops. Not gradually. Quite quickly. And once that happens, it’s hard to win back.
What builds trust isn’t complicated, but it does require consistency. Clear pricing. Straightforward explanations. No surprises halfway through a process. Small details, repeated over time.
The businesses that get this right tend to treat financial features as part of the core product, not an extra layer bolted on at the end. It shows how the experience is designed.
And because financial services carry more perceived risk, customers come in with higher expectations from the start. There’s less room for error.
Lessons From Early Embedded Finance Missteps
A lot of early attempts didn’t quite land. That’s normal with anything new, but the patterns are worth paying attention to. Some companies tried to do too much, too quickly. Multiple features were launched at once, without much validation behind them.
Others treated finance as an add-on. Something that sat alongside the product instead of being woven into it. Users could feel that disconnect. And then there were cases where revenue was the main focus, with usability and trust taking a back seat. That rarely ends well.
The more effective approaches tend to be simpler. Start with one use case, often payments. Get that right. Then expand based on what users actually do, not what you think they might want.
It sounds obvious. It’s not always followed.
Why Embedded Finance Creates a Competitive Advantage
Markets don’t stay easy for long. Competition increases, margins tighten, and differentiation starts to blur. This is where embedded finance starts to matter more.
It adds revenue streams that aren’t always visible from the outside. It increases switching costs in subtle ways. And it deepens the relationship between the business and the customer over time. In some models, it becomes central. Not just an extra feature, but part of how the business actually makes money.
There’s also a broader shift happening underneath all of this. Digital platforms are turning into ecosystems, and financial services are becoming part of that infrastructure, whether users notice or not.
The growth projections reflect that, but the more interesting signal is behavioural. This is becoming the default way products are built.
Embedded Finance Is a Long-Term Play
Embedded finance isn’t a quick win. It’s not something you bolt on and immediately see results from. It’s a longer-term decision. Strategic, more than tactical.
When it works, it improves retention, opens up new revenue, and builds trust in a way that compounds over time. When it doesn’t, it adds complexity without much upside. The difference usually comes down to execution. Not the idea itself.
Businesses that focus on real use cases, understand the regulatory side properly, and build with the customer in mind tend to get there. Eventually. The rest, more often than not, figure it out the hard way.
