By Deepak Shukla
Embedded finance is transforming industries as non-financial companies increasingly offer financial products like payments, loans and insurance. This shift opens new revenue streams and improves customer experiences. McKinsey reports the global embedded finance market will grow from $22 billion in 2022 to $230 billion by 2025, driven by the demand for seamless, contextual financial services that simplify access to funds and transactions.
As businesses embrace embedded finance, they are unlocking unprecedented opportunities to diversify their revenue sources, improve user engagement and become more competitive in the marketplace. Here we’ll explore how embedded finance is changing the landscape of industries, the benefits it brings to businesses and the future of finance integration.
What Is Embedded Finance?
Embedded finance refers to integrating financial services into non-financial platforms, allowing companies to offer services like payments, lending, insurance and investment management within their primary business offerings. It’s about making financial services available at the point of need, from in-app purchases and point-of-sale financing to insurance embedded within a retail transaction.
For example, when you shop online and are offered instant credit at checkout, that’s embedded finance in action. This model creates a seamless customer experience by providing financial products directly within a customer’s ongoing interaction with a brand.
The Growth of Embedded Finance: A Game-Changer for Industries
Embedded finance is rapidly reshaping industries by integrating financial services into everyday business platforms. This shift unlocks new opportunities for companies to enhance customer experiences and diversify revenue streams.
Retail and E-Commerce
In retail and e-commerce, embedded finance is transforming the customer experience. Companies like Shopify and Amazon integrate payments and financing directly into their platforms, offering options like buy now, pay later, instant loans and tailored payment solutions without relying on external financial institutions.
The impact is clear: retailers benefit from higher conversion rates, while customers enjoy a more convenient, frictionless experience. This trend is not just limited to large companies. Smaller e-commerce businesses also embrace embedded finance to enhance customer service offerings and drive growth.
Transportation and Mobility
In the transportation sector, especially MaaS, embedded finance simplifies payments. Uber, for instance, integrates payment processing, tipping and insurance into its app while exploring in-app loans, insurance and vehicle leasing for drivers.
By embedding financial products, transportation companies can improve the customer experience and create new revenue models, such as in-ride financing or vehicle leasing partnerships, tapping into entirely new markets.
Healthcare
The healthcare industry benefits from embedded finance, with platforms like Zocdoc and GoodRx offering payment options that allow patients to finance treatments or pay directly online. This reduces upfront costs for patients and accelerates payments for providers.
For healthcare companies, integrating financing options helps increase affordability and access to care while improving patient satisfaction.
Key Benefits of Embedded Finance for Businesses
Embedded finance enables businesses to diversify revenue and enhance customer engagement by integrating financial services into their platforms. This approach drives convenience, trust and loyalty, enhancing overall business growth.
New Revenue Streams
Integrating financial products allows businesses to diversify their revenue sources. By offering services like loans, insurance or payment processing, companies can tap into new income streams. This approach helps capture a larger share of the customer’s financial activity, driving growth.
Square started as a payment processor but expanded to include business loans and insurance, creating multiple income streams. This model boosts profitability and strengthens its value proposition.
Enhanced Customer Experience
Embedded finance also creates a smoother, more personalised experience for customers. Financial products available at the point of need, without requiring customers to leave an app or website, make transactions faster and more seamless. This convenience can be a significant competitive advantage, especially in industries where speed and ease of use are essential.
For instance, PayPal has transformed online payments, but it’s also integrated financing solutions like PayPal Credit and PayPal Working Capital directly within its payment ecosystem, making it easier for users to make larger purchases or manage their cash flow without leaving the platform.
Improved Customer Retention and Engagement
Integrating finance-related features into your products boosts customer engagement. By offering personalised financial services, companies can better meet customer needs and foster trust. Embedded finance, such as financing options or easy insurance management, encourages long-term loyalty.
For example, Lemonade, an insurtech company, offers renters’ and homeowners’ insurance directly within its app. Customers can easily customise their coverage, get quotes and file claims without needing to visit a third-party insurance website, making the process much more convenient.
The Future of Embedded Finance
The future of embedded finance promises further integration of financial services into everyday business operations, fuelled by technological advancements and evolving customer expectations. As APIs and regulations continue to shape the space, new opportunities will emerge for businesses and consumers.
The Growing Role of APIs in Financial Integration
As embedded finance grows, Application Programming Interfaces (APIs) will play a key role by enabling companies to integrate financial services without building from scratch. Open banking APIs offered by financial institutions allow non-financial businesses to embed services like payments, lending and insurance into their apps and websites.
For example, Plaid provides APIs that allow developers to integrate financial data into apps, enabling users to make payments, check balances or apply for loans within non-financial apps. As APIs become more accessible, embedded finance will accelerate, allowing even small businesses to offer robust financial solutions.
Increased Regulation and Consumer Protection
As more non-financial companies offer embedded financial services, regulatory scrutiny will also increase. Governments will likely impose stricter regulations on embedded finance to protect consumers from potential fraud or exploitation. For example, payment services, loans and insurance will require compliance with existing financial regulations, including KYC (Know Your Customer), AML (Anti-Money Laundering) and consumer protection laws.
To stay ahead of these regulations, businesses will need to work closely with legal experts and financial institutions to ensure compliance. This will be essential to maintaining customer trust and avoiding costly penalties.
How Embedded Finance is Transforming Customer Loyalty and Retention Strategies
As embedded finance becomes integral to various industries, its impact extends beyond revenue generation to customer loyalty and retention. By offering financial services within core platforms, businesses provide a personalised, integrated experience that encourages repeat customers. Here’s how embedded finance is reshaping loyalty strategies:
Personalised Financial Solutions at the Right Moment
Embedded finance allows businesses to meet their customers’ financial needs in real-time. Whether offering an instant loan for an emergency purchase, providing payment options that align with a customer’s purchasing behaviour or tailoring insurance coverage directly in-app, businesses can create personalised solutions that resonate deeply with consumers.
- Convenience: No more hopping between apps or websites for financial services.
- Contextual Relevance: Financial products are offered within the flow of the customer’s journey, making them more useful and timely.
Instant Gratification Drives Customer Retention
In an era where customers expect instant results, embedded finance helps meet those expectations. By integrating payment options, lending services and insurance directly into platforms, businesses can offer immediate access to financial products.
- Fast Transactions: Instant access to financial services at the point of need.
- Reduced Friction: No delays in financial decision-making, as customers are more likely to follow through on purchases.
Cross-Industry Partnerships and Loyalty Programmes
Embedded finance fosters strategic partnerships across different industries, expanding customer loyalty programmes. For example, a retail business can collaborate with a financial services provider to offer loyalty rewards that are redeemable for discounts, points or even financial products like insurance or loans.
- Cross-Industry Value: Offering more than just your core products/services.
- Multi-Tier Loyalty Programmes: Businesses can create complex loyalty systems that include rewards, financial services and exclusive offers.
Building Trust Through Financial Transparency
Embedded finance helps companies build trust with their customers by providing transparent, straightforward financial services. When businesses offer clear terms for loans, payments and insurance, customers feel more confident in their financial decisions, fostering loyalty.
- Clear Terms: No hidden fees or confusing fine print.
- Better Financial Education: Offering tools that help customers make informed financial choices.
Improving Customer Engagement Through Financial Products
When financial products are integrated directly within a company’s offerings, it naturally increases customer engagement. Instead of having customers seek out external financial solutions, businesses can keep them within their ecosystem, encouraging more frequent use of their services.
- Increased Interactions: Frequent use of financial services means more customer touchpoints.
- Tailored Engagement: Provide customers with the right financial products based on their behaviour.
Encouraging Repeat Purchases with Embedded Payment Options
Embedded finance offers a huge advantage for businesses looking to encourage repeat purchases. Options like Buy Now, Pay Later (BNPL) and auto-payment systems make it easier for customers to complete purchases. The simplicity and transparency of these features increase the likelihood of repeat business.
- Increased Repeat Business: Payment flexibility encourages customers to make more purchases.
- Convenient Payments: Customers are more likely to return to platforms that make payments effortless.
How to Integrate Embedded Finance for Maximum Impact
If you’re looking to use embedded finance to improve customer loyalty and retention, here’s how to make the most out of this growing trend:
- Understand Your Customer Needs: Offer financial solutions that are relevant to your customers’ lifestyles or purchasing habits. The more contextual and personalised, the better.
- Make the Process Simple: The simpler the integration, the more likely customers will engage with financial offerings. Keep the user experience intuitive, with no unnecessary steps.
- Build Strategic Partnerships: Collaborate with financial services providers to expand your service offering. The goal is to create a seamless, one-stop experience for your customers.
- Emphasise Transparency: Ensure your financial services are easy to understand, with no hidden fees or complex terms. Trust is key to long-term customer loyalty.
- Provide Incentives: Reward customers who use your embedded financial services with discounts, loyalty points or exclusive offers to increase engagement.
The Changing Future of Finance
Embedded finance transforms industries by making financial services more accessible and aligned with consumer needs. Non-financial companies are diversifying revenue streams and strengthening customer connections. As APIs grow and regulations tighten, embedded finance will continue to evolve, bringing new opportunities and challenges.
In the coming years, embedded finance will be key to the customer experience across retail, healthcare and transportation industries. Companies that adopt this shift will be well-positioned to lead their markets, driving innovation and growth.
Author Information:
Deepak Shukla, founder and CEO of Pearl Lemon Accountants, is at the forefront of finance and artificial intelligence. With a focus on leveraging AI to tackle complex financial challenges, Deepak develops innovative solutions that streamline accounting and financial services. His forward-thinking approach empowers businesses to navigate the ever-changing digital landscape with confidence.
