Imagine that whether you’re paying for a ride, securing a loan, or purchasing insurance, you’d never have to leave the app. Welcome to the era of embedded finance, where financial services are integrated into everyday digital experiences. This transformation is reshaping industries and changing the way businesses interact with customers.
From tech giants to innovative startups, companies are competing to integrate payments, lending, and banking directly into their platforms. This creates customized and hassle-free financial solutions for users. In this article, we’ll delve into the companies leading this trend and explore how to launch your embedded finance solution.
Embedded finance refers to the integration of financial services such as payments, lending, insurance, and banking into non-financial platforms and applications.
This seamless incorporation allows businesses to offer financial solutions directly within their services, enhancing customer experience and operational efficiency without requiring users to engage with traditional financial institutions.
Shopify Balance is a prime example of embedded finance, where Shopify integrates financial services directly into its e-commerce platform. Through Shopify Balance, the platform offers business banking services to store owners, allowing them to receive payments quickly without needing a traditional bank account.
Watch this video to learn more about embedded finance:
The key difference between embedded financial systems and traditional financial systems lies in the way financial services are delivered to consumers.
In a nutshell, embedded finance integrates financial services into everyday platforms, streamlining access, while traditional finance requires direct engagement with financial institutions.
The market for embedded financial products was estimated at around USD 83.32 billion in 2023 and is expected to grow at an average annual rate of 32.8% from 2024 to 2030. The reason for its popularity is the lower cost of offering financial services.
By integrating financial services directly into existing platforms, companies can offer their customers a more comprehensive solution without them having to switch between multiple applications. In addition, the embedded financial solution can improve customer loyalty by offering personalized financial solutions and streamlining processes.
In addition, embedded financial solutions can create new revenue streams through fees or commissions related to the financial services offered.
While there are various types of embedded finance, the most common include:
Embedded banking is embedded finance that integrates banking services directly into non-financial platforms. This enables businesses to offer banking services without the need to be traditional financial institutions.
This model allows companies to provide account management, payment processing, and card issuing within their digital environments.
For example, Shopify Balance enables store owners to receive payments faster and eliminates the need for a separate bank account. It also provides a debit card with exclusive purchase rewards.
Embedded payments allow users to make payments directly in an app or on a website without having to leave the platform to complete a transaction. This feature is especially valuable in industries such as e-commerce, ride-sharing, and food delivery, where a smooth and fast payment process is key to customer retention.
A good example of embedded payments is the Starbucks app. It securely stores customers’ credit or debit card details so they can make quick payments without having to re-enter their details each time.
Embedded lending allows consumers to access loans directly within an app or website during their purchase process. A popular form of this is Buy Now, Pay Later (BNPL), where customers can split their payments into smaller amounts.
Well-known companies like Klarna, Affirm, and Afterpay offer BNPL solutions, allowing customers to complete their purchase immediately and pay over time, without needing a traditional credit card.
Source: Afterpay
Embedded insurance refers to the integration of insurance products directly into the purchase process of goods or services. Companies can offer insurance products at the point of sale, such as extended warranties during online purchases.
One real-life example of embedded insurance is the partnership between Apple and Asurion. When customers purchase an iPhone, iPad, or Mac from the Apple Store, they are offered AppleCare+, an extended warranty and insurance plan that covers accidental damage and technical support.
In the world of embedded finance, where financial services are seamlessly integrated into non-financial platforms, APIs (Application Programming Interfaces) play a crucial role. Think of APIs as the bridges that connect different software systems, allowing them to communicate and share information.
Here’s how APIs benefit embedded finance startups:
APIs act like plug-and-play components, allowing startups to easily integrate financial services into their platforms without building their own infrastructure from scratch.
APIs offer pre-built functionality, saving startups valuable time and resources, allowing them to focus on their core offerings.
APIs enable startups to easily expand their product offerings and reach new markets by connecting to multiple financial providers.
APIs allow startups to leverage the expertise and resources of their API partners, minimizing the need for in-house financial expertise.
Therefore, APIs empower startups to scale rapidly, provide seamless user experiences, and reduce costs.
Embedded finance has transformed the e-commerce industry by simplifying payments and improving customer retention. Startups such as Affirm offer Buy Now, Pay Later (BNPL) options, which enable customers to split payments into manageable installments.
Embedded finance are making healthcare more accessible by facilitating patient payments and offering healthcare loans. CareCredit provides financing options for medical procedures, allowing patients to spread out the cost over time. This can reduce financial burdens and encourage patients to seek necessary treatments.
Embedded finance is playing a crucial role in streamlining payments for freelance and gig workers. Companies like Payoneer offer global payment solutions, enabling freelancers to receive payments from clients worldwide. This simplifies the cross-border payment process and reduces transaction fees.
Furthermore, Upwork integrates payment options directly into its freelance platform, making it easier for clients and freelancers to manage transactions.
Plaid connects applications with users’ financial accounts, making it easy to integrate banking data into apps. Its success lies in simplifying how fintech companies and developers access users’ financial data securely.
Plaid’s APIs enable seamless integration for personal finance, payments, and lending apps, powering apps like Venmo and Robinhood. Their ability to offer secure connections with a vast number of financial institutions has set the standard for data-driven fintech innovation.
SDK.finance
While Plaid focuses on financial data connectivity, SDK.finance provides the underlying infrastructure needed to build and scale financial products. Whether you’re launching a digital bank, payment processing platform, or e-wallet solution, SDK.finance delivers a pre-built, modular FinTech platform that eliminates the complexities of building from scratch.
SDK.finance is the ideal choice for businesses looking to launch financial products quickly, while maintaining full flexibility and scalability. With a secure, API-first infrastructure, our platform is designed to support banks, fintech startups, and enterprises looking to optimize their digital financial services.
Explore how SDK.finance can power your next FinTech venture.
Marqeta focuses on modern card issuing and payment processing, enabling businesses to create virtual or physical cards. It empowers companies to customize payment experiences and embed card functionalities into their services.
Marqeta’s open API platform allows businesses to build tailored payment solutions for specific use cases, like on-demand delivery services or buy-now-pay-later programs. Their innovative card-issuing technology supports flexible, real-time payments, making them a leader in the embedded payments space.
Stripe has become a dominant player in online payments, offering businesses an easy-to-integrate payment platform. Its user-friendly developer tools and wide-ranging capabilities make it a go-to solution for companies of all sizes.
Stripe’s continuous expansion into areas like Stripe Capital (embedded lending) and Stripe Treasury (banking-as-a-service) demonstrates their commitment to enabling businesses to offer financial services directly within their platforms. This modular approach provides startups and established companies alike with a flexible payment infrastructure.
Railsr offers banking-as-a-service (BaaS) solutions, enabling businesses to integrate banking functions like payments, issuing cards, and managing accounts within their products. They focus on providing an easy-to-use, scalable platform.
Railsr’s BaaS solution is powered by a comprehensive API that allows non-financial businesses to quickly launch banking features. This has enabled them to partner with fintechs and non-traditional financial companies, democratizing access to embedded finance.
Unit’s banking-as-a-service platform allows businesses to embed banking features like account creation, card issuance, and payment services into their apps. Unit simplifies complex banking processes with its powerful API.
Unit’s platform allows non-financial companies to quickly launch fully functional financial products without building from scratch. Their modular design focuses on speed to market, making them popular among startups and small to mid-sized businesses seeking to embed financial services into their offerings.
Affirm is a leader in the “buy now, pay later” (BNPL) space, which is a rapidly growing embedded finance model. It partners with retailers to offer customers flexible payment plans at checkout.
Affirm’s success lies in making financing seamless at the point of sale, offering transparency and no hidden fees. Their technology allows retailers to embed installment payment options directly into the customer journey, which has driven customer loyalty and higher conversion rates.
Explore how our powerful API-driven neobank software can accelerate your launch
More detailsEmbedded finance startups face several challenges as they reshape the financial landscape. Here are some key obstacles and how startups can overcome them:
Challenge: The financial services industry is highly regulated, with varying compliance requirements across different regions.
Solution: Prioritize compliance from the beginning by hiring legal experts and regulatory consultants. Partner with established financial institutions or leverage banking-as-a-service (BaaS) providers to streamline compliance efforts.
Challenge: With financial services comes sensitive user data, making embedded finance platforms prime targets for cyberattacks.
Solution: Invest in robust security infrastructure, including encryption, multi-factor authentication, and real-time monitoring systems. Stay updated with the latest cybersecurity protocols and ensure regular security audits. Comply with standards like PCI DSS to add an extra layer of trust.
Challenge: Handling sensitive customer financial data comes with stringent data privacy concerns.
Solution: Adopt a privacy-first approach by being transparent with users about how their data is collected, used, and stored. Comply with privacy regulations like GDPR and CCPA. Implement advanced data protection mechanisms such as anonymization, encryption, and giving users control over their data. Integrate with secure open banking systems to ensure secure data handling.
By addressing these challenges proactively, embedded finance startups can build trust, mitigate risks, and successfully navigate the complexities of the financial services industry.
Launching an embedded finance company requires a strategic approach, given the complexity of integrating financial services into existing platforms. Whether you’re offering payments, lending, or banking solutions, the journey can be challenging. Below are key steps to consider when starting an embedded finance company:
Conduct thorough market research to understand your target audience’s pain points, the regulations you’ll need to follow, and who your competitors are. Whether you’re aiming to help e-commerce platforms, marketplaces, or businesses (B2B), a clear focus from the start saves time and resources down the line.
Embedded finance companies must comply with a range of regulations depending on the region they operate in and the financial services they provide. This includes know-your-customer (KYC), anti-money laundering (AML), and data privacy laws like GDPR or CCPA.
Payment acceptance software to provide a complete stack of online and offline financial services
Learn moreBuilding an embedded finance solution from scratch is highly complex and resource-intensive. You’ll need to develop robust infrastructure capable of securely handling financial data, complying with regulations, and scaling as your company grows. This requires specialized development teams skilled in fintech, cybersecurity, and compliance, which can be a major challenge for startups with limited resources.
Building everything from scratch isn’t the only option. SDK.finance FinTech Platform offers a comprehensive set of pre-built tools that significantly streamline the creation and deployment of embedded finance services. These ready-made solutions allow you to launch faster while focusing on core business goals rather than technical complexities.
Here are the key product features of SDK.finance:
SDK.finance empowers startups to scale rapidly in the embedded finance space. The platform’s API-first approach allows businesses to quickly adapt to market demands and integrate new financial products as needed. This agility is crucial in a competitive landscape where customer expectations for convenience and efficiency are continually rising.
Beyond infrastructure, partnering with financial institutions, payment processors, or other fintech providers is critical for expanding your service offerings. These partnerships can give you access to banking licenses, broader payment networks, and additional financial products to enhance your embedded finance solution.
Before going live, it’s important to test your solution rigorously. Ensure your platform handles payments securely, complies with legal standards, and offers a smooth user experience. Running beta tests with a limited user base can help identify any issues before a full-scale launch.
Embedded finance is changing how we handle money by seamlessly integrating payments, loans, and insurance into the apps we already use. This is more than just a trend; it’s a revolution that businesses can take advantage of.
Platforms like SDK.finance can streamline the process of adding these features, providing you with the opportunity to concentrate on what’s most important: developing innovative solutions and delivering an outstanding customer experience.
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