What is Embedded Finance?

A few years ago the term ‘embedded finance’ was often heard but rarely understood; according to a 2021 white paper published by OpenPayd, a staggering 91% of business leaders were unfamiliar with the term.

Today however is a different story. Embedded finance is now recognised as a highly efficient way for any company – not just those in the financial sector – to offer financial services to their customers and increase their additional revenue. It has little or no investment cost and usually comes with built-in regulatory compliance.

What is embedded finance?

Embedded finance is the means by which a business can integrate financial services into its platform. They become a de facto seller and distributor of those services through a seamless digital connection with the primary seller. It enables businesses that do not operate in the financial sector to offer banking, lending, payments, insurance and investment solutions within their existing user interfaces.

How does embedded finance work?

Traditionally, businesses wishing to enter the financial sector were faced with two options; to build or to buy. Although these options make it possible to enter various financial sectors, they are not without their costs as they often put enormous strains on internal resources, are risky and time-consuming and costly. 

Today, advances in digital innovation and technology have made the process of embedding finance into an existing online platform very straightforward.

First the business identifies the financial services it plans to offer and the appropriate provider.

Once the partnership is formed, the service provider manages the integration of its solution into the business’s platform.

While on the business’s purchase journey, the customer is given access to the financial service and is able to sign up or buy without leaving the platform.

Revenue from the purchase of the service is shared between the business and the provider.

Effectively, embedded finance enables any company – whatever their core business – to become a fintech.

Embedded finance examples

1. Embedded insurance – cover for high-ticket goods as well as financial products such as life insurance and income protection insurance
2. Embedded banking – the facility to bank with a business customers already trust
3. Embedded investing – access to traditional stock markets as well as non-traditional investments like cryptocurrency
4. Embedded lending – offering favourable loan terms to valued customers
5. Embedded savings - companies which financial products such as credit cards offering savings accounts within their platforms

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Revenue forecast for embedded finance

Since 2021 the adoption of embedded finance has increased tremendously across e-commerce, financial services and other platforms. The UK embedded finance industry is projected to grow by 27.6% YoY to reach $7.76 billion in 2024 and $18.2 billion by 2029.  

In 2021 in the US, it accounted for $2.6 trillion – or 5% - of US financial transactions and is projected to exceed $7 trillion by 2026.

Unlimited potential

Businesses of all kinds are now able to expand into the financial sector – not just those who already provide related services such as credit-score building and short-term loans, but any business with the vision and ambition to grasp the opportunity. By forging partnerships with financial providers, they are accessing new revenue streams and elevating their brands to a new level. As the UK’s first and only fully digital provider of insurance, Eleos could be your ideal partner.