Confused about what embedded finance actually is? Read on for clear definitions and examples.
Embedded finance is one of the hottest topics in financial services and will reportedly grow into a $140billion industry by 2025. While as a concept embedded finance has existed for some time through the proliferation of BaaS products, the opportunities are so much bigger and it is a sector showing real innovation and promise within financial services.
What is embedded finance?
Simply put, embedded finance refers to the integration of financial services within other environments. The user does not have to transfer out of the purchase or onboarding journey to take advantage of an ancillary service, whereby the embedding of financial services seamlessly adds value to the core product offering. This is the umbrella of embedded finance, and there are several types:
Consumers are most familiar with embedded payments and use these services so often they have become part of everyday life. Within most shopping apps the user reaches the checkout and uses the services of a payment provider such as Shopify or Square. These integrated services have proven popular against former payment giants such as PayPal, as the user is not redirected to a separate payment screen. Embedded payments have enabled many services to operate digitally, with growing demand during the pandemic.
Following on from embedded payments, the success of Buy Now Pay Later (BNPL) services such as Klarna and AfterPay demonstrate the opportunities for embedded lending. With BNPL services, users have the option at checkout to pay in instalments, effectively taking out a short-term loan at the point of purchase only with no additional fees or interest rates. The embedded products are placed strategically during the user journey to ensure optimal performance and ease for the user; credit options appear when the user reaches the checkout so the full amount does not need to be paid immediately. These services have tapped into modern consumer culture and created a service that meets users’ needs and have found huge popularity among consumers, especially as a significantly greater proportion of purchase activity is happening online.
These services have simplified investments for the masses by utilising trends elsewhere in financial services. While some providers round up purchases to put into savings, apps such as Moneybox and Acorns add your spare change directly from your bank account to prepared investment accounts and take care of the investing legwork for you.
What else could embedded finance lead to?
Current uses of embedded finance improve the user experience by integrating financial services into the journey and utilising insights to seamlessly improve financial wellbeing. There are lots of other emerging use cases that demonstrate wider possibilities of this sector.
Financial services are largely looking to combine aspects of users’ financial and everyday lives that have previously been separate, including insurance. For example, when consumers buy a new Tesla, they can add insurance to cover their new car almost immediately. In theory, the increase of new online mortgage brokers such as Habito may soon see mortgage providers offer home insurance integrated in their system. While insurance has previously been separate from commercial purchases, new tech possibilities allow it to become part of users’ purchasing journeys for a variety of sectors. At mmob we are thrilled to be partnered with leading insurance providers such as Anorak, SO-SURE and Uinsure to deploy their services through our embedded ecosystem.
There is increasing demand for embedded utilities, as this industry can use the success of other embedded products. Some providers have been bundling home utilities such as energy and broadband together for a while but integrating these with other home services and adding them to a user’s financial hub is the next step. mmob built the UK’s first end-to-end broadband switching journey with Cuckoo, enriching the user experience and demonstrating the demand for convenient, rapid services.
Bundling embedded services
As discussed in our super app blog, any services can be combined within one platform – from payments to transport, messaging to health advice. Industry trends highlight that users and companies are benefitting from the ‘bundling’ of services which is facilitated by embedded finance. By utilising the expertise of other providers, companies improve their user retention, open new revenue streams, and promote further innovation.
Embedded finance and mmob
Many companies explore the embedded finance space through one of the use cases above. These could be argued to be the open banking to open finance – embedded payments or BNPL services are one opportunity while embedded finance incorporates all of these use cases. In theory, any financial service which utilises APIs or webhooks can be embedded. The possibilities are near-endless, as we at mmob know well.
mmob provides embedded finance through a no-code ecosystem that connects financial service providers with digital brands across a range of verticals. Financial service providers choose any combination of modules to deploy, increasing their offering to embedded payments, embedded wealth, embedded credit, embedded insurance, embedded utilities or the bundling of embedded services.
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