They say variety is the spice of life. Except when it comes to having hundreds of different apps, websites, and platforms — you can keep ’em.
Luckily, gone are the days of switching between apps to make a payment, buy some insurance, or take out a loan.
You may not have even noticed it, but there’s a reason you’re able to choose from so many different payment options at the online checkout.
That reason is: embedded finance.
What is embedded finance?
Embedded finance is all about the integration of financial services or products into non-financial platforms.
It’s the practice of a non-financial company offering financial services as part of their offering — think e-commerce websites, social media apps, or ride-sharing apps that provide lending, insurance, and payment processing.
There are real-world examples of embedded finance everywhere: “Buy now, pay later” at checkout, instant access to your balance on an e-commerce website, or bill-splitting services on a food delivery service app.
These are all services that are actually facilitated by third-party providers, with the overall goal of offering a more convenient user experience. And it works, so it’s no surprise that it’s becoming an increasingly popular practice.
Embedded banking
Embedded banking is a subset of embedded finance that specifically refers to the integration of banking services into non-banking platforms.
So you get all the good banking stuff like loans, payments, and investment services offered through third-party applications without having to leave the platform you’re on.
This might look like a bank offering a loan product to small businesses through a business management platform, or a neobank partnering with a company to provide its services to the company’s customers.
The goal is to allow users to access banking resources and services without having to sign up for a separate banking service.
The impact of embedded finance on financial services
There are so many possibilities with embedded finance, and its growing popularity has sparked a new wave of development from a lot of financial service providers.
Companies are now asking themselves, “How can we make the most of this opportunity to sharpen our competitive edge?” And this is causing some providers to shift to a more platform-based model. Think SaaS but instead of software it’s banking-as-a-service that’s up for grabs.
Speaking of SaaS, one of the biggest impacts of embedded finance is the continued growth of vertical SaaS, which allows providers, services, and platforms to simply integrate financial services.
What was once considered a dev nightmare is now quickly becoming the standard, with banking now no longer existing only as an external service.
It’s also piquing interest among the fintech companies that can offer banks and traditional financial institutions a wealth (pun intended) of benefits. Fintechs can give banks more flexibility in how they interact with customers and in the services they can offer.
All of this means that banks and financial services companies are thinking about partnering with more tech companies, if they’re not already expanding their software dev teams to make this all possible.
Who is using embedded banking?
The easy answer is everyone.
That’s a slight exaggeration. But it’s probably more companies than you would imagine. Even Google Maps is using it, allowing users to directly purchase parking passes.
Some other industries that use embedded banking include:
Retail
As we already know, online retailers may partner with banks to offer financing options like buy now, pay later to their customers at the point of sale. They may also allow customers to buy insurance on their purchases via the retailer’s website.
Real estate and automotive
The real estate and automotive sectors offer embedded banking services like microfinancing, insurance, and access to lending or credit for the purchase of property and vehicles.
Gig economy
Freelance or gig-work platforms may partner with banks to provide financial services like loans or instant payments to their workers.
Software providers
For example, companies that provide accounting software to businesses may embed banking services and transfers into their software, making it easier for businesses to manage their finances.
Non-bank financial institutions
Companies like investment platforms or insurance providers may offer banking services in addition to their core products.
High-frequency trading software and embedded banking
High-frequency trading (HFT) is another industry in which embedded banking has become pretty important.
While HFT and embedded banking are two separate areas of finance, they are related in a few ways. So, if you’re looking into how to make trading software, it can be helpful to explore the role embedded banking plays in HFT.
Embedded banking enables HFT firms to access the banking services they need to operate efficiently. For example, high-frequency traders need super-fast access to real-time data to make split-second trading decisions — embedded banking arms them with the infrastructure needed to do so.
If they were to use traditional banking methods, the speed at which these trading firms could operate would slow way down. Integrating banking services into their systems means they can keep the money moving.
For firms like HFTs that handle large volumes of trades and need to manage fast-moving cash flows effectively, embedded banking can streamline their cash management processes, reducing the risk of delays.
The security and transparency provided by embedded banking is not lost on HFTs either. By reducing the number of intermediaries involved in transactions, HFTs can significantly reduce the risk of malicious (or careless) activity.
Benefits of embedded banking
Speaking of security and transparency, these aren’t the only benefits that embedded banking brings to its industries.
This (not entirely) new model has made it easier for banks and other financial providers to expand their service offerings, reach customers with fewer steps, and add new revenue streams with lower upkeep costs.
It’s transformed the customer journey by making it incredibly easy for customers to access credit for a purchase as and when they’re buying an item, in exactly the place they’re buying it. In the past, they would have needed to secure the capital first, and then make the purchase. Which is far too many steps for lots of customers.
Because it’s made buying things so easy, companies that have integrated embedded banking into their platforms can really make the most of their customer base, enjoying repeat purchases and increased loyalty.
As well as this, companies that build a trading platform gain access to a wealth of customer data that can be used to gain an understanding of the behaviors and needs of their customers. In turn, this allows them to reap the benefits of personalization, run retargeted marketing campaigns, and add value to their services.
What does embedded banking and finance mean for devs?
For starters, embedded banking isn’t just for big corporations looking to squeeze an extra dollar out of the little man. It’s for everyone. Including you.
You can begin by leveraging APIs to incorporate financial services into your software, enabling seamless integration between two platforms.
So let’s say you’re building a budgeting app, embedded finance will allow your users to access their information easily from the same place, rather than leaving to go to their personal banking app.
Or maybe you’re creating a zombie apocalypse game and you want players to be able to buy add-ons and mods without leaving the app.
Whatever you’re devving, with embedded banking you’re effortlessly improving the user experience of your builds.
The bottom line for devs is that it creates countless opportunities for software development and service integration. Which basically means more dev work, and that’s never a bad thing. Especially in this economy.
