Examples of embedded finance
Embedded finance brings financial services to the exact moment it's needed, instead of being an entirely separate part of a consumer’s life. As a result, there are many different types of embedded finance products and services. The most common examples of embedded finance include fintech, banking, payments, credit cards, lending, investing, and insurance.
1. Embedded banking
The terms ‘embedded banking’ or ‘banking as a service’ are sometimes used as a synonym for ‘embedded finance’. That’s because most embedded financial solutions, such as lending and payments, are typically offered by banks. In this case, we’ll consider ‘embedded banking’ as only bank accounts and their associated debit cards, and leave other areas like payments and loans as separate types of embedded finance.
With embedded banking, non-financial companies offer their users a branded checking account to hold funds and make payments. Embedded banking typically makes the most sense for sellers or service providers using a company’s platform to conduct business. It likely offers faster access to funds and perks that only platform users can access.
For example, the ride-sharing app Lyft offers a checking account and associated debit card exclusively to its drivers. Using this account, drivers can get paid immediately after every ride rather than have to wait weeks to get a lump sum payment. They can then spend those funds from their Lyft debit card and get cash back and rewards not offered anywhere else.
Another example is Shopify Balance, which allows Shopify store owners to ‘skip the bank’ by getting paid faster and eliminating the need to open a separate business bank account. It also offers a debit card with exclusive rewards for purchases made towards growing a Shopify business.
In both examples, embedded banking is designed to increase platform loyalty through a convenient user experience and special rewards. When a Lyft driver has a Lyft checking account that gets them paid faster, it’s less likely they’ll also drive for Uber.
2. Embedded payments
Taking out a credit card and entering the number is a friction point that can cause consumers to abandon a digital purchase. Embedded payments make this process easier by connecting and saving a payment method for later use at the click of a button. The Starbucks app, for example, saves credit or debit card information for 1-click payments while customers earn points for using the app.
Embedded payments go beyond credit cards. Embedded payments can also give consumers the option to pay directly from their bank accounts while saving merchants on fees.
SmartPay Rewards, a mobile app for gas stations and convenience stores, offers customers discounts and rewards in exchange for using its embedded bank account payments tool. Using ACH for payments saves merchants on fees because ACH fees are usually less than credit cards. Discounts and rewards increase brand loyalty and keep customers coming back.
3. Branded payment cards
Branded credit cards predate fintech, as shoppers have long been able to get branded cards from their favorite department stores. However, fintech has expanded companies' ability to offer branded credit cards and increased the use cases where it makes sense.
One area where branded payment cards are making an impact is in the B2B space. For ages, companies have either had their employees use personal cards for business expenses or provided them with a company credit card from their bank. There are several disadvantages to both options, such as employees fronting business expenses from their personal accounts or being given a corporate card that could easily be used to purchase non-business items.
Now, with fintech platforms such as Ramp and Divvy, businesses can more easily get their own business credit cards and offer them to all employees. These platforms typically make the sign-up process faster and easier, offer greater access to business credit than traditional banks, and allow companies to create as many branded business credit cards as they want, with both virtual and physical cards available.
Any business that offers embedded banking should also be able to offer a branded debit card, whether that be for consumers, employees, or even vendors and contractors. The Lyft debit card (mentioned in section one), is a perfect example as it’s linked to the embedded bank accounts that Lyft exclusively offers to its drivers.
4. Embedded lending
Embedded lending is a type of embedded finance that allows users to access more favorable loan options at the point of sale. Before embedded finance, a consumer had to use their credit card or take out a traditional loan from a financial institution—both of which can carry high interest rates. Embedded lending increases consumer access to lending and helps companies increase sales.
“Buy now, pay later” (BNPL) is one of the most visible forms of embedded lending seen by online shoppers. It appears during the online checkout process, at the moment consumers are contemplating their available funds, and offers to split the payment up over time. These offerings typically provide monthly or weekly payment installments over a predetermined period with no interest. Popular companies offering buy now, pay later solutions include Klarna, Affirm, and Afterpay.
Embedded lending allows companies of any size to easily offer their customers more payment options. This is great for consumers, who often prefer to split payments up over time, and for companies looking to increase sales and customer engagement.
5. Embedded investing
Embedded investing allows non-investment service companies to offer investment options that enhance customer experience and open additional avenues of revenue for companies. Traditionally, investing required consumers to open a new account with a legacy financial institution, like Fidelity or Goldman Sachs.
With the rise of embedded investing, consumers can now buy cryptocurrency from other platforms they already use, including Venmo and Paypal. While this is a newer use case for embedded financial services, it's ripe for growth as consumers come to expect the sites they use to offer additional services. In the future, this might include being able to discuss stocks in a chat room and then easily buy shares or allowing users to buy stocks in their checking account app.
6. Embedded insurance
Embedded insurance at the in-store checkout is nothing new, but fintech has facilitated its spread to digital marketplaces. Embedded insurance allows users to purchase insurance on online purchases at the point of sale. It's offered when and where people need it, with no need for a separate engagement with an insurance company or agent—and sometimes with multiple competitive options.
Companies have various ways to embed digital insurance options, most via partnerships with fintech companies. These fintech companies build insurance options into the checkout flow, enabling consumers to choose insurance as an ‘add-on’ to their purchase.
There are three common types of embedded insurance:
Singular policy: Companies (for example Boost and Bsurance) underwrite the insurance policies themselves and then integrate them into purchase flows.
Multiple policies: An ‘agency’ approach where companies integrate multiple insurance options into the checkout flow. Examples include Matic and Branch.
Extended warranties: Companies like Clyde and Extend offer extended warranties in ecommerce checkout flows, typically under a single policy option.
7. Embedded fintech
While most embedded finance refers to embedding financial services into non-financial business processes, embedded fintech integrates fintech solutions into a financial institution's website, app, or other business processes. For example, a bank might also offer to help consumers get rid of unused subscription services or invest in cryptocurrency right in their banking app—rather than downloading a new app or signing up for a new service.
Embedded fintech provides a way for financial institutions to offer a wider range of services, engage their customers, and deliver more value. Historically, if a bank wanted to offer a new product, say a new type of investment or a different type of loan, they would need to spend months, if not years, developing, building, and launching a new product. With the rise of embedded fintech, they can embed these offerings in their current products. This lowers the economic risks and allows traditionally slow-moving banking companies to become more nimble and adjust to changing customer needs.
