Everything You Need To Know About Embedded Finance

It’s the latest buzzword in fintech but what does embedded finance actually mean?

Embedded finance is the latest trend in the fintech sector and yet you may never have heard of it. Put simply, embedded finance means when a financial service is embedded into a non-financial brand. For example, paying for food delivery in-app without ever leaving that app. The goal is to create a seamless and smooth journey for the customer, keeping them in-app and more likely to make a purchase.

Embedded finance is good for brands and it’s good for consumers but it isn’t great for legacy banks. Banks are already under pressure from disrupters such as Monzo and Revolut who have shown that banking in the 21st century doesn’t have to be complicated. Banks have been slow to catch up with AIB only recently allowing you to freeze your card if lost.

Another issue facing banks is the cost. Revolut prides itself on being cost-effective to its users with few fees, even on a free account. Meanwhile, Bank of Ireland is facing ever growing criticism for its monthly fees. When you put all that together, embedded finance seems like another thing that legacy banks really don’t want to have to compete with. They might not have a choice.

The lure of embedded finance for many brands is the chance to remove friction from their financial processes. They can also offer a personalised, seamless payment service to their customers that reduces costs. What’s not to like?

What does the future for embedded finance look like? Some experts have suggested that the market will be worth $7 trillion by 2030. We could see practices such as embedded lending, embedded investments and embedded insurance becoming more commonplace.

For example, Tesla allows customers to buy insurance almost instantly at the point of purchase which tends to be cheaper than insurance purchased using a broker. Embedded lending is also increasing in popularity with Klarna and Afterpay allowing you to split up big purchases into smaller, more manageable payments.

One thing is for sure, embedded finance isn’t going away. How legacy financial institutions respond could be the making or breaking of them.