No matter what type of product or service you offer, seamless customer experience remains a critical aspect. This is the customer who decides whether to continue using your app or switch to your competitor, driving businesses to invent new ways of pleasing their target audience.
One of the proven ways to create a seamless experience is by making your app or service more convenient to use compared to other similar products. Besides a flawless UI/UX design, there’s one more thing to consider – embedded finance.
Embedded finance allows non-financial companies to integrate finance products into their applications, for example, to enable users to pay a subscription fee directly in a fitness app, among other multiple use cases. And there’s more to embedded finance than just that – besides securing a top-notch customer experience, embedded finance provides non-financial companies with new revenue streams and gives access to valuable insights into customer behaviour.
If you consider leveraging embedded finance, stay on this page. In this article, we’re taking a closer look at the concept of embedded finance, its types, benefits, major use cases, and challenges, as well as providing the key implementation steps.
What is embedded finance?
Embedded finance refers to the integration of financial services, such as payments, lending, or insurance, into non-financial products. In fact, embedded finance has already become a common part of our everyday lives. For example, Shopify merchants can accept payments directly through Shopify Payments, ride-sharing apps such as Uber and Lyft allow users to pay for rides without switching apps, and Fortnite maintains digital wallets for in-game purchases.
Embedded finance enables businesses to offer convenient financial solutions at the relevant point of a customer’s journey. This undoubtedly improves customer experience and builds loyalty.
Types of embedded finance offerings
Embedded solutions come in various types. You can choose one or combine several of them, depending on your business goals. Let’s explore the most widely used solutions in today’s embedded finance market.
Embedded payments
Embedded payments are the most common type of embedded finance. They allow users to complete transactions directly within an app without switching to a third-party platform.
Embedded banking
Embedded banking refers to offering core banking services, such as savings accounts, debit cards, or expense tracking, within non-financial platforms.
Embedded lending
Embedded lending integrates loan services into non-financial platforms, allowing users to access credit as they need it. The process is typically fast due to instant credit decisions based on integrated data analytics.
Embedded insurance
Embedded insurance involves integrating insurance products into the purchase journey, enabling users to secure coverage without the need to turn to an insurance company. The process usually involves minimal steps – in most cases, users just need to select coverage during checkout.
Key benefits of embedded finance for businesses
Integrating financial products provides numerous benefits to businesses. Here are the major ones that drive companies to consider leveraging embedded finance.
Increased customer engagement and retention
When using products or services without embedded finance, users have to switch between apps to complete transactions, which is quite inconvenient and time-consuming. On the contrary, embedded payment solutions are about fast and frictionless transactions, which greatly feed into customer engagement and retention.
New revenue streams
Embedded finance provides businesses with an unprecedented opportunity to diversify their revenue streams. In-app financial transactions allow for generating additional revenue through transaction fees, loan interest, or insurance commissions, to name just a few.
Cost efficiency
Developing and managing financial services requires heavy infrastructure investments and additional operational costs. On the other hand, embedded finance suggests using third-party technology to provide financial services, which comes at a significantly lower cost.
Enhanced customer data insights
Embedded financial services generate additional customer data businesses can use to refine their offerings. Real-time financial insights can inform personalised offers and loyalty programs, ultimately increasing customer satisfaction and growing sales.
Major use cases of embedded finance
Retail and e-commerce
It’s safe to say that retailers and online marketplaces are the most common adopters of embedded finance. Retail and e-commerce businesses leverage embedded finance to streamline and enhance the shopping experience.
For example, Klarna and Afterpay offer their customers Buy Now, Pay Later (BNPL) solutions so that they can purchase items and pay in instalments. Another example is digital wallets, such as those you can use on Amazon or Walmart. They let customers store funds for fast and secure financial transactions without the need for third-party payment processors.
Software as a Service (SaaS)
SaaS platforms embed financial services to support their clients’ operational needs. For instance, QuickBooks integrates invoicing and small business lending solutions, enabling users to manage cash flow without leaving the software. Shopify incorporates payment solutions and financial tools for merchants, helping them streamline operations and maintain control over their finances.
Transportation and logistics
The transportation and logistics sector is also increasingly switching to the embedded finance model. For example, FedEx, an American company specialising in transportation, e-commerce, and business services, integrates dynamic insurance options for shipments, allowing customers to add coverage directly at checkout based on the package value.
In the public transportation space, journey planner apps like Moovit incorporate embedded payments to enable users to buy tickets directly within the app. This removes the need for physical tickets or using a payment app, resulting in a streamlined customer experience.
Healthcare
Healthcare providers are adopting embedded finance to make medical services more accessible. For example, apps like PayZen use artificial intelligence to offer patients flexible payment options that effectively address their affordability needs.
Fintech
While in most cases, embedded finance is about non-financial companies integrating financial services into their applications, embedded fintech refers to financial institutions incorporating financial solutions into their websites, apps, or other business processes.
One notable case is Revolut, a global neobank and fintech company that allows its customers to manage everything from everyday payments to investments within a single app.
How to implement embedded finance in your business
1. Identify business needs and customer preferences
There’s a variety of embedded finance options, and not all of them are relevant to your business. Therefore, before integrating embedded finance solutions into your product or service, make sure you understand your business needs and consumer demand.
If you’re considering adding embedded finance to your existing product or service, you likely have an established customer base and understand their needs. On the other hand, if you’re looking to build a new app with embedded financial services, it’s wise to start by analysing your target audience and their pain points.
Now, figure out at which specific point of the customer journey users might leverage embedded finance services and which specific services to integrate. For this, prioritise financial services based on their impact on your business and customers, taking into account their feasibility and potential ROI.
2. Choose the right embedded finance partner
Selecting the right embedded finance provider directly affects the success of your product or service. You can choose from various types of financial institutions, including banks, fintech companies, and other financial service providers, each offering its unique strengths.
For instance, while banks may provide a more comprehensive range of financial products and services, fintechs are more innovation-focused and agile, and usually offer a greater level of technical support.
3. Integrate embedded finance seamlessly
At this stage, work closely with your technology team to embed financial services in your product or service through APIs. Remember the importance of a smooth user experience — go for simplicity, designing intuitive interfaces that guide users through financial transactions without confusion.
Whether it’s making a payment, applying for credit, or opting for insurance, the process should feel natural and require minimal effort. Finally, thoroughly test the functionality to spot and resolve any issues before your solution goes live.
Last but not least, make sure that your customer service team is prepared to assist users with any questions or issues they might experience when using the embedded finance features.
4. Regulatory considerations
Embedded finance entails providing financial services, meaning you need to comply with relevant regulations, such as consumer protection, anti-money laundering (AML), know-your-customer (KYC), data security, and regional financial regulations.
Non-compliance can lead to legal penalties and reputational damage, so make sure you stay up to date with regulatory changes. The good news is that embedded finance providers usually help businesses with navigating compliance requirements, offering built-in solutions for KYC, AML, and other regulatory frameworks.
Embedded finance challenges and considerations
Improved customer experience, new revenue streams, substantial cost savings, and other advantages of integrating embedded finance also come with a few challenges.
API integration complexities
One of the major challenges businesses face when adopting embedded finance is the complexity of integration. This is especially the case when you’re integrating financial services into an existing platform. Seamless integration calls for substantial technical effort. Moreover, it’s critical to ensure that the embedded financial products don’t interfere with existing functionalities or degrade user experience.
However, this challenge becomes not so serious when you choose to work with an experienced fintech company. A reliable fintech partner can simplify the process and ensure a smooth implementation.
Regulatory compliance
As we have already mentioned, embedded finance is subject to numerous regulatory requirements. Compliance can require significant investment, especially when dealing with multiple jurisdictions. For example, businesses offering embedded lending solutions must adhere to credit reporting regulations, while integrated payment solutions must meet the regulatory standards for secure data handling, transaction security, and anti-fraud measures.
To effectively address this challenge, consider partnering with providers that offer built-in compliance features.
Consumer trust and adoption
While embedded finance offers a more seamless user experience, many users may still be wary of sharing their financial data with non-financial companies. A lack of knowledge about embedded financial products can discourage potential customers from using embedded financial services.
That is why businesses should clearly communicate how financial services are integrated, the security measures they implement, and the benefits of embedded finance solutions.
Managing customer expectations
By embracing embedded finance, businesses can significantly enhance the customer experience. Still, embedded finance can also bring the challenge of managing customer expectations.
Customers expect convenience and speed, meaning that any delays or disruptions can result in frustration and, ultimately, loss of customer loyalty. To meet high customer expectations, businesses should work with partners that offer robust, scalable financial solutions and provide prompt customer support to maintain customer engagement.
Data privacy and security
When integrating financial services into non-financial platforms, businesses collect a large amount of sensitive customer data. It’s critical to protect this data from breaches, so implement end-to-end encryption and multi-factor authentication and use secure storage systems.
Moreover, as your business expands internationally, you must follow regional data privacy regulations such as the CCPA in the US and the GDPR in Europe. Working with established fintech providers that follow industry-standard security protocols is crucial to effectively mitigate this challenge.
Managing risks
Lending, payments, and insurance solutions introduce additional financial risks. Businesses should carefully consider whether they will be able to manage risks created by their embedded finance offerings. It’s also important to keep in mind that embedded finance can expose you to fraud or default risks, making it essential to integrate strong risk management frameworks into your product or service.
Ready to join the embedded finance revolution?
Although the implementation of embedded finance is associated with several challenges, its business benefits considerably outweigh them. Moreover, you can easily overcome these challenges when partnering with an experienced and reliable team.
If you’re looking to leverage embedded finance, DeepInspire has you covered. We have extensive experience in fintech software development and provide professional assistance with building and integrating embedded finance solutions. Feel free to book a call with us, where we’ll discuss your needs and figure out how we can help.
