Carta Worldwide Team

What is Embedded Finance?

Embedded finance refers to the integration of financial services or tools into products and services provided by non-financial companies. Common examples include digital wallets that allow for contactless payments, short-term loans offered through a bank’s subsidiary (BNPL), and even traditional banks’ offerings integrated within other businesses or platforms.

The embedded finance market has already started to streamline financial processes and make it easier for consumers and businesses to get loans and credit products without having to visit a physical bank or spend hours filling out paperwork.

Previously, these services were only available through traditional channels, such as banks or business buyers spending time on cumbersome paperwork. Now, these processes are being streamlined into the purchase experience so that they are easily accessible for both consumers and businesses.

What is the difference between banking as a service and embedded finance?

Banking as a service (BaaS) and embedded finance are similar in that they allow providers other than traditional financial institutions to provide banking services. However, some key distinctions are worth noting when understanding their respective roles in the Fintech industry.

Embedded finance emphasises the integration of financial solutions into product purchases or service contracts. BaaS, on the other hand, provides services that allow digital banks and non-banks to offer their own solutions without relying on external providers.

Another key difference between the two is how they are branded. With embedded finance, the solutions are provided as individualised options for consumers to understand where their money is coming from. In contrast, with BaaS providers typically white-labelling their services; this front-end is therefore hidden from the consumer.

Embedded finance focuses on front-end access, while BaaS provides enhanced back-end functionality. Moreover, embedded finance is often used to streamline purchasing processes, whereas BaaS encourages businesses to use additional financial products.

Embedded finance examples

Even in the short time that embedded finance has revolutionised the financial industry, it has created many different embedded finance products that form part of every day – with benefits for both customers and financial institutions. Here are just a few of the most popular ways that embedded finance has helped to shape the industry.

Embedded payments

Embedded payments make life easier for consumers and business buyers by providing instant payment options through the click of a button. This makes transactions faster, more convenient, and less likely to result in problems or delays.

An example of a way in which technology can be integrated into an app, digital platform or e-commerce site to make transactions easier is by using payment options that are embedded within the financial infrastructure. This means that customers no longer need to enter their credit card details for every transaction, as this information is automatically stored, pulled out and processed through the app.

Digital wallets that allow for contactless mobile transactions and instant online purchases are a growing trend, with Apple Pay being the most well-known example. These systems have become wildly popular in recent years due to their convenience and ease of use.

Embedded lending

With embedded lending, customers can apply for a loan and have it approved during the purchase process. This allows them to choose their terms of repayment, rather than having to go through traditional channels like applying for a loan or credit card.

Some successful companies that successfully utilise embedded lending methods include Klarna and AfterPay – two of the biggest buy now pay later services on the market. These platforms allow customers to make smaller monthly payments for products or services purchased online, helping them avoid high-interest debt traps and consolidate their expenses over time.

Embedded insurance

Historically, buying insurance required consumers to search for the best possible product on the market – a time-consuming process that often involved lots of research.

One way that insurance products can be added to a purchase without having to contact an agent is by using embedded insurance. An example of this is when customers make a purchase related to travelling, like buying a flight or train ticket, they are offered travel insurance at the same time.

Embedded cards

Merchants and service providers benefit from embedded cards by building a seamless buying experience with few clicks. This allows for reduced transaction costs, loyalty programs, and customer insights such as transaction data.

In order to create a valuable payment card, embedded finance providers need to understand what makes their customers happy. What things do they value most? What makes them come back for more? Once that existing value has been identified, it’s important to work on enhancing it with loyalty programs and payment cards.

Payment card products can help customers manage their finances by controlling the cards through an app. This allows users to feel safe using the cards while also offering choices for payment methods, such as digital wallets.

Embedded cards will help financial service providers to understand their customers better. By having a larger share of the customer journey, it makes it easier to collect more data that can provide insights into overall consumer behaviour. This information can then be used to enhance and improve services in the future.

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Carta Worldwide

The Carta Worldwide team has over 100 years of payment experience advising both established businesses and disruptors. Going beyond bits and bytes, Carta Worldwide’s team supports everything from accelerating time to market to working towards sustainable disruption strategies, ensuring its clients are set for success.