Embedded Finance is a financial service that allows non-financial companies to provide lending or payment processing to their customers. Instead of going to a bank to borrow money to purchase a new TV, customers can access short-term financing at the point of sale via apps such as: Afterpay, Klarna, PayPal or Splitit.

The majority of Embedded Finance services rely on APIs, enabling companies to seamlessly integrate them into existing systems. During the fintech boom in the mid-2010s, developers took pains to standardize APIs across financial services. This now makes it much easier for non-financial companies to provide payments, credit, reconciliation, and insurance for their clients.

Advantages of Embedded Finance:
🙋‍♂️ With Embedded Finance, consumers can access essential financial services without turning to a bank.
👨‍💻 Embedded Finance significantly improves customer experience for merchants, drives conversions, and increases customer lifetime value.
🏦 For banks and financial institutions, Embedded Finance extends the service range and expands the digital footprint.

☁️ Technological advancements in fintech
One of the most apparent catalysts for Embedded Finance proliferation is the advancements in technologies like cloud computing and APIs. Initially, these technologies facilitated the growth of Software as a Service (SaaS), enabling many organizations to reimagine how they use and pay for their IT infrastructure.

💰 Lower costs
Before BaaS providers, if merchants wanted to offer their customers financial services, they had to spend considerable resources on custom development. Embedded Finance solves this challenge as the costs of partnering with third-party providers for API integrations are significantly lower.

🌎 Relaxed regulations
Due to fintech disruption, the financial regulatory environment has changed significantly in the past five years. Forward-looking governments all over the world have made considerable efforts to democratize financial services.

🔥 Growing customer needs
Despite the apparent influence of the aforementioned factors, the most important driver of Embedded Finance proliferation is the ever-growing customer demands. Given that the absolute majority of client relationships involve financial transactions, Embedded Finance is a natural evolution towards more streamlined customer experiences.

Financial interactions are a crucial part of the majority of customer journeys. Enhancing this important aspect of consumer experiences is a great way to stand out from competitors and foster customer loyalty. This is why leaders in various industries have already made Embedded Finance an integral part of their business model.