Explaining Embedded Finance

Making financial interactions easier by embedding financial products into the websites and apps we use everyday

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Amanda Kilmer
Date Published
january 5, 2022
Read Time

Embedded finance

We use embedded finance more than we realize, likely on a daily basis. We’ve become accustomed to the immediate perks of embedded finance as it’s been woven into our everyday lives. It's usually at our fingertips in the apps on our smartphones that we heavily rely on or when we are huddled over our computers, but we don't consider the technological infrastructure powering them. Once you dive in, you see how important and dynamic embedded finance is to our everyday experiences.

As consumers, we often want to use financial services that just work. We want to be able to trust the apps that companies build to be consistent, user friendly, and protect our personal information. Whether we're paying the driver of a ridesharing company, tipping our server using a QR code, or choosing the “buy now, pay later” option at an e-commerce checkout, we're utilizing embedded finance. Think of embedded finance as the roots of the financial system – they help energize and power the daily use of financial services, but you never have to think twice about how those services work. 

Some companies strive to meet their customers’ desires by implementing embedded finance practices in their business models because they also see how embedded finance can help them operate more efficiently and save money in the long run. By keeping their customers within the company ecosystem, instead of sending them to a third-party website to complete their transactions, it goes one step further to create a seamless customer experience.

Embedded finance defined

So, how does embedded finance work across sectors and what is its promise for the future? What is embedded finance?

Embedded finance is the integration of financial services into a traditionally non-financial service; it allows customers to access financial services within apps or websites without having to redirect them to yet another website to complete their transactions. Companies can integrate payments into their websites so that customers don’t have to enter their credit card information each time for each transaction.

One of the significant benefits of embedded finance is that customers can pay for a purchase online or within an app without re-entering their banking or card details each time they check out and pay for their cart of goods. By remembering the payment details, embedded finance makes the buying experience a cinch, resulting in an easier, more convenient shopping experience for the customer.

Anything bought in an app or online, including transportation services and food delivery, is likely purchased via embedded finance. It’s likely more and more consumers will encounter embedded finance as more and more companies embrace the technology.

Embedded finance creates opportunities for businesses

Brands can actually offer the financial services of select partner banks through their own platform while those same banks are working for you in the background. One of the advantages of having companies and banks work together to offer financial services to customers is increased brand loyalty, which should, in turn, create revenue where purchasing and subscribing for services can be quick and easy with embedded finance solutions. 

Embedded finance also empowers companies to issue their own credit cards right from their app or site. Businesses can create customized credit products for their customers if they want or need to build credit and manage expenses; companies can also scale their business, offer rewards, and tailor repayment schedules to match up with a company’s sales cycles.

Let's say a high-end shoemaker wanted to roll out a credit card with specific perks for loyal customers. That shoemaker knows fashion, but not finance. By embedding finance tools using software APIs (application programming interfaces) and SDKs (software development kits), companies are able to add financial capabilities to their core business. The shoemaker knows their clients; the embedded finance platform knows how to connect their clients to new credit cards or other desired services.  

With Bond, businesses can build a wide range of financial services all on a single, unified platform. Bond’s end-to-end software infrastructure platform can provide brands the ability to better serve their customers, create brand loyalty, and drive revenue. Creating the financial network of the future with clients like Squire where brands offer financial products to their customers, Bond brings embedded finance capabilities to the table — every company can become a fintech.

Embedded finance vs Banking as a Service

Embedded banking; embedded finance; Banking as a Service (BaaS) – all three platform offerings have become extremely popular over the last few years and, currently, there might be some confusion between them. As new technology emerges to take over legacy infrastructure, embedded finance and banking as a service both aim to serve their customers with the most features and offerings.

Banking as a Service is a process where banks directly integrate their digital services into non-banking companies so those services have access to financial capabilities. Banking as a Service companies can offer their customers digital banking services such as mobile bank accounts, debit cards, and loans.

Embedded finance, which encompasses embedded banking, helps non-financial companies add financial services into their products but it can go beyond traditional banking services by offering a multitude of  financial products – even the ones banks can’t or don’t offer like expense tracking and management or underwriting and credit decisioning. Embedded finance doesn’t require directly integrating with a bank; it often means working with another company, such as Bond, that acts as the intermediary between the company and the bank. This has several advantages, the largest of which is that the company doesn’t need to hire a multitude of people to manage the banking relationship. Instead, the embedded finance company does that on their behalf.

Embedded financial services

To enhance customers' purchasing experience of using embedded financial services, companies can create several embedded finance use cases with a platform like Bond — prepaid debit cards, instant access to funds, seamless and integrated payments, and customized rewards programs are just a few. For brands, being able to offer a wide range of financial services for their customers via embedded finance right from their own platforms is crucial. More and more non-financial companies, like Squire barbers and barbershops, are providing their customers with the ability to utilize financial services from within their app or website to complete transactions.

Embedded lending is an example of an embedded financial service. This allows a brand to offer lending products directly through its platform where, ideally, the customers' experience will be seamless and uninterrupted instead of visiting a third-party site or vendor. 

Embedded finance examples

As companies decide to branch out in their financial solution offerings to their customers, credit seems like a natural addition and leads companies to offer embedded credit options. With an all-in-one platform like Bond, you have a suite of credit APIs and services — including KYC (Know Your Customer), KYB (Know Your Business), card issuance, underwriting, risk management, and debt servicing — at your fingertips that removes friction for customers and developers. This allows for greater speed to market, personalization, and oversight. 

Other examples of embedded finance include payments and investments. Embedded payments enable consumers to use an app with an embedded payment program to settle a bill without having to search for cash or a credit card. Embedded investments can help simplify the sometimes confusing investing process by virtually automating the entire action. These examples show how embedded finance can help further customer service and convenience, which can be highly significant to consumers.

Bond helps companies build these and other financial services for a variety of companies through the use of a fully-featured sandbox and modern APIs. Not only can companies build truly embedded financial services with Bond, but they can monitor transactions across payment types as well as use data dashboards to track the health and growth of the business.

Benefits of embedded finance for companies

Embedded finance companies like Bond enable brands to work with partner banks and build financial solutions to offer their end users; embedded finance startups and others can build financial services into their products directly on Bond. Bond Studio was built with developers in mind — a platform that bundles all capabilities companies need for one simple and intuitive experience.

With embedded banking companies like Bond at their disposal, brands can also avoid spending excessive amounts of time evaluating potential sponsor banks, negotiating convoluted contracts, and struggling with incomplete documentation and poorly designed APIs.

Bond provides a clean, isolated sandbox and integration test environment that can allow companies to create their entire product and to simulate transactions for every use case without spending actual company money. Brands can then flip their products into production without changing environments while development can continue to build and test product changes via the sandbox environment.

Bond also offers its users over 65 unique guides that can help explain the basics and building blocks so companies can then create their own product experiences. Bond users can leverage specific API documentation for every resource, including sample requests, responses, and possible errors.

Embedded finance market size

Embedded finance is a growing movement and the embedded finance market size has tremendously grown in recent years while the market continues to expand. An embedded finance market map can show all of the companies that have accepted the trends in embedded finance and which have taken steps to capitalize on them. All of this evidence can support the idea that embedded finance isn’t going away anytime soon.

The task of perfecting any customer experience rests solely on the company since they're responsible for shaping the experiences on which profit margins hinge; they should be able to anticipate and deliver on their customers’ needs before their competitors. When companies team up with Bond, it’s a true partnership that enables the introduction of embedded financial products to satisfy and delight customers. Companies can create personalized financial solutions on Bond that cater to their customers’ preferences, complete with compliance and program management among others.

Embedded finance providers

When embedded financial technologies evolve, more companies might find it easier to build financial services from opening an account to money movement to card issuance. Bond’s embedded finance APIs offer users a clean, streamlined view into the creation process. Brands can quickly introduce their financial products by coding in the languages they prefer and leveraging purpose-built tools, like Bond Studio, where budding embedded finance providers don’t necessarily have to start the creation process on their own from scratch. Bond can help them get to market faster through its universal API platform with pre-integrated technology providers and banking partners.

Bond additionally helps companies build better quality products that impress their customers and grow their top line; companies that enhance their customers’ experience also increase engagement, retention, brand loyalty, and overall customer satisfaction. Embedded finance is a key tool that helps companies expand their core business and drive customer lifetime value with higher revenues attached.

Businesses can customize an assortment of financial services that are true to both their brand and their customers. With Bond, they gain the insights that can improve marketing efficiency and speed up product development. Brands can test new products, like virtual debit or credit cards, in days not months. Bond brings together both banks and brands to build the future of finance.

Contact us to build your own fintech!