Embedded Finance is the use of Banking-as-a-Service and API-driven banking and payments services to integrate financial services within other environments and ecosystems.

Finance is at the beginning of a major revolution. The rise of the challenger banks set the scene for a new paradigm in which the old guard are challenged and a new, more distributed future beckons for business and consumers. But the challengers were just the start. The next phase is Embedded Finance.

Embedded Finance definition

Embedded Finance is the use of Banking-as-a-Service and API-driven banking and payments services to integrate financial services within other environments and ecosystems. Brands ‘lease’ access to tools and services offered by Embedded Finance providers, and use them to build financial products without the associated development and compliance costs. It will allow every brand and every app to offer financial services integrations within their existing products, and to quickly and cost-effectively develop entirely new ones. Embedded Finance looks set to be the defining fintech trend of the coming years. So what is it, and how does it work?

APIs unlock banking

The development of Embedded Finance relies on the use of APIs - a type of code used to simplify interactions between systems and services. The spread of APIs has enabled the growth of Banking-as-a-Service, with which banking services can be built on a ‘modular’ basis. Companies can ‘plug into’ specific banking and payments services and processes, building the solutions that they need without the difficulty of maintaining the technology themselves or applying for a banking licence. Different BaaS providers offer different parts of the complete banking ‘stack’, with brands able to pick and choose the ones they need.

Every company can be a fintech company

Embedded Finance uses APIs and BaaS to enable every brand to launch a financial services product. In a now-famous speech given in 2019, Andreessen Horowitz’s Angela Strange predicted that ‘every company will be a fintech company’. This is what Embedded Finance is all about: allowing businesses in every sector to augment their existing revenue streams through the integration of a finance ‘layer’, or, indeed, to launch entirely new products based entirely within the fintech sphere.

Good for consumers, good for brands

Embedded Finance has the potential to be good for everyone, including both brands and consumers. Consumers can enjoy a streamlined banking and payments experience, for example by using the tools and interfaces they are used to from their favourite existing brands rather than the cumbersome apps and web services currently on offer from legacy banks.  Brands, meanwhile, now have access to an entirely new world: the world of finance. Until very recently, launching a financial product was a development and compliance nightmare. With Embedded Finance, brands simply ‘lease’ access to different parts of the banking stack (including licences), leaving them to do what they’re best at: building great customer experiences.

Embedded Finance is already here

Embedded Finance is the future of fintech - but there are already many exciting products already on the market that are built with Embedded Finance principles. Uber, for example, recently announced the launch of a bank account targeted at their drivers. In Singapore, the Grab delivery service now also offers merchant POS, insurance, and other financial products. At the more ambitious end of the spectrum, Ant Financial (the most valuable fintech company in the world) is expanding its financial operations with the launch of a complete core banking product.

The future is Embedded Finance

The world of fintech is set to be transformed by Embedded Finance. Want to talk in more detail? Get in touch with OpenPayd today.

To learn more, check out Sophie's article written for AltFi here.