Back

Business Funding

6.1.2022

What is Embedded Finance?

Introduction

Embedded finance is a relatively new form of financing that has been gaining in popularity among small business owners in recent years. But what is it, exactly? And how does it work? In this post, we'll take a look at embedded finance and explore how it can help small businesses secure the funding they need to thrive. Embedded finance is a type of financing where the lender becomes part of the company's operations through technology. This can be a great option for small businesses who are looking to drive revenue, but don't want to give up control of their company. Keep reading to learn more about embedded finance and how it can work for your small business.

What is embedded finance?

Embedded finance has been made possible by the rise of digital banking and other fintech innovations that have given rise to new ways of providing financial services. By making financial data and functionality available through APIs, third-party developers are able to build financial features into their own products and services, such as e-commerce platforms, retail apps, and more. This allows businesses to offer their customers a more seamless and integrated experience, as well as access to a wider range of financial services. Examples of embedded financial services include online retail platforms that offer customers the ability to pay for goods and services with their credit or debit card via an API integration,

There are many potential benefits of embedded finance, including:

  • Increased convenience and accessibility for customers. By integrating financial services into other products and services, users can access these services without having to leave the app or website they are using. This can make financial services more convenient and accessible for everyone, particularly those who may be underserved by traditional financial institutions.
  • Improved user experience: Embedded finance services can improve the overall user experience by making it easier and faster to access the features and data that users need.
  • Greater engagement with users: Embedding financial services into other products gives companies a way to engage with their customer base on a more personal level.

Embedded finance also has its challenges:

  • Often times it can require a high degree of integration between different systems. This can be difficult and time-consuming to achieve.
  • Integrations can be complex and expensive to develop and maintain.
  • There is always a risk that customers may not be comfortable trusting a company with their financial data.

Some of the most successful companies rely on embedded finance

Embedded finance has been a game-changer for businesses across industries. From retail to healthcare, companies are using embedded finance to drive growth, create a seamless user experience, and unlock new revenue streams.

These five everyday brands are just a few that are using embedded finance services to drive growth and unlock new opportunities. You may have heard of them:

  • Amazon: Amazon was one of the first major companies to embrace embedded finance, using it to power its Amazon Pay service. Amazon Pay allows customers to pay for goods and services on third-party websites using their Amazon account information. This not only makes checkout faster and easier for customers, but also gives Amazon a valuable data point on what other products and services their customers are interested in.
  • Uber: Uber has used embedded finance to become the dominant player in the ride-sharing market. The company’s use of dynamic pricing, where fares fluctuate based on demand, is powered by embedded finance. This allows Uber to respond quickly to changes in demand, ensuring that drivers are always busy and that customers can always get a ride when they need one.
  • Airbnb: Airbnb has used embedded finance to become the go-to platform for short-term rental accommodations. The company offers a wide range of payment options for its hosts, including the ability to accept payments in multiple currencies. This gives Airbnb a major advantage over traditional hotel chains, which can’t match its flexibility on pricing or payment options.
  • Square: Square is a financial services company that offers a range of products and services for businesses, including point-of-sale systems, payment processing, and lending. The company has used embedded finance to make its products and services more accessible to small businesses. For example, Square’s Cash App allows users to send and receive payments without ever having to input their bank account information.
  • Robinhood: Robinhood is a commission-free stock trading platform that has used embedded finance to attract a younger generation of investors. The company offers instant deposits, which allows users to start trading immediately after making a deposit into their account. This feature is powered by Plaid, an embedded finance company that Robinhood acquired in 2019.

What industries are making use of embedded finance and why?

Embedded finance has a range of potential applications in different industries. In the automotive industry, for example, embedded finance can be used to manage vehicle financing, insurance, and maintenance. In the healthcare industry, it can be used to pay for care and manage health insurance. And in the retail sector, it can be used to provide point-of-sale financing and loyalty programs.

The reason that embedded finance is gaining traction in these industries is because it offers a number of advantages. First, it allows companies to offer financial services directly to their customers, without the need for a third-party provider. This not only saves time and money, but also gives companies more control over the customer experience. Second, embedded finance provides a more convenient and accessible way for customers to access financial services. And third, it gives companies a way to engage with their customers on a more personal level.

How can businesses make use of embedded finance?

There are numerous ways businesses can make use of embedded finance. One way is through the use of loyalty and rewards programs. For example, e-commerce or food service companies can embed loyalty program functionality into their existing apps or create standalone programs that offer rewards for using a particular service or product. This not only helps to drive customer engagement and loyalty, but also can increase revenue and brand awareness for the business.

Another way businesses can make use of embedded finance is through the use of financing options. By offering flexible financing directly to customers, businesses can make it easier for them to purchase products or services. This not only helps to increase sales, but also can help to build customer loyalty.

Finally, businesses can also make use of embedded finance to accept payments. By accepting payments through an embedded finance solution, businesses can streamline their payment processing and make it easier for customers to pay. This can help to reduce costs and increase efficiencies.

What are some of the key players in the embedded finance space?

Some of the key players in the embedded finance space include major financial institutions such as banks and credit card companies, as well as FinTech startups and other technology companies that offer financial services. Banks and credit card companies have been working on integrating their products and services into third-party platforms for years, but the recent rise of FinTech startups has brought new competition to the space. These startups are often able to move faster and be more agile than traditional financial institutions, which gives them an advantage when it comes to innovation. Some of the most well-known startups in the embedded finance space include Plaid, Stripe, and Square. These companies are all leaders in providing APIs and other technology that helps third-party platforms integrate with financial institution products.

The future of embedded finance is also looking very bright. This innovative financing method has already made a huge impact on the financial world and it is only going to get bigger and better. There are many different ways that embedded finance can be used to help businesses and individuals alike and the possibilities are endless. The sky is the limit when it comes to embedded finance and there is no telling where this amazing technology will take us next.

Leverage the power of embedded finance with Fundomate

Unlock the financial potential of your merchants with Fundomate's white label embedded finance solution. Improve your merchant engagement and increase revenues by offering automated financing and real-time banking tools that help them manage, optimize, and grow their business.

Fundomate allows partners to become the Original Equipment Manufacturer (OEM) for our merchant Financial Operational System. By partnering with us, merchant-facing businesses can rapidly launch financing and real-time banking services that boost loyalty and create new revenue streams with minimal investment and effort.

Partner with Fundomate today and expand your product suite, boost loyalty, and reach new customers by offering automated financing and embedded tools under your brand -- with our technology:

  • Get full API support. Seamlessly integrate "Out-of-the-Box" financial tools with our API-driven solution.
  • Get a consolidated dashboard. Get a 360-degree view of your business on one centralized dashboard. View how your merchants interact with different financial tools and track their payments in order optimize your revenues.
  • Experience an easy integration. Get up and running fast, at minimal cost, with Fundomate's no-code approach. No need for custom development or complex integrations.
  • Customize funding offers for your merchants. Get full control over pricing the capital products your merchants are offered.
  • Tap into new revenue streams. Generate commission and fee revenues by offering merchants automated financing and banking tools.

Visit fundomate.com to learn more or click here to start driving new financial growth today.

Fundomate is a leader in embedded finance, automated business funding solutions and real-time banking tools. Since 2016, Fundomate has funded over $250 million to more than 3,000 small businesses in an effort to solve their cash flow needs.

Featured