What Is Embedded Finance?

  • Financial
  • 26.05.2022 02:45 pm

 Embedded finance is the seamless integration of financial services with traditional non-financial services or products. What exactly does this involve? What benefits does it bring? Answers to these and other questions are found in this article.

What is embedded finance? Embedded finance is a new trend that combines banking services and classic services and products that have nothing to do with banking. As a result, companies that previously could not offer banking services or had nothing to do with banking can offer their customers even more capabilities and higher quality. This is possible because APIs allow non-financial organizations to connect with banks and embed their financial products and services into their platforms. It is worth noting that this type of solution benefits both the fintech, which develops a new service and the Bank, which, thanks to embedded finance, gains new customers and a new source of income.

Embedded finance - examples The definition of embedded finance presented in the previous paragraph may not seem very clear. However, it is worth being aware that these solutions are successfully working in reality around us, and with time there will undoubtedly be more and more of them. An example is the Orlen Pay application, which allows you to pay for the fuel at stations without going into a store. Another example is the Uber app, which will enable you to pay for rides without using cash or a debit card. It is not only convenient but also fast.

It is worth being aware that embedded finance is a solution used for payments and loans or insurance. A great example is Allegro Pay, a deferred payment system that customers can use directly on the shopping platform. As a result, they do not have to apply for bank financing, which simplifies the process and speeds it up.

Embedded finance - advantages As mentioned, embedded finance is a trend that benefits both companies that choose to build financial services into their operations and banks or end customers. In the case of the former, we are mainly talking about attracting more customers and offering them an even higher quality of service. This translates into an additional revenue stream and increased control over payment processes or optimization of related costs. The benefits to customers include simplified procedures and the elimination of various intermediaries, which translates into better access to financial services.

How do banks benefit from using embedded finance strategies? In their case, the main point is the possibility of reaching a wide range of new customers, thus gaining additional profits and gaining an advantage over the competition. Diversification of the revenue stream is also essential in this case, as those obtained through collaboration with fintech represent a separate source for revenue from the core business.

Embedded finance vs Bank as a Service In the context of embedded banking, one cannot overlook the Bank as a Service (BaaS) trend, on which cooperation between banks and fintech is based. This is the ability to "rent" a banking product (account, card, payment) so that the fintech can offer banking products as part of the proposed solution. Moreover, in this case, it does not have to work on its development or maintenance on its own, so it can focus on developing the services for which it was established. As a technology provider, it can use API interfaces, to connect with banks' systems and thus offer modern and affordable financial services.

The bottom line is that embedded banking is a trend that is expected to become even more popular soon. This will undoubtedly benefit both the fintech and their customers or the banks they will be working with.

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