Embedded banking integrates financial services directly into the platforms of non-financial businesses. This allows them to include banking solutions such as payments, loans, and insurance within their existing interfaces, so that customers can access these services without leaving their website or app. For instance, a customer purchasing a high-ticket item on an e-commerce platform could be offered financing options at the point of sale, processed entirely through the retailer’s portal.

As this type of integration becomes more popular, revenue in the embedded banking market is estimated to rise from $20.3 billion USD in 2024 to $149.4 billion USD by 2034. Below, we’ll talk about what embedded banking is commonly used for, how it works, and the benefits and challenges for the businesses that work with it. If you’re a business considering embedding banking features, here’s what you need to know.

What’s in this article?

• What is embedded banking used for?
  
• Benefits of embedded banking for businesses
  
• Challenges with embedded banking and how to overcome them
  
• How to get started with embedded banking
  

What is embedded banking used for?

Embedded banking refers to any financial services functionality that’s integrated into a non-financial services digital environment. Here are some of the ways businesses can use embedded banking, along with some examples.

Embedded payments

Businesses partner with a payment service provider to integrate a payment gateway directly into their platforms. Customers can input their payment details (e.g. credit card, debit card, digital wallet) within the business’s app or website, and the provider will process the transaction without redirecting them to an external payment page. This creates an easier payment process and can increase conversions.

• Example: An online retailer embeds payments, allowing customers to complete their purchase directly on the website.
  

Embedded lending

Businesses partner with a lending platform or financial institution to offer loan or credit products to their customers. The platform or institution often performs credit assessments using data already available within the business’s platform (e.g. transaction history, customer profile). Approved customers can then access loans or credit lines directly within the business’s app or website. This arrangement provides businesses with an additional revenue stream and gives customers access to additional financing.

• Example: An accounting software platform offers small business loans and online checkouts, including buy now, pay later (BNPL) options.

• Example: A point-of-sale (POS) system allows small businesses to apply for loans to finance inventory purchases. Approvals and disbursements happen directly within the POS software.

Embedded banking accounts

Businesses partner with a banking-as-a-service (BaaS) provider to provide customers with basic banking services such as current and savings accounts. This typically involves opening bank accounts on behalf of customers and enabling features such as direct deposit, card payments, and money transfers within the business’s own platform. Embedded banking accounts offer users a convenient way to manage finances and access their earnings.

• Example: A ride-sharing platform gives drivers the option to open a bank account directly within the driver app. This allows them to quickly receive their earnings and conveniently manage their finances.
  

Embedded insurance

Businesses partner with insurance companies to offer insurance products relevant to their services. This typically involves integrating an insurance quote and purchase process directly into the business’s platform. Embedded insurance simplifies the insurance buying process and makes it more accessible to customers.

• Example: An online travel agency includes travel insurance or rental car insurance as add-ons during the flight or hotel booking process.
  

Embedded investment products

Businesses partner with investment platforms or brokerage firms to offer investment services to their customers. These might include fractional share investing, robo-advisory services, or access to curated investment portfolios. Making all these features accessible within the business’s platform gives customers new investment opportunities and allows businesses to expand their services.

• Example: A personal finance app allows users to invest in fractional shares of stocks or exchange-traded funds (ETFs) directly within the app.
  

Embedded rewards and loyalty schemes

Businesses partner with a banking or loyalty schemes provider to create and manage their own rewards and loyalty schemes. This often involves issuing virtual or physical cards, tracking rewards points, and enabling redemption options. Businesses can customise these schemes to cater to their specific audiences, improving the customer experience.

• Example: A coffee shop chain creates a loyalty scheme within its mobile app, allowing customers to earn rewards points with every purchase and redeem them for free drinks or discounts.
  

Embedded expense management

Businesses integrate expense tracking and management features, often linking them to embedded banking accounts or corporate cards. This allows employees to submit expenses, track spending, and generate reports directly within the business’s app or software. Embedded expense management simplifies expense reporting for employees and provides businesses with more control over their spending.

• Example: A company integrates expense management into its accounting software, so employees can upload receipts, categorise expenses, and submit expense reports for approval within the accounting platform.
  

Benefits of embedded banking for businesses

As embedded banking becomes more available, it can create some of these upsides for businesses:

• Customer retention and loyalty: By integrating financial services that are directly relevant to the customer’s immediate needs (e.g. POS financing, rewards schemes), businesses can improve the customer experience. Customers are more likely to return to a platform that offers additional financial benefits and simplifies their finances.

• Revenue: Businesses can use embedded banking to diversify their revenue streams. For instance, by providing lending, insurance, or investment options, companies can gain income from lucrative financial service fees and commissions.

• Operational efficiency: Embedded banking creates various forms of operational efficiency. Embedded payment systems reduce manual processing, which can mitigate errors and administrative costs, while embedded expense management can reduce the workload of finance teams by automating approvals and reimbursements.

• Customer data: Embedded banking solutions often have analytics tools that provide businesses with valuable insight into customer behavior and preferences. This data can inform business strategies, marketing efforts, and product development.

• Customer experience: Businesses can create a more convenient user experience by eliminating visits to external platforms for financial services. This can be a major differentiator in competitive online markets.

• Regulatory compliance: Partnering with fintech firms or financial institutions can help businesses comply with the complex regulations on financial services. These partners typically have the expertise and infrastructure to ensure compliance and can reduce the regulatory burden on the business itself.

• Customisation and flexibility: Embedded banking platforms are often highly customisable and allow businesses to choose and modify the financial services that best fit their needs and their customers’ needs. This flexibility can help businesses adapt to changes in the market and in customer expectations, in addition to keeping them relevant and competitive.

Challenges with embedded banking and how to overcome them

Payments, banking features, and financial data all come with risks and obstacles. Here are some of the challenges with embedded banking and strategies to mitigate them.

• Security and data privacy: When you handle financial data, data breaches or security lapses can severely damage customer trust and cause substantial financial losses. To overcome this challenge, use state-of-the-art security measures such as encryption, multifactor authentication, and regular security audits. Partnering with fintech services that prioritise security and have a proven track record can also strengthen your defences.

• Integration: Integrating new services with your existing systems might disrupt the user experience or existing functionalities. Address this issue by formulating a comprehensive IT strategy and possibly by hiring skilled developers experienced in both finance and your specific technology stack. Choosing fintech partners with flexible, well-documented application programming interfaces (APIs) can also make integration easier.

• User experience: Adding new services can initially complicate the user interface and detract from the user experience, rather than improve it. To mitigate this issue, focus on design and user testing. Simplify the user experience as much as possible and ensure that new features are intuitive.

• Financial liability and risk: Offering credit, insurance, or investment options exposes your business to financial risks, including defaults, fraud, and market volatility. Manage these risks by developing a comprehensive risk assessment and management strategy. Use advanced analytics to determine customer creditworthiness and implement strict fraud detection mechanisms.

• Service quality at scale: As your user base grows, maintaining the quality and reliability of embedded banking services can become difficult. To effectively handle growth, anticipate and plan for infrastructure investments accordingly. Monitor performance metrics and customer feedback to quickly address any issues that arise.

• Partnership dependencies: Relying on third-party providers for key banking services risks service interruptions, conflicts in business direction, or changes in regulatory status. To overcome these dependencies, carefully select partners with aligned goals and stable operations, and create flexible agreements that safeguard your interests. Further protect your operations by having strong contingency plans in place.

How to get started with embedded banking

Although modern embedded banking solutions are increasingly simple to implement, the process of choosing the right features and preparing for launch can be an involved process. From selection to implementation, here’s a step-by-step guide to getting started.

Identify your needs and goals

• What are your core products and services, target audience, and key challenges? Identify areas where embedded banking features could improve your product or service and create value for your customers.

• What are you trying to achieve with embedded banking? Are you looking to generate new revenue streams, improve customer experience, increase efficiency, or gain data insight? Clearly define your objectives to guide your decision-making process.

• What financial services would be most valuable and relevant to your customers? Conduct market research and gather customer feedback to understand their needs and preferences.

Choose the right embedded banking features

• Consider starting with core features such as embedded payments or banking accounts to address immediate needs, and create a foundation for future expansion.

• Focus on features that align with your business goals and have the potential to generate the biggest impact on your customers and bottom line.

• Consider how your embedded banking strategy can evolve over time. Choose flexible features that can adapt to future needs and market trends.

Select the right technology partner

• Research and compare different embedded banking providers based on their features, pricing, integration options, customer support, and reputation.

• Choose a provider with flexible APIs, integration options that are compatible with your existing technology stack, and a deep understanding of compliance and security requirements.

Develop a comprehensive launch plan

• Clearly define the features you plan to implement, set realistic timelines, and identify key milestones.

• Assign dedicated resources to the project including technical, marketing, and customer support teams.

• Create a plan to communicate the new features to your customers, and educate them about the benefits and security measures.

Launch and promote your new features

• Thoroughly test all features in a sandbox environment before launching them.

• Develop a comprehensive marketing campaign to promote your new embedded banking features and educate your customers about their benefits.

• Consider including incentives such as discounts and rewards to encourage customer adoption.

• Ensure that your customer support team is well-equipped to handle any questions or issues related to the new features.

Monitor, evaluate, and iterate

• Monitor key performance indicators (KPIs) such as customer adoption, usage rates, revenue generation, and customer satisfaction.

• Regularly collect feedback from your customers to understand their experiences with the new features and identify areas for improvement.

• Continually refine your embedded banking strategy based on data insight and customer feedback.