This blog marks Part 1 of our Embedded Finance Blog Series and will introduce the overarching concept of embedded finance, setting us up to discuss embedded payments, embedded lending, and embedded insurance (all of which fall under the embedded finance umbrella) in future blogs.
Embedded finance is the “embedding” of payment or banking software into non-financial services companies’ operations. It enables payments, transactions, and loan processing to occur directly within a business’s platforms, as opposed to the more traditional “checkout” experience where a customer must enter their card information on a web page or app, swipe or insert a physical payment card into a card reader, or visit an outside party to get the loan or insurance they may want or require for a purchase.
Uber is one of the most prominent examples of a company reaping the benefits of the convenience posed through embedded finance experiences. Uber users input their payment information upon account creation, eliminating the need to dig through a messy purse or fumble through a wallet to find cash or a credit card to pay for a ride. Uber also uses an embedded finance function to pay its drivers – the Uber driver app has a function called Instant Pay that allows drivers to cash out up to five times a day. By “cashing out,” earnings are transferred to drivers’ linked debit cards – all of this occurs without users having to leave the Uber app.
The popularity of embedded finance is not limited to the transportation market. Many retailers, restaurants, real estate companies, and even media platforms are seeing the value of adding embedded finance components to their platforms.
The Technology Behind Embedded Finance
The interconnectedness that enables embedded finance functionality is made possible through application programming interfaces (APIs). APIs allow data among disparate software systems to be transferred back and forth and used across applications.
Financial APIs are particularly complex because of the heightened sensitivity of financial data. Financial institutions have combatted this by building dedicated endpoints for third parties (i.e., data networks and app developers) to access permissioned data. These dedicated endpoints make it so that the access given to the third parties is limited to what the customer consents to share. If a customer agrees to use an embedded finance function, they will usually have to consent for the respective company to access the necessary data to carry out functions, such as transactions and money transfers.
Companies can garner a competitive edge by implementing embedded finance capabilities that elevate customer experiences. Our subject matter experts have the industry and technical know-how required to implement embedded finance strategies and the technologies to support them.
Interested in learning more? Reach out to our financial services team today to hear our point of view on embedded finance.