What is embedded finance? 


By far the most discussed topic at this year’s Fintech Talents London was embedded finance. From the dedicated talks on the Embedded Finance stage, to discussions on the Main Stage about Super Apps. It’s not surprising; the sector hit $20bn in revenue in the US alone in 2021, according to McKinsey, with the market set to double in size within the next three to five years. Despite the many discussions, one thing stood out to us. There’s no common understanding what embedded finance is and what it can deliver.  

Having the right definition can make all the difference. ‘If a business has the wrong expectations of what embedded finance actually is and can achieve, they set themselves up for disappointment,’ says Charlie Platt, President, EMEA at SAP Fioneer. ‘But with the right ones, they can go out there and meet them.’ 

We sat down with Charlie and Vishal Shah, Head of Embedded Finance at SAP Fioneer, to discuss what embedded finance actually is, the main players involved in the ecosystem, and how to deliver on its promises. 

What is – and isn’t – embedded finance? 

Embedded finance is to integrate financial processes directly into non-financial products or ecosystems to provide the smoothest possible customer journey.  

To do this, a business will partner with a bank or other financial services provider, integrating that provider’s products into their own via APIs. This enables the business to add extra value through providing financial products and services at the point of need, without having to become a regulated financial institution itself. It also allows businesses to keep everything on brand and in their own ecosystem, designing a cohesive, consistent customer experience. 

But it’s not just about integration – it’s not finance for finance’s sake. ‘For embedded finance, the motivation should not be integration,’ says Vishal. ‘It should be how can I make an experience  frictionless for the end user? How can I eliminate the unnecessary?’

And embedded finance is more than digital finance, which simply involves the delivery of traditional financial services over the web through, say, a banking app or mobile payment app. 

Ultimately embedded finance is about creating a smoother customer journey. We do this by eliminating unnecessary steps between the financial and non-financial processes. And we add financial elements where the customer finds them natural – creating a better, more holistic experience. 

The three foundations of embedded finance 

Traditional financial products used to live in silos. Each individual product had its qualification criteria for how customers could access it, and there was limited personalization within the product range. They were also often removed from the actual context that defines why a customer needs a product in the first place. 

Data followed these functional silos. A customer needed to fill in their data for every product, even if this data already lived somewhere in the organization. Processes were lengthy, fragmented and rarely considered the personal circumstances of the customer. 

Digital technologies, and the rise of big tech and challenger banks made vast improvements in customer experience within this field. But, more often than not, customers still ended up being served generic and fragmented experiences. 

Embedded finance aims to revolutionize the experience of financial services. It follows a successful recipe for creating optimized and personalized journeys in financial services. This can be also spotted in behavioral banking

These three elements are: context, elimination, and personalization.

First, context. This is about finding out who the user is, and their primary motivation. If someone is trying to get a loan, they’re main goal is not the loan. It may be to purchase a car, in which case the loan is just a part of that process. But it’s not just about the transaction. It’s about understanding the context from the moment the customer is aware of the problem they want to solve, all the way until actually using the product or service and beyond. This gives you a deeper insight into the whole journey, so you can better tailor their experience throughout. 

With that context in hand, you can identify and eliminate the unnecessary steps. This means taking a service design approach to embedded finance. ‘You start with what the customer is trying to do and build everything around it,’ says Vishal. So before you start thinking about embedding a financial service into a non-financial journey, you should first consider what steps in the journey that the customer doesn’t care about – or doesn’t need to see – and try to eliminate those steps. ‘By eliminating all the unnecessary steps, you can then decide what is the best integration model that supports that customer experience,’ says Vishal. 

Once you’ve eliminated the unnecessary steps, you can build a more personalized experience around the ones that remain. For example, with insights into customer purchasing behavior from open banking, you could inform better credit decisioning and offer hyper-personalized loans. 

The embedded finance ecosystem 

Embedded finance is not a piece of technology, or just about integration, it’s a way of operating. To succeed, it requires collaboration between the key players in the ecosystem: embedders, financial service providers, and orchestrators. 

Embedders are the businesses – retailers, software companies, marketplaces – who integrate the financial services into their products to benefit their customers.  

Financial service providers are the banks, fintechs and other financial institutions that offer access to their services. They allow embedders to integrate them into their own products. Their technology needs to be open to integration, meaning an open core that embedders can connect to via APIs. 

Orchestrators are experts in service design, and well versed in the regulations and intricacies of providing financial services. They help stitch the embedded finance ecosystem together. They look at the customer journey to provide insights into where steps can be eliminated or personalization can be added.

The end-user benefits of embedded finance

As embedded finance further integrates into the financial services ecosystem, it will benefit every player. It will pave the way for a future of finance that is frictionless, hyper-personalized and near real-time. 

End customers get a more seamless experience. They don’t have to shop around for financial services around the thing they’re actually trying to buy. They just get it through one business. It also opens up new opportunities, with the development of new use cases like virtual rent-to-own and lease-to-own models. This enables customers to make payments for items with the goal of eventually owning them. And in the B2B context, fast, hyper-personalized lending products will give micro, small and medium enterprises greater ease of access to capital, enabling them to better manage cash flow and scale. 

The business benefits of embedded finance

Businesses benefit from higher engagement and retention and additional revenue streams. This was also demonstrated by the booming popularity of BNPL solutions, which in a B2C context increased conversion rates by 20-30%. In addition, the ability to add financial services to their product set without building them accelerates time to market and allows businesses to scale at pace. Beyond better customer experiences for the end-consumer, embedded finance can deliver outstanding efficiencies in the B2B world. Buy now pay later (BNPL) and working capital financing products can allow businesses to serve those looking to borrow to cover day-to-day operations rather than purchasing equipment.  

The banks and financial institutions providing the service can serve their existing clients more efficiently. They can reduce costs and increase revenue potential. Moreover, as global trade becomes increasingly digitized, and as companies begin to operate through electronic trade networks, the financial industry will be able to unlock the power of instant payments and just-in-time credit. 

Embedded finance also gives financial institutions the opportunity to serve their products through new distribution channels. They will be able to acquire new clients that they haven’t previously had access to. They will also be able to open up new revenue streams – and reduce risk. The added contextual data provided by the embedded finance model gives them the details they need to provide finance for an otherwise thin-file customer. Rather than the usual days and weeks it might traditionally take to assess a business’s creditworthiness, they can now instantaneously check the context. What’s the volume of orders? How many transactions are they doing per hour? And they can understand the financial health of the business. By leveraging this data, they can create and serve up a personalized financial product for that business consumer, all while reducing the risk. 

Building an embedded finance future 

Looking ahead, an embedded finance future will shift from “Know Your Customer” to “Understand Your Customer”. Finance will become more context-driven, hyper-personalized and fluid – reacting to, and shaping, consumer behavior. It enables a world where you simply complete a train journey and the correct fare is automatically deducted from your digital wallet, or, in the B2B context, where a payment request is automatically triggered when goods are delivered by a lorry and receipt is signed digitally by a warehouse clerk. 

So embedded finance may be enabled by technology, but it’s not defined by it. A strong embedded finance strategy should start with the end customer: what do they want to achieve? And what’s the quickest way to make it happen?  

This means focusing not just on integration, but how to fundamentally design the processes without unnecessary steps. The goal is to make the journey as smooth and useful as possible. Once you understand the context of the entire customer journey end-to-end, you can figure out what financial tools and data are necessary to build out that experience. 

And to deliver on that promise, you need to work with the right partners to orchestrate the whole experience, realizing the vision of embedded finance together. 

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