What Is Embedded Finance and How It Is Changing FinTech?

UTC by Tokoni Uti · 7 min read
What Is Embedded Finance and How It Is Changing FinTech?
Photo: Freepik

In this guide, we’ll break down what embedded finance is, how it shows up in our day-to-day activities, and discuss its benefits and possible downsides.

In the world of money, embedded finance is one of those terms that you might have heard of but don’t completely understand. Its constant use would imply that it is something that we interact with regularly but many might struggle to define it.

The truth is that embedded finance is one of the most groundbreaking applications of technology in the finance world today. You might not know yet but we make use of embedded finance every day and our lives would be much less convenient without it. In this guide, we’ll break down what it is, how it shows up in our day-to-day activities, and discuss the possible downsides.

Embedded Finance Defined

The entire concept of embedded finance can be boiled down to financial technologies being used in non-financial applications. Your typical financial applications would include banking apps and payment processors like the one provided by PayPal Holdings Inc (NYSE: PYPL). These applications are designed primarily for financial transactions like making and receiving payments.

Non-financial applications include food delivery apps, ridesharing apps, clothes shopping apps, and so on. These applications were created for primarily non-financial purposes. However, you can complete financial transactions within them. These include making payments, buying things on credit, and so on. Being able to do this does not change the nature of these applications but does mean that customers can complete transactions on them. For example, you pay for a meal delivery via an app using PayPal. It doesn’t automatically mean that the app has become a financial app but it does mean that there was been some interaction between it and various financial institutions.

Embedded finance has been a game changer in the consumer market because it has connected financial and non-financial apps in ways we could never have imagined. Through it, billions of dollars in transactions are completed every day and consumers enjoy a virtually unprecedented convenience.

How It Works

Now that we know what embedded finance is, it is worth exploring how it works in the first place. At its core, the system behind embedded finance is application programming interfaces (APIs). APIs are essentially the backend of various software and applications that are used to deliver services to customers. When you log into a shopping app and scroll through different options, you are interacting with its API. When you decide to make a purchase with PayPal, for example, the app’s API is linked to PayPal which facilitates payment through it.

If you make a purchase through a non-financial app, you are usually told to input or save your card details, log into your PayPal account to authorize the transactions or connect to some other financial institution. This process is essentially the APIs of your payment provider and the non-financial app you are using interacting with each other. And the integration of this financial service that enables you to do this is embedded finance in a nutshell.

To give an idea of the sheer scale of embedded finance, think of all of the applications you use that you can make purchases with, buy things on credit, and so on.

Embedded Finance: Examples

Embedded finance is all around us and we interact with it on a daily basis. Here are some examples of embedded finance:

  • Embedded lending. When we think of lending, we tend to imagine going to a bank to ask for a loan. But with embedded finance, we can open lines of credit even in non-financial institutions. Think of the e-commerce brands that allow you to pay for things in installments using financial services like Klarna in-app.
  • Embedded payments. Think of all the applications, from games to clothing, that allow you to pay for goods and services in-app using your existing payment providers. This is one of the most widespread uses of embedded finance.
  • Investments. Besides making payments, platforms like Robinhood also integrate investment software into their APIs. With these, customers can invest in stock and other assets from a single app.
  • Insurance. When purchasing consumer goods like phones and computers or things like airline and train tickets, consumers these days can purchase insurance policies. Thanks to embedded finance, these policies can be bought on the websites or apps of these non-financial institutions, making the process simpler for consumers.
  • Banking. These days, it is not unheard of for non-financial institutions like Uber to offer bank-adjacent services to customers that let them send and receive funds, check their balances, and make payments through dedicated cards. These services are essentially banking services embedded into these non-financial platforms and are a classic example of embedded finance.

Benefits & Challenges

Embedded finance has been widely used because it offers the following benefits to users:

  • Simplicity. In a world without embedded finance, you wouldn’t be able to make purchases on a non-financial platform in one go. Because of this technology, the customer experience is streamlined and made simpler.
  • Brand loyalty. Because these processes are streamlined and transactions can be completed on single platforms, customers are more incentivized to patronize various brands. Additionally, embedded finance makes loyalty programs possible and more effective.
  • Access to innovative services. Financial services like buy-now-pay-later and insurance for things like train tickets are more readily available and easier for customers to access.
  • More variety for users. Embedded finance means that users can pay for goods and services in-app using a wide range of options. From debit cards to PayPal to Apple Pay, users have more choices than ever before.

At the same time, embedded finance is not without its challenges, some of which are as follows:

  • Security risks. While embedded finance means that customers can pay through various methods on different platforms, it also means there is a great risk. After all, continuously providing your payment details on multiple sites means that there is a great risk of them being compromised.
  • Increased costs for businesses. Businesses that wish to leverage embedded finance to offer services to users will incur some costs in doing so. This includes updating security systems to prevent breaches and also updating their systems when a new payment method is in demand.
  • Increased complexity. Having more options for accessing financial services means that these non-financial platforms are more complex to use. Customers could find themselves overwhelmed and the businesses will have to dedicate more time and effort to manage these complex systems. On top of this, the businesses in question have to navigate the various regulations that govern the use of embedded finance in various parts of the world.

Embedded Finance and FinTech

Embedded finance often involves not just connecting banking and payment services on non-financial platforms but also fintech solutions as well. For example, opening a line of credit with an e-commerce brand and paying for products in installments can be seen as a form of fintech being embedded into a non-financial platform.

This should not, however, be conflated with embedded fintech, which is another concept altogether.

So far, we can see that fintech plays a significant role in embedded finance and as more fintech solutions pop up, we can expect them to make their way to various non-financial platforms.


These days, there is much less separation between the financial platforms we rely on and the non-financial platforms we engage with. We can spend money from our bank accounts, buy things on credit, invest in stock, and enjoy other financial services from the comfort of applications and platforms that weren’t built for financial purposes. All this is thanks to the innovation of embedded finance.

Embedded finance has created a world of convenience not just for consumers themselves but for the businesses that serve them. While it does have its challenges including security risks and increased costs, embedded finance has proven to be a net positive for the worlds of finance and commerce. And as more financial innovations hit the market and consumer demands continue to rise, they will remain a mainstay of modern society.



What is embedded finance?

Embedded finance is the use of financial technologies in non-financial applications. 

How does embedded finance work?

Embedded finance is done via the application programming interfaces (APIs) of the non-financial applications connecting to the APIs of financial applications to enable the necessary transactions. 

What is the difference between open banking and embedded finance?

Open banking refers to banking institutions sharing customer data with other banks and non-financial institutions while embedded finance is the use of financial technologies on non-banking platforms. Unlike open banking, its primary purpose is not the sharing of data.

What are the examples of embedded finance?

Embedded finance examples include logging into your PayPal on a shopping app to enable payment, receiving money through your Uber account, and buying insurance policies on an airline website.

What benefits does embedded finance offer?

Embedded finance offers more access and convenience for customers while also allowing businesses that use it to drive brand loyalty and purchases, among others. 

What are the challenges of embedded finance?

Embedded finance comes with increased costs for businesses that use it as well as security risks for customer data. 

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