Why Embedded Finance Is One of Your Keys to Business Success
In the current society where the levels of production drastically exceed the real demand for the products or services produced, digitalization is not only a way for business processes automation and optimization. Customer satisfaction has become one of the top-priority goals, which companies must reach to stay competitive in the market.
The software solutions, like embedded finance, have become an efficient way of providing the clients directly with the fintech functionality they may require, whenever and wherever they need it. A secure straightforward process ensures convenience, cost- and time-efficiency, contributing to customer satisfaction. Hence, it increases the number of returning and referral clients, leading to business growth.
Let’s take a closer look at the embedded finance solutions, define their main components and purpose, and investigate real-life embedded finance examples.
What is embedded finance
Embedded finance refers to the financial services integration into non-financial platforms, applications, or ecosystems. It allows businesses that aren't traditionally financial institutions to offer banking, accounting, payments, lending, or insurance services directly to their customers through their existing platforms.
A popular example of embedded finance is Buy Now, Pay Later (BNPL) services often offered by e-commerce platforms. With BNPL, you can buy things, and, instead of making a full payment, split it into several smaller, interest-free installments.
This all is manageable within the e-commerce platform itself, without the need to visit a bank or a third-party financial service. Companies like Amazon, Shopify, and Walmart have integrated BNPL services into their checkout process.
Such a flexible payment option not only enhances the customer experience, but helps to boost sales, especially of large and costly items, by reducing payment friction.
Types of embedded finance
Depending on the main functionality of embedded finance solutions, they can be divided into the categories described below.
Embedded accounting
Embedded accounting integrates accounting and bookkeeping functionalities into software platforms companies already use for their internal purposes. It automates processes like expense tracking, invoicing, tax reporting, etc. directly within the apps, removing the need for separate third-party accounting software.
The typical functionality covered by embedded accounting module includes
- bookkeeping automation
- bank accounts management
- bill management, invoicing
- tax management
- analytics and reports generation.
Embedded accounting software is an upgraded version of traditional accounting software. It brings all your major financial functions into an already existing multi-purpose application and eliminates the need to keep different books and records for things like ordering or costing.
Apiko blog: Embedded Accounting Software for SaaS Companies
While integration of accounting software like QuickBooks or Xero is one of the ways to get an embedded accounting module, some projects require custom fintech software development.
Embedded accounting management system by Apiko: Case study
This real-life embedded finance example demonstrates the practical implementation of the solutions described above.
Initially, we’ve been working on facility management app development for A. Anthony Corp., one of the US leaders in the FM industry. The app was based on the decades of our client’s experience in the industry, and soon it required an embedded accounting module for more convenient and efficient business management.
Xero integration was our first technical choice, as it allowed using the already developed accounting management system directly within our facility management app. As you’ve probably already guessed, soon enough, we’ve bumped into Xero’s limitations.
The functionality it offered was very general, and lacked the flexibility and customization possibilities. The latter were required to suit the internal business processes and to correspond to each client’s peculiarities and preferences. Aiming for 100% invoice processing accuracy, custom financial reports generation, better user and clients’ experience, it was decided to build a custom embedded accounting management system from scratch.
The Apiko Team has tailored the solution to the peculiarities of our client’s business processes, and their customers’ individual preferences. The custom accounting management system has been seamlessly integrated into the facility management software, becoming its integral part.
Besides the above-mentioned goals, the important benefit of the custom embedded accounting module is data security. Unlike when using third-party solutions, all the business data stays within the organization, and under full control.
| Third-party tool integration | Custom embedded accounting module | |
| Customization | Limited by the functionality offered, subscription plans, etc. | Tailored to the business peculiarities and requirements. |
| Quality of embedding | Data synchronization between the core app and the embedded module may be incomplete. | Seamless integration into IT infrastructure, real-time synchronization with all the required functionality. |
| Features offered | May lack required functionality while some features may be redundant; access to advanced functionality may require a higher subscription plan. | Tailored to business processes and covers all required features; easy to add more functionality as the need arises. |
| Onboarding time | Due to limited customization capabilities, it may require more time to onboard users. | Fast onboarding, as the embedded module is an integral part of the whole app, following the same app logic. |
| Initial cost | A fee for user access to the third-party tool over a period of time is relatively not high, but it grows with the increase of the number of users or of the features required. | Custom software development requires work of a dedicated team, e.g. including a designer, developer, project manager, etc. This results in a high implementation cost, when compared to third-party solution integration. |
| Overall cost efficiency | The accumulating third-party tool subscription cost tends to grow even faster than expected due to business growth, as the access for more users and broader fintech functionality is required. | In the longer run, the custom embedded finance module is more cost-efficient, as there are no additional costs associated with regular subscription fees, no plans updating due to business growth, etc. |
| Added value | Lower added value to your business software solution. | Sufficient added value to your business software solution. |
Besides the basic accounting functionality, like chart of accounts, accounts payable and receivable, invoicing, clients payment history, general ledger, etc., there were some tailored features developed, like
- Real-time monitoring and comprehensive reporting, covering profit & loss, work in progress, 1099, sales, etc.
- Advanced tax management with regard to the business / client location and respective tax policies
- AI integration with extracta.ai for scraping data from PDF documents, and its use for forms autocompletion
- Generation of batch codes and printable checks
- Financial year closing.
Embedded accounting management system Sales dashboard
Embedded banking
While embedded accounting includes the automation of financial record-keeping, tax management, and compliance, embedded banking mostly focuses on integrating financial transactions, e.g. bank accounts management, transfers, payments, loans, etc. This provides access to banking functionality directly from the non-fintech app.
Embedded banking is a convenient monetization option for non-financial businesses. For example, ride-sharing apps like Uber or Bolt offer drivers digital wallets or instant payouts for their earnings within the app, without the need to transfer to a traditional bank. These embedded banking features also enhance customer experience by making it easier to pay for the rides and services provided.
So, the target audience of embedded banking often consists of both consumers and businesses, while embedded accounting is more targeted toward businesses, especially small and medium enterprises (SMEs).
Embedded payments
Embedded payments is a more narrow software functionality, compared to embedded banking. It focuses solely on facilitating transactions and payments by offering seamless payment options like e-wallets, credit cards, PayPal, bank transfers directly within apps, etc., e.g., in food ordering apps or e-commerce websites.
Embedded payment is often implemented through payment system integration. For instance, Stripe integration embeds payment functionality directly into websites or mobile apps, so there is no need for redirecting to an external payment gateway.
We have integrated Stripe for a multitude of Apiko’s projects. The popularity of this payment processing platform is well deserved by
- the ease of integration
- wide variety of payment options, including credit cards, digital wallets (Apple Pay, Google Pay), and bank transfers
- UI customization for more seamless user experience.
Embedded payment within Syntho, the e-learning app for DJs
A paywall is another form of embedded payments. It consists in seamless integration of the payment process into the content platform (e.g., a news website or a streaming service), where users can subscribe or pay for access without being redirected to a third-party payment gateway.
Paywall is a monetization model that's widely used by publishers to allow access to a small portion of content before a pop-up blocks the rest of the content in some way. This approach drives more interest to your publications without being too restrictive and lets users dive into the content you offer and decide whether they’re ready to pay for more or not.
One of the embedded payment examples developed at Apiko is implementation of a subscription model with paywall integration for The New Voice of Ukraine.
- Building podcast app from scratch
- News app optimization
- Implementing subscriptions model through the integration with paywall
- Localization Creating a constructor module for in-house platform management, and more!
Embedded lending
Embedded lending consists in integration of lending services directly into non-financial platforms. These services are seamlessly offered during transactions, making it easier for users to obtain loans, credit, or installment payment options as a part of their overall experience.
The above-mentioned Buy Now, Pay Later option is one of the most popular cases of embedded lending. Besides implementation in traditional e-commerce platforms like Amazon and Shopify, this solution is widely used for different types of services.
For example, it enhances the tourism services. On the platforms like Booking.com, Expedia, etc. travelers can book flights, hotels, or vacation packages and opt to pay in installments over time instead of paying the full amount upfront. The loan is approved during the booking process, providing a quick and easy financing option.
Tesla has also offered BNPL to their customers. The loan approval happens directly within the car manufacturer’s website or app, making the purchase of costly vehicles more manageable, and increasing the clients’ conversion.
Embedded insurance and investment services
The other types of embedded finance like embedded insurance and embedded investment services also aim at providing superb user experience, although, due to their specific functionality offered, they are somewhat less widespread.
Embedded insurance refers to the integration of insurance products and services directly into non-insurance platforms or ecosystems, allowing customers to purchase insurance as part of their overall experience. This makes it convenient for consumers to access insurance coverage seamlessly at the point of need.
In most of the travel booking platforms the insurance options are seamlessly integrated. When a customer books a flight, hotel, or vacation package, they are given the option to add travel insurance to protect against trip cancellations, delays, or medical emergencies.
Another example of embedded insurance which is in high demand, is the electronic device insurance. When customers purchase a new device, they are presented with the option to buy extended warranties or damage insurance, e.g. against screen cracks or liquid spills. For instance, Apple's insurance is embedded in the sales process, covering repairs, replacements, or damage for a set period of time.
Embedded investment services involve integrating investment options directly into non-financial platforms, e.g. during everyday transactions, allowing users to invest in stocks, funds, cryptocurrencies, or other assets without a need to use a separate brokerage or financial service.
An example of embedded investment services is retirement investment within the payroll management functionality, so a specified amount is automatically regularly deducted from the employee’s paycheck. Among the other examples are cryptocurrency investment services, e.g. as offered by PayPal, where users can buy, hold, sell, and transfer cryptocurrencies like Bitcoin, Bitcoin cash, Ethereum, or Litecoin.
The future of embedded finance
The Global Embedded Finance Market was accounted for $54.3 billion in 2022, and is expected to reach $149.5 billion by 2028 growing at a CAGR of 18.4% during the forecast period.
Source: McKinsey & Well Company
There are assumptions that a rapid development of embedded finance may diminish the role of banks as independent institutions. Embedded finance is certainly not the most profitable bank activity, but it seems needed to keep their clients’ loyalty. So, this should not be an impediment.
Full alignment with the business logic, straightforward and secure processes, minimal disruption and cost efficiency of embedded finance appeal both to business owners and to their customers. This reasonably often makes embedded finance a part of the main software features checklist.
Interested in more tech details of embedded finance implementation for your business, or have any questions? Drop us a line and we’ll gladly share our expertise with you.