Embedded Finance: Making Online Transactions Even Simpler

Discover how embedded finance can seamlessly integrate financial services into non-financial organisations and shape the future of finance.

Dec 4, 2023 - 3 min.

Innovative solutions that can be integrated seamlessly into our everyday lives have fundamentally changed the financial sector in recent years. These days, consumers can interact much more easily with financial service providers. They also receive better services and a comprehensive overview of their finances. Embedded finance is a key development in this context. The concept is revolutionising how we manage our money and access financial services. Read our latest blog post to learn the advantages of the new concept and its security.

What is embedded finance?

Embedded finance, also known as embedded banking or ‘Fintech-as-a-Service’, is a process whereby financial services are integrated into the platforms and applications of providers outside the finance sphere. This allows their customers to access a broad range of financial products and services without leaving their usual platforms. For example, they can make payments, invest money, or get a loan using a mobile app or an e-commerce website. This seamless experience is made possible by the cooperation between traditional financial institutions and fintech companies. 

Typical examples of embedded finance services are ‘Buy Now Pay Later (BNPL)’ or data-based lending services. Payment providers such as Klarna or Clearpay already offer their BNPL options on thousands of e-commerce websites.

Credit information services offer banking customers information about their personal credit rating and available credit offers in a single software application. By linking their bank accounts to these applications, customers can receive a relevant overview quickly.

Advantages for commercial providers and end users

  • Optimised customer experience and efficiency
    The inclusion of financial services in e-commerce platforms offers many advantages, especially for new players on the market. Seamless integration gives them a clear competitive advantage: they can offer a more comprehensive customer experience and collect valuable customer data for use in developing more bespoke services. These customised solutions promote customer loyalty and tap into a broader customer base, allowing new platforms to thrive in highly competitive markets quickly. First and foremost, this underlines how the integration of financial services not only boosts efficiency but also paves the way for innovation and growth.
  • Customer loyalty and competitive edge
    Embedded finance flawlessly integrates financial services into business processes, boosting efficiency and allowing companies to incorporate financial modules seamlessly, thereby creating a broader spectrum of financial services without the need for complex infrastructure. This strengthens customer loyalty because companies can offer financial services as added value – thereby generating extra revenue and driving up profitability. Companies are also better able to adapt to emerging trends in the payments sector and respond quickly to new challenges and innovations, giving them a competitive advantage.
  • User-friendliness and flexibility
    Ease of access and the user-friendliness of embedded finance is having a transformative impact on the financial sector. These features are upending the traditional rules of banking. Financial transactions are not only smoother but also far more efficient. Customers can customise and tailor their financial services to their individual needs. This flexibility, as well as the personalisation options, give users an unprecedented degree of control and convenience, increasing their satisfaction levels and the attractiveness of financial services overall. Both consumers and companies benefit from the advantages of embedded finance.
  • Improvements in financial services and customer loyalty
    Embedded finance is enhancing the financial sector with user-friendly access and customisation options. This is reforming traditional banking practices, leading to smoother and more efficient financial transactions. Customers can tailor financial services to their needs, which increases their satisfaction and makes financial services more attractive in general. One example of this is the integration of personalised savings and investment options in e-commerce platforms thanks to embedded finance. This allows customers to save and invest money conveniently, making the offering more attractive and generating additional revenue for companies. As you can see, embedded finance benefits both consumers and companies.
  • Regulatory changes such as PSD2
    Regulatory directives such as the revised Payment Services Directive (PSD2) are decisive in promoting embedded finance. Forcing banks to open up their interfaces and data to third-party providers encourages greater cooperation between fintech companies, traditional banks, and non-financial companies. This trend has allowed the industry to flourish as companies increasingly enter into partnerships to profit from embedded finance. The opening-up of the financial sector to innovative players makes it possible to integrate various financial services into non-financial applications. This offers customers even greater added value, be it through payment services, loans, insurance or other financial products. Cooperation between different sectors promotes product diversity and boosts customer satisfaction. It also strengthens companies' market position and opens up new income streams. Fintech companies, in particular, can drive innovation in this area and fundamentally change the financial sector – benefiting consumers and companies in equal measure and fostering the development of embedded finance.

SCA: security for embedded finance

Security aspects also need to be addressed. This calls for strong customer authentication (SCA) –- such as biometric methods and MFA (multi-factor authentication). Although SCA mainly plays a role in Europe at present, the technology is influencing standards for the security of online payments worldwide. Many other regions have already introduced similar regulations or are considering doing so. After all, SCA is a powerful tool to combat unauthorised access and fraudulent transactions. It makes it much more difficult for cybercriminals to misuse financial services and ensures greater user confidence in online banking services. 

In this context, embedded finance is a trend that is also likely to boost the use of SCA and lead to the harmonisation of international SCA standards.

Security meets customer experience – the benefits of CIAM