The ultimate guide to embedded finance

Let’s start with the definition of embedded finance.

Embedded finance is an umbrella term for the integrated financial services that a non-bank software platform can offer its customers. Essentially, your platform can work with a financial technology provider to offer services like payments, accounts, lending, and card issuing all natively within your software solution. 

Is embedded finance the same as open banking? 

Embedded finance is not the same thing as open banking, but they are connected. Open banking lets banks share your financial information with trusted third-party apps through secure tech like APIs, which makes it possible to offer Pay by Bank payment methods. It's regulated to keep your data safe, so no one can access your login details.

Embedded finance, on the other hand, is a fully embedded financial service. It may use open banking to provide the service, but it goes beyond data sharing and lets a non-financial platform offer financial products to customers. 

Banking as a service (BaaS) vs. embedded finance

While both embedded finance and BaaS involve offering financial services through non-traditional channels, they differ in execution. 

BaaS provides the infrastructure and regulatory compliance that lets non-banks offer financial products. It’s the toolbox your company can use to provide things like accounts, card issuing, and any other kind of financial service through your platform without becoming a bank yourself.

In contrast, embedded finance focuses on integrating these services directly into your platform's user experience. When you make a payment in a rideshare app, buy a couch in a three-part installment through an app, or use a digital wallet, you’re engaging with an embedded finance solution. 

Embedded payments vs. embedded finance

Embedded finance allows you to offer a complete financial suite, including services like accounts, capital, or cards, all integrated directly within your platform.

Embedded payments are a crucial component of this broader suite. They allow you to offer core payment processing functions like card transactions, digital wallets, and payouts natively within your software.

The core benefit of embedded finance is the value it brings to your customers. When you offer embedded financial services via your platform, it gives customers another reason to love what you do. 

Embedded finance makes a big difference for SMBs

Embedded financial services give your customers access to financial products they couldn’t otherwise reach. Jackrabbit Technologies, for example, offers capital loans to youth sports facilities who need flexible funding fast and don’t have time to wait for a bank to approve a traditional loan. 

Some of the benefits of embedded finance for SMBs include:

• Less time on admin: When everything is connected in one platform, embedded finance can reduce hours spent on reconciliation and manual processing. 

• Improved cash flow management and access to funds: With faster payouts and integrated financial tools, businesses can reduce the time between earning and accessing funds.

• Growth opportunities: Embedded financing options provide SMBs with quicker and more flexible funding solutions than traditional loans. 

• Avoiding hidden costs: Legacy payment providers often sneak in hidden fees. By offering a clear, simple-to-understand pricing structure you can help them become more profitable. 

• Trust that’s built-in: Your customers already trust you. By offering embedded finance, you can deepen your relationship with them and provide a better customer experience. 

Benefits of embedded finance for platforms

Embedded finance is also good for your business. In fact, our research found that platforms that go beyond payments to offer embedded financial products can:

• Increase revenue by 3-4x: You can add in new subscription tiers, new offers, and new ways to monetize through things like fees. By reducing your dependence on subscription fees, you can build a more resilient business model. 

• Monetize the same dollar multiple times: Your platform can earn a fee when a payment is processed, then earn an interchange fee when the SMB spends those funds using a platform-issued card. 

• Increase customer satisfaction: 97% of SMBs experience higher overall satisfaction with fully integrated embedded payments. 

Become an essential part of their daily workflow: Embedded financial products encourage customers to integrate more deeply with your product. It increases customer stickiness.

Embedded finance comes in many forms. Here are some key examples of embedded finance use cases to serve as inspiration. 

Embedded payments

Embedded payments let users complete transactions within your platform without redirecting to third-party services. This gives you complete control over the payment experience so you can provide the best user experience possible. It also lets you generate revenue through payment processing fees. 

For example, by embedding payments into their platform with Adyen, employee benefits company Onsi could offer instant payouts to their customers' workers. This resulted in a 30-40% usage of its instant payout solution, On-demand pay. 

Embedded bank accounts 

Offering business bank accounts lets users manage their finances without leaving your platform. That means you can give them faster access to their funds and let them focus on the business. 

• Expense management: By offering business accounts, your platform can provide a one-stop shop for money management that includes tools for easy fund separation and tracking. 

• Supplier payments: Embedded accounts let users manage both their pay-ins (incoming revenue) and pay-outs (payments to vendors) from the exact same account. Instead of experiencing slow, traditional bank transfers, your customers can distribute funds to suppliers instantly. 

Epos Now, for example, used Adyen to offer business bank accounts to its users. Instead of waiting weeks to set up an account and get paid, SMBs can now use Epos Now to get started in 24 hours. 

Issuing branded payment cards 

The embedded bank accounts use cases get even more powerful when you combine them with card issuing. 

Issuing lets users create customizable physical or virtual corporate cards linked directly to their business account. That has a few core benefits: 

• Give your users more control over their expenses: Your users can set up specific spending limits, merchant categories, and dynamic usage rules for their employees.

• Offer instant supplier payouts that generate revenue for you: Make it easier for users to pay their suppliers without the slow settlement times of traditional bank transfers. You can earn interchange revenue on every transaction processed. 

Spendesk used Adyen’s Issuing solution to build a card program in the UK that gives customers the card customization they need. 

Embedded financing 

By offering financing options through your SaaS platform, you can make it easier for SMBs to access the funds they need. Because you already have so much information about the business, you can speed up KYC and approvals. This is crucial, as traditional financial institutions often overlook SMBs. 

Goose is already doing this for veterinarians. Now, vets can quickly access capital loans so they can grow their businesses without waiting weeks for a bank to approve the loan.

Embedded finance trends point to continued growth. More platforms are adding embedded finance updates to their product roadmaps because the value is clear: when you help customers manage their money better, your product becomes stickier. 

Front-running industries such as hospitality and beauty and wellness lead with adoption rates between 50-55%. Other industries like healthcare and professional services are adopting embedded finance at slower rates (~40%).  

Even though more platforms are adopting embedded finance, there’s still room for first-mover advantages. Innovations in embedded finance are making it easier than ever to get started and roll out high-quality, streamlined, and elegant financial services to customers.

Embedded finance is redefining the role of SaaS platforms and turning them into indispensable financial hubs. Doing so means customers are less likely to churn, and allows platforms to build more resilient revenue models that go beyond subscription fees. 

If you’re ready to get started and want to work with a fintech partner that’s purpose-built for the world’s largest enterprises, Adyen can help. Our Embedded Finance solution offers four connected financial products in one integrated platform:

• Embedded Payments: Offer industry-leading payments right in your platform.

• Embedded Issuing: Issue branded cards instantly. Let users spend funds while you earn interchange revenue on every transaction.

• Embedded Accounts: Give users instant access to their settled funds. Let them store money and spend it without leaving your ecosystem.

• Embedded Capital: Offer instant loans up to $100k. You get repaid as a portion of your user’s daily sales, and Adyen absorbs all the credit risk. 

Get started with Adyen

Looking to add new revenue streams and build deeper relationships with your users? Contact us today to learn more about Adyen’s embedded finance options.