Embedded finance has become a trend across various industries, including retail, e-commerce, healthcare, and even investment services. Recent data suggests the sector had a market size of $63.2 billion USD in 2023, with projections indicating it could grow to $291.3 billion USD by 2030, marking a significant CAGR of 16.5%.
This rapid growth is a clear indicator of embedded finance's transition from a burgeoning trend to an industry standard.
The sector offers a range of services such as payments, lending, insurance, and investments, each experiencing its unique developments.
Looking into 2024, we're on the cusp of technological breakthroughs poised to streamline and enhance embedded finance solutions like never before.
Embedded finance, once primarily a fixture in the retail and e-commerce landscapes, is rapidly expanding its reach, embedding itself into sectors as diverse as healthcare and investment services, fundamentally transforming the way businesses and consumers interact with financial services.
A pivotal moment came last year when Mastercard and tech platform provider Fabrick unveiled an expanded strategic partnership aimed at crafting embedded-finance solutions for businesses throughout Europe.
This collaboration was set to empower companies to weave financial services directly into their offerings via application protocol interfaces (APIs), thereby enabling them to furnish payment, banking, and insurance solutions without the monumental task of developing proprietary financial infrastructures.
The evolution of API’s is significant. They facilitate healthcare providers in offering patients direct out-of-pocket payment options on their own websites and enable retail businesses of virtually any size to extend loan offers to consumers seamlessly within the shopping journey.
The expansion has been partly hindered in the past by the scarcity of economically viable APIs—critical for the secure exchange of personal financial data between banks and third-party developers.
However, the landscape is changing. Continuous innovations in API technology have bolstered confidence among financial sector leaders about their capabilities to support automation and scalability in new embedded-finance offerings.
This confidence, in turn, has spurred the emergence of third-party banking-as-a-service (BaaS) companies, leveraging APIs to embed financial services into the customer experience across a wider demographic spectrum, including the previously underserved "unbanked and underbanked" groups.
In the insurance domain, companies like Wysh exemplify embedded finance in action with their Life Benefit embedded insurance offering. As a digital-first life insurance company, Wysh enables businesses to integrate financial protection into their applications and product offerings.
This approach is particularly appealing to customers lacking sufficient coverage, presenting a strategic avenue for banking institutions to attract and retain deposits in a competitive market landscape.
The embedded insurance market, as detailed by DataHorizzon Research, presents a remarkable trajectory of growth and innovation. With a valuation of USD 63.1 Billion in 2022, it's projected to escalate to USD 482.8 Billion by 2032, boasting a Compound Annual Growth Rate (CAGR) of 22.6%. This surge reflects a paradigm shift towards integrating insurance seamlessly into the purchase of third-party goods or services, facilitated by technological advancements and the expansion of e-commerce and mobile commerce.
The Buy Now, Pay Later (BNPL) phenomenon has dramatically reshaped the landscape of e-commerce and beyond, marking a significant shift in consumer purchasing behavior. Originally popularized by fintech unicorns like Affirm, Klarna, and Afterpay, BNPL's rise was notably accelerated by the constraints of pandemic lockdowns, providing a vital lifeline for consumers to access goods and services even when upfront funds were scarce.
BNPL, distinct from Point of Sale (PoS) lending despite their occasional interchangeability, fundamentally offers customers the option to defer payments for purchases through interest-free installment plans, typically spread over four payments within a year.
The attractiveness of this model is evident in its rapid adoption and the financial throughput it commands; in 2021 alone, about $50 billion of the $1.4 trillion spent through online retailers in the US was transacted via BNPL platforms. This represents a significant slice of the market, projected to balloon to an astounding $265 billion by 2026 as it is forecasted that 10% to 12% of the total $2.4 trillion online retail transaction value will be facilitated through BNPL services.
Embedded investing is reshaping the landscape of financial services, introducing a new paradigm where non-investment service companies can offer investment options directly within their platforms. This evolution is enhancing the customer experience and opening new revenue streams for companies far removed from traditional investment firms like RBC.
In the past, investing was predominantly the domain of legacy financial institutions, requiring consumers to navigate the often complex process of opening new accounts. However, the advent of embedded investing has democratized access to investment opportunities. Platforms such as Revolut, Venmo and PayPal now allow consumers to purchase stocks, cryptocurrencies and other investment products directly in-app, signifying a broader trend of financial services becoming more integrated and accessible.
Investing has transitioned from an activity reserved for those with access to stockbrokers and financial advisors to a mainstream pursuit. Apps like Robinhood, Cash App, and Acorns have led the charge, showcasing the potential of embedded investment technology. These platforms enable users to buy, sell, and exchange stocks without ever leaving the app or consulting with an investment advisor, simplifying the investment process and making it more approachable for the average consumer.
Several factors contribute to the rapid growth of embedded finance, including digitization, the rise of open banking, and increased consumer lending. However, the primary catalyst is the growing consumer expectation for integrated financial experiences. Users now seek to manage their finances through a single interface, merging various financial activities into a unified ecosystem.
The embedded investing trend is expected to expand, becoming more accessible and integrated into everyday digital experiences. With innovations like the Treasure API, businesses can further unlock financial opportunities, providing customers with a broad array of investment options managed by expert teams.
In addition to new trends like Embedded Insurance 2.0 and Embedded Investment, industries such as gig platforms and healthcare are also benefiting from embedded finance.
Another interesting trend in embedded finance that has emerged in recent years is embedded invoice factoring.
Embedded invoice factoring is reshaping how businesses access and utilize financial services by integrating these services directly into digital platforms.
Embedded factoring is the integration of invoice factoring services directly into digital platforms, allowing users to seamlessly manage and finance their invoices within the platform they already use.
This trend simplifies the factoring process, making it more efficient and less costly for users by eliminating the need for separate external services.
For Users:
For Platforms:
Gig companies such as ridesharing or delivery services, are partnering with fintech firms to offer financial services directly through gig platforms, enhancing the working experience for their workers.
Key Features of Embedded Finance in the Gig Economy:
A common trend in embedded finance is introducing payment and insurance solutions in healthcare platforms. These integrations are transforming healthcare by embedding financial services within non-financial platforms from the health sector, making medical care more accessible, especially to the uninsured or underinsured.
Key Highlights of Embedded Finance in Healthcare:
To deliver an experience that meets customer demand, fintechs are using APIs that can be easily integrated into any platform, regardless of industry or activity.
The ability of financial software programs to integrate into non-financial platforms through APIs has lowered the barriers to embedded finance.
Nowadays, small and medium businesses, such as e-commerce or healthcare providers, can integrate embedded finance products into their platforms to start offering products like point-of-sale loans, insurance, embedded cards, or payment solutions.
Before APIs, businesses had to invest a significant amount of money and time to offer financial services. They also had to seek collaboration with financial institutions, and customization options were very limited.
Another breakthrough in the embedded finance industry, and a new emerging trend in most sectors is represented by AI/ ML solutions.
AI and ML are revolutionizing embedded finance, by making financial services more personalized, integrated, and efficient. They use customer data to offer tailored financial solutions and efficient transactions. Meanwhile, ML algorithms analyze data patterns to enhance risk assessments and fraud detection.
Enhancing Embedded Finance:
AI's integration into embedded finance is meeting the demand for enhanced capabilities, promising a customer-centric, frictionless financial service future.
Lately, Blockchain technology started to make its way into embedded finance, a prime example would be PayPal’s adoption of Bitcoin as a payment method.
Blockchain technologies are enhancing embedded finance by providing a foundation that excels in speed, low costs, transparency, and immutability. This combination makes blockchain an ideal infrastructure for embedded finance, facilitating its adoption across both decentralized platforms and the traditional economy.
Blockchain enables embedded finance applications to integrate effortlessly with a variety of decentralized services, from gaming DApps and staking pools to metaverses.
In these digital spaces, businesses can establish digital storefronts to sell products, both digital and physical.
Overview: NFG aimed to launch an unprecedented system in the Polish market to enhance factoring and credit risk assessment for micro and small enterprises. This vision included the development of a fully automated, innovative factoring system and a complete reverse factoring product that integrates with multiple external data sources.
Challenge: NFG faced the challenge of creating a system that needed to integrate with over 30 external systems for various functionalities, including Identity verification, AML, and Risk Assessment. For the reverse factoring solution, the goal was to deliver a high-quality, 100% online product within a tight timeframe, accommodating flexible price lists and affiliate links for partner shops.
Solution:
ITMAGINATION developed two key solutions for NFG:
Results:
The implementation of the above-mentioned solutions has led to impressive outcomes:
Overview: Founded in 2014, ViaBill pioneers the BNPL trend, offering flexible payment solutions in Denmark, Spain, and the US. They enable consumers to spread purchase costs over four to 24 months, providing transparent and adaptable payment options.
Challenge: ViaBill sought to introduce physical and virtual BNPL cards to meet customer demands for smart, flexible payment methods across various purchasing environments. The company aimed to scale its BNPL platform in multiple European markets while navigating diverse regulatory landscapes.
Solution: ViaBill partnered with Edenred Payment Solutions, leveraging their card issuing, processing services, and secure technology. This collaboration enabled the launch of BNPL cards, starting in Denmark and expanding to the Eurozone. Services included BIN Sponsorship, Card Issuing, Processing, Virtual and Credit Cards, plus Apple Pay & Google Pay integration.
Results: The partnership revolutionized the BNPL space, enhancing payment flexibility for online and in-store shoppers. It broadened ViaBill's merchant integration, increasing their network from approximately 5,000 to nearly all Mastercard-accepting merchants. This growth, achieved during lockdown, showcases the project's success and ViaBill's expansion across Europe, now boasting over 490,000 members.
Overview: The Amazon Prime Rewards Visa Signature Card, designed for Amazon Prime members, offers 5% cash back on purchases at Amazon and Whole Foods Market. Additional benefits include 2% cash back at restaurants, gas stations, and drugstores, and 1% back on all other purchases. The original card features the Amazon smile logo, while a new design option showcases the Whole Foods Market logo.
New Design and Offers: Chase introduced a new card design emphasizing the Whole Foods connection. New cardholders have a choice between a $70 Amazon gift card upon approval or a $100 statement credit after spending $100 at Whole Foods in the first two months.
Considerations for Potential Cardholders: The card is most beneficial for regular shoppers at Amazon and Whole Foods. Given Whole Foods' pricing—34% higher than Walmart according to a 2019 Bank of America Merrill Lynch study—the 5% cash back reward is best leveraged by those already shopping at these stores. Non-Prime members earn 3% back at Amazon and Whole Foods, necessitating an annual spend of $5,950 to offset the $119 Prime membership cost for the card to be worthwhile.
Overview: Founded in 1974, Adorama started as a single retail location in Manhattan, specializing in professional audio, visual, and photography gear. It has since grown into a conglomerate with several complementary businesses under its umbrella, including Adorama Rental, Adorama Trade, Printique, Adorama Business Solutions, 42 West, SunnySports, Scuba.com, and its exclusive guitar line, Boroughs.
Challenge: Adorama faced the challenge of evolving its landmark business to meet modern consumer needs while maintaining its focus on helping customers realize their creative visions. The goal was to modernize payment processes without losing sight of the customer experience.
Solution: Adorama's partnership with PayPal, which began with the integration of the PayPal wallet, expanded to include PayPal’s Braintree for payment processing. This move ended a 30-year relationship with their previous processor. Braintree enabled a single integration for all Adorama’s Alternative Payment Methods (APMs), streamlining operations and enhancing customer payment preferences understanding. Furthermore, Adorama integrated Venmo to appeal to younger demographics, recognizing its popularity among millennials and Gen Z consumers. This integration aimed to create a more ideal and frictionless shopping experience.
Results: The integration of Venmo proved to be a significant success, with over 60 transactions occurring within the first hour of going live. Adorama's Venmo Average Order Value (AOV) reached $403, the highest among all alternative payment methods, with 42% of Venmo customers being new to Adorama.
Overview: Robinhood Markets, Inc., a leading discount online brokerage known for its user-friendly app and mission to democratize finance, is set to launch a stock lending program. This initiative is in line with the company's aim to expand access to the financial system and provide its users with opportunities to generate passive income.
Challenge: Stock lending, a practice often reserved for wealthy investors due to high collateral requirements, has traditionally been facilitated by brokers or dealers, not individual investors. Many investors find the barrier to entry too high, needing substantial funds in their accounts to participate in stock loan agreements.
Solution: Robinhood is introducing a stock lending feature that simplifies the process for its users. By managing the sourcing of borrowers and transactions, Robinhood removes the complexity typically associated with stock lending. Importantly, the company will provide cash collateral for securities loans, significantly lowering the entry barrier for investors who wish to lend their fully paid stocks.
Results: The stock lending program is expected to be available to all Robinhood users by the end of May, allowing them to lend out fully paid stocks to borrowers identified and vetted by Robinhood.
This feature is designed to be an easy way for users to earn passive income from their investments. Robinhood's approach to stock lending emphasizes ease of experience, making it accessible to a broader range of investors.
By providing cash collateral, Robinhood addresses a significant hurdle for many investors, democratizing access to a financial practice that was traditionally reserved for the affluent.
Conclusion: Robinhood's stock lending program represents a significant step towards democratizing financial services that have historically been out of reach for average investors.
The growth of embedded finance is reshaping how we interact with money in our daily lives, making it simpler and more intuitive to access financial services, whether we're shopping online, managing healthcare costs, or investing.
Moving into 2024, the embedded finance trends are breaking down barriers, offering everyone a chance to engage with finance in a way that fits smoothly into their everyday activities.
With each technological advancement, from APIs to AI, businesses all over the world are ready to offer a movement towards a future where financial tools are accessible, tailored, and integrated into their platforms, allowing them to offer a better shopping experience to their users.
If you are looking to integrate embedded finance into your company but you are not sure where to start, we recommend scheduling a call with one of our experts to dive into the intricacies of how to best integrate financial trends into your platform.
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