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Behind the Buzzword: What is embedded finance?

Embedded finance truly is everywhere—in shopping apps, taxi services, lending and food delivery to name a few, but what exactly is it?

a person holding a tablet

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In our new ‘Behind the Buzzword’ series, we look into all the words and phrases that you will have seen being thrown out recently but may not know exactly what it means.

Last week’s article focussed on what fintech is, from its humble origins to how it’s taking over the world. This week we take a look into the wonderful world of embedded finance.

Embedded finance is one of those phrases that has been thrown about a lot over recent months, with many still left in the dark about what it actually means.

Ignorance is bliss

Over the past decade, largely thanks to the rise of fintech itself, other financial technology developments have enabled companies to make our lives so much easier.

Put simply, embedded finance is simply when you embed finance into an app. Seems straightforward, right? Well, many people have probably encountered it without even knowing.

If you have ever bought something in an app or online then you have likely used it.

In technical terms, embedded finance is when banking-as-a-service is deployed to embedded a financial API into a website or app to allow for users to pay for products or services all in the one place.

And, it’s not just fintechs and other financial institutions reaping the rewards of the embedded finance landscape, now app-based services, like Uber or Deliveroo, and high street stores are jumping on the bandwagon.

A shopaholic’s paradise

Back in th day, online or in-app shopping was much more complicated, with customers often being directed away from the website or app to complete their purchase.

But, as fintech and its many branches became more popular, companies were able to easily insert new, more efficient ways to pay in their websites and apps, thus creating embedded finance as we know it. 

For example, that takeaway you ordered on Deliveroo last night and paid for all without having to leave the app is a prime illustration of one of the most common uses of embedded finance.

Even companies like Starbucks use embedded finance, with customers able to top-up their Starbucks card and pay with it in-store, rather than digging around for their wallet to pay in cash or with a debit card.

Branching out

It’s not just payments that embedded finance helped to accelerate. The technology can be used in many other instances too, such as lending.

Now, many people will think of the process of getting a loan as a long, drawn-out process, but with the advancement of embedded technology, we’ve seen other areas soar too.

Buy-now-pay-later (BNPL) was one of the earliest driving forces behind embedded finance. 

Similar to payments, consumers get offered the option to delay a payment or to pay it in instalments in the form of a short term loan through embedded finance.   

As more and more companies begin to offer embedded finance as standard and it bleeding into more and more areas of not just finance, but every day life, there’s no knowing exactly where embedded finance will go.

Is there a buzzword you want us to investigate? Send us an email at editorial@altfi.com

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