Embedded finance use cases from 30 hottest embedded finance companies.
Embedded finance is a trend that is starting to catch on. More and more companies from this industry are getting funding, and more use cases are created. That is why we have recently published the article What Is Embedded Finance? 5 Eye-opening Reasons Why You Should Know. After requests from our readers, we have decided to write this follow-up article. Today, we want to discuss with you embedded finance sectors, specific embedded finance companies, and embedded finance use cases.
This article is written for readers from both financial and non-financial companies to change the readers’ perspective about the future of financial services. Non-financial companies can better understand how it is possible to monetise their customer base and become inspired to implement new business ideas. At the same time, our article is for financial companies that want to catch the third stage of the FinTech revolution (read Section Wealth management and embedded finance companies for more details).
But before we deep dive into the topic, let us explain one more time why we care so much about the topic and why you should also care about it. As Jeff Bezos once underlined, the most important thing for business success is building your strategy around demands that will not change in the next ten years. It is clear that even in 10 years, financial service users will demand low prices, accessibility and a better user experience of financial products, while service providers are interested in lower user acquisition cost and effective unit economy. Embedded finance, in our opinion, is definitely one of the ways these demands will be satisfied in the future. Whether you are more into traditional payments, crypto & blockchain or any other FinTech innovations, you must consider embedded finance trends to build your strategy for the next ten years.
Our last clarification before we finally tell you the hottest embedded finance use cases. When we use the term “embedded finance company” we refer to three types of companies:
a) non-financial companies that embed financial services;
b) financial service companies that embed financial services provided by third parties (i.e., not them);
c) financial service companies that allow other companies to embed their services.
Embedded finance uses cases: payment accounts, electronic money, money transfers and cards
Let’s start with the most popular embedded finance use cases – that is, embedding payment services – and the biggest embedded finance companies. The first embedded finance use case is when a company from the smartphone industry creates a so-called mobile wallet. Yes, it is about Apple Pay, Google Pay, Samsung Pay and other mobile wallets. Apple, Google and Samsung enable users to use their mobile phones as payment devices online and offline by tokenising data of our cards. Such a feature does not come for free, and card issuers are charged by mobile wallet providers which found one more way to monetise their user base. P.S., if you are a merchant, please make sure that checkout with a mobile wallet is possible for the sake of your conversion rate.
Tech giants went beyond the provision of the digital wallet service. For example, Apple rolled our Apple credit card together with Goldman Sachs. Google, which has an Electronic Money license in Lithuania, is doing something even more interesting: it is modernising the money transmission industry. In a nutshell, Google Pay became an aggregator of money transmission providers and methods (currently, only a limited number of providers and destinations is available, i.e., Western Union and Wise). If you are from the payments industry, we encourage you to understand threats (e.g., loss of market share) and opportunities (e.g., integration with Google Pay) that Google Pay has for your business.
Enough about mobile wallets. Let’s speak about marketplaces, which are perfect candidates to become embedded finance companies. One of the most obvious examples is Amazon, an expert in monetising its customer base and its brand. The tech giant introduced such embedded finance products as Amazon Pay and Amazon Credit Card and enabled Buy-Now-Pay-Later (BNPL) checkout option in the US by partnering with Affirm. You may wonder why a customer would use the Amazon Credit Card – in our opinion: because Amazon has a strong brand and because, among other things, cardholders using Amazon Credit Card are rewarded with cashback when they shop at Amazon.
Embedding payment services is a path not only for such big marketplaces as Amazon. Companies around the world are seeking opportunities to partner with financial services providers to get new income streams. For example, an employment marketplace for domestic workers in Mexico, Zolvert partnered with BBVA and enabled its 25k users (cleaners or housekeepers) to open an account with BBVA through its platform.
In the Mexican market, BBVA is also a partner of one more embedded finance company that you know well (Uber). The company that has started as an aggregator for taxi drivers now has a financial services department and has launched such products as instant payments for drivers, Uber Wallet and Uber Pay and the API that allows Uber’s partners to turn membership points into Uber Cash. Uber’s competitor Lyft is following a similar path. In the US, it has already launched such products as Lyft Cash and Lyft Direct Debit Mastercard Card and bank account service by partnering with Payfare and Stride Bank. Why may this work? Because drivers are incentivised to use Lyft’s cards and payment account as they get paid instantly after every ride and because of cashback on gas, groceries, restaurants and select discounts from car maintenance service.
The idea behind embedding payment services (and all other financial services) into an existing product is simple: a business either independently or by partnering with PSPs (the latter happens more often) captures customers where they interact most frequently in their daily lives. Taxi drivers interact with taxi apps a lot. They are interested in payment service products integrated into an app tailored specifically to them (e.g., cashback on gas is relevant for them). Amazon shoppers see ads about Amazon Credit Card every time they make a purchase (such ads are free for Amazon) and may give up one day and finally order the Card incentivised by cashback and welcome bonus. Such attitude is comparable with the attitude of so-called “Super Apps” that started as financial companies from the beginning. Supper Apps like Revolut compete with embedded finance companies by creating spaces, features, offers and integrations that ensure users spend more time in a Super App. For example, the partnership with Expedia allows Revolut to offer hotel/apartment booking services within its app and incentivise users by offering them 10% cashback. At the same time, Booking.com could respond to this move by entering into a co-brand partnership and releasing for its users a payment card product with offers interesting for travellers.
If you have ideas and thinking about becoming one of the embedded companies that added payment service to its platform, don’t waste your time! This sector is hot, and companies are expecting more and more revenue. P.S. you can also contact PSP Lab if you need help.
BNPL as one of the hottest embedded finance use cases
BNPL is currently the hottest area of embedded finance represented by the most valued embedded finance companies such as Klarna, Affterpay and Affirm. According to Juniper Research, by 2026 number of BNPL users globally will constitute 1.5 billion, while Worldpay predicts that BNPL transactions will constitute 4.2% of all global e-commerce transactions (13.6% in Europe) by 2024. In some countries like Sweden BNPL is already the most popular e-commerce payment method.
The most obvious example of BNPL embedded finance use cases is a marketplace or merchant that adds an option to use Afterpay or Klarna (for Europe) to its checkout page. By embedding a BNPL payment option into your app or website, you make it more convenient for your customers to get financing for their purchases. Unsurprisingly, Shopify, one of the most prominent embedded finance companies, partnered with Affirm. After integration with Affirm, Shopify merchants can access all of Affirm’s features, including flexible payment options, order management, and easy-to-implement on-site messaging to amplify awareness and conversion.
BNPL is also a convenient option for sales at physical POS and merchants selling outside of marketplaces. For instance, gym challenger Peloton also partnered with Affirm and allows its customers to select a flexible monthly financing option from 12, 24, 39 or 43 months when buying online and in stores. As a result, Peloton customers can pay in monthly instalments for its sports equipment less than they would pay for a gym monthly.
Of course, the BNPL sector is not only about Affirm and Klarna. For example, the wholesale marketplace from Amsterdam Orderchamp allows buyers to buy now and pay up to 60 days later. As a result, the company’s retail clients have more financial flexibility and time to sell the products before the invoice is due. Moreover, by utilising data and purchasing behaviours and recommending products to retailers that sell well in their store, the brand is guaranteed the payment upon successful delivery, limiting the debtor risk for the sellers. Finally, this embedded finance company determines spending limits based on buyers ordering habits, the type of products, and the turnover rate.
Lending is one of the most interesting embedded finance use cases, and we decided not to combine embedded lending with BNPL as these are two different industries from the regulatory point of view.
Let’s look at more traditional embedded lending use cases. For example, you can take a relatively cheap loan directly from Tesla when buying a car online. The car seller Tesla Motors Ltd is a broker in the UK, and Tesla Financial Services is an entity authorised for consumer credit lending. Offering own or third-party financing options is not a new business model, but it is still effective.
To learn about more exciting use lending uses cases, you should look at Shopify. The e-commerce platform offers two types of funding: merchant cash advances and loans. The main feature of Shopify’s embedded finance service is how it identifies eligible merchants. Shopify screens merchants based on their previous sales history and store performance using AI methods technology (machine learning models). Moreover, instead of charging a loan interest, the company charges a fixed borrowing cost based on sales history and risk profile. In the first quarter of 2021, US, UK and Canadian merchants received 308.6 mln USD in merchant cash advances and loans from Shopify, while the cumulative capital advanced reached approximately 2 bln USD.
One more interesting example of embedded finance companies in the lending industry (non-financial companies that embedded lending services) is Udaan, a B2B marketplace for Indian SMEs. Users of the platform can get a credit line from Udaan’s financing partners and use merchant cash advance (turning receivable into cash) service. So far, more than 200,000 SMEs have taken credit through Udaan’s lending platform.
The embedded lending market is developing rapidly, and more and more creative business models have emerged. For example, at the end of 2021, a company aiming to connect various companies and marketplace of lenders Peeled got a license in the UK. The company’s white-label solution allows non-financial companies (brands, marketplaces) and financial companies (e.g., payment companies, insurance companies) to easily embed lending into their products.
Insurance embedded finance use cases
One of the embedded finance companies that embedded insurance into their product offering is Tesla. Not only does Tesla provide a car financing service, but in California and Texas Tesla offers insurance that costs less than policies from competitors and that can be bought in a couple of minutes. Fortunately, Tesla’s embedded finance use case is not that boring this time. In Texas, drivers can opt-in to pay an insurance premium based on their real-time driving behaviour. It means that the “safety score” determined by the car software rather than age, customer’s history and driving scores will determine the amount of premium to be paid. It is quite an innovative attitude to insurance that resembles Spotify’s attitude to financing, and let’s see how successful it will be.
You know the hassle of paying for city charges, car tax, and other administrative charges if you own a car. In the UK, an embedded finance company called Caura created an app that eases the lives of car owners. The app enables management of all vehicle-related admin that car owners endure and eliminates the need to use various apps and websites to be used every time a motorist wants to pay for something. What do you think was the next step for such an app? You are right; it is the introduction of a car insurance service within the app with the UK’s top insurers like Aviva, Sabre, and Ageas
Of course, car insurance is one use case out of many embedded finance uses cases in the insurance industry. One more example is a former taxi app (yes, again…) that became a service aggregator and a so-called “super app”. Apart from offering food and groceries delivery, postal services, access to drivers, hotel bookings, gift cards, and payment services such as checkout option GrabPay, Singaporean company Grab also offers insurance and investment service. Customers of GrabInsure can get travel and ride cover. If we speak about supers apps, Ant Group’s Alipay super app is also worth mentioning. It is possible to access thousands of insurance products from around 90 insurance providers.
Wealth management and embedded finance companies
In our previous article, we limited embedded finance to non-financial companies; however, in a broader sense, embedded finance include instances when financial services of a third party are offered through a partner distribution channel, including when this is a partner financial services provider. There is a fair argument to look at embedded finance more broadly. According to the report of Swiss Banking-as-a-Service (BAAS) and WealthTech firm additiv that allows banking and non-banking providers to embed wealth services into their proposition, the 1-st phase of the FinTech Evolution is about accessibility, the 2-nd phase is about improvements, and the 3-rd phase is about unbundling distribution so that financial services can be embedded into third-party channels and into existing user journeys. Indeed, more and more partnerships exist between financial firms (e.g., Revolut offering White Horse Insurance through its platform). Such partnerships are even more popular in the embedded wealth management service industry.
Currently, embedding wealth management services is more suitable for existing financial services firms (e.g., neobanks, investment apps, insurance and pension companies, budget management FinTechs) and super apps (e.g., WeChat). Because we have not found decent examples of non-financial firms embedding wealth management into their products, let’s look at FinTech companies that embed wealth management services provided by third parties.
The first example is a PSP Chipper Cash a neobank (money transfer, payment account and card services) that operates in multiple jurisdictions, including the UK (it acts as an agent of an EMI PayrNet there) decided to expand its service by offering its users the possibility to invest in stocks. Chipper Cash business model implies partnering with licensed companies instead of applying for licenses on its own. To embed investing product into its offering (integrate into its app), the PSP used DriveWealth’s APIs and brokerage infrastructure. It is not the first neobank that has partnered with DriveWealth, a leading embedded wealth management player. For example, a Mexican neobank Flink has done the same.
Embedding wealth management services is not only for PSPs. One more example is MotivHealth, a US health insurance company focusing on Health Saving Account (HSA) insurance plans. With the help of DriveWealth it decided to leverage its existing relationship with its customers and its position of trust by offering its users the ability to invest their HSA balance from its app, breaking down the silos and bringing traditionally separate products such as health insurance and investment together in one place. Adding investment opportunities to its platform is also a perfect value-added service for companies like Digit that offers its clients saving accounts and helps them to understand and manage their cash flows. Adding a service to buy fractions of shares is a logical continuation for an app offering savings and budget management features. Customers can choose to use the money they saved by investing them in both an almost risk-free savings account and risky but potentially more rewarding stocks.
There are plenty of embedded finance use cases and embedded finance companies, and we did not even touch upon open banking and new payment services such as account information service and payment initiation service. More and more financial services providers building BAAS products to enable non-financial companies to offer their services. At the same time, bigger non-financial companies acquire their own licenses and become supper apps. We are expecting that in the not-so-distant future you will receive the majority of or even all of your financial services from a large brand that is appealing to you most. Embedded finance is definitely a great topic to explore. Stay tuned and contact us if are you are interested in the embedded payments industry.