Embedded Finance: What It Is and How Banks and Businesses Can Benefit

Imagine buying a new smartphone from an online store. During checkout, you are offered several convenient options: paying in instalments with a "buy now, pay later" (BNPL) plan, purchasing insurance immediately (embedded insurance), or paying for your order with one click using digital payments — no need to switch to a banking app or enter your card details.

These options are not futuristic technologies, but rather a familiar part of online shopping. This has all become possible thanks to embedded finance, a solution that integrates financial services directly into the familiar services we use every day.

Embedded finance means that financial instruments cease to be separate products and become a natural part of business processes, including e-commerce, logistics, tourism, and healthcare.

Embedded finance will be one of the main fintech trends changing the market in 2025. It creates a new architecture for the digital economy where financial services are seamlessly integrated into users' everyday activities, making them convenient and effective.

Definition of Embedded Finance

Embedded finance is the integration of financial services into non-financial platforms or business processes. Simply put, it is when financial transactions, such as payments, loans, insurance, and investments, are "embedded" directly into the customer experience.

Previously, customers had to go to a bank or financial institution to pay for or receive a service, but now, everything happens in one place. This is made possible by fintech integration, which uses APIs and digital interfaces to connect banks, payment services, and business platforms into a single ecosystem.

Examples of Embedded Finance

1. Buy Now, Pay Later (BNPL)

BNPL is one of the most prominent examples of embedded finance. It allows customers to receive goods immediately and pay in instalments without interest.

This model has become widespread around the world, particularly in Australia, Sweden, the United Kingdom, and the United States, where services such as Klarna and Afterpay have become standard in e-commerce.

In Ukraine, popular examples include instalment payments from Rozetka, PrivatBank, and Monobank, where buyers can defer payments for up to 24 months without paying extra.

The Kasta marketplace, in partnership with Bank Credit Dnipro, offers BNPL for everyday purchases, which can be paid for in several instalments with no complicated procedures.

The fintech company Activitis is implementing BNPL in the B2B segment through the eDilo and WEAGRO platforms. This allows businesses to purchase goods and services online without collateral or unnecessary bureaucracy.

These examples demonstrate how embedded finance makes shopping easier and more convenient for customers and businesses.

2. Embedded Payments

In the Bolt or Uber apps, for example, trips are automatically paid for via a linked card, and users do not have to think about the payment process. This illustrates how digital payments are becoming an integral part of the customer experience.

3. Embedded Insurance

When purchasing a plane ticket through Tickets.ua, a Ukrainian service, users can immediately purchase travel insurance without visiting the insurer's website. This is an example of embedded insurance, which simplifies and accelerates the process.

How Embedded Finance Benefits Businesses

For businesses, Embedded Finance is a tool for increasing loyalty, growing sales, and expanding revenue streams.

Key benefits:

• Increased conversion. When a payment or credit option is available “here and now,” users hesitate less and buy more.
• Better customer experience. Embedded finance makes interaction simple and seamless. The customer gets everything in one window — no extra steps required.
• New business models. Companies can earn not only on their core product, but also on commissions or affiliate programs with financial institutions.
• Enhanced analytics. Integrated financial services generate data on customer behaviour, allowing for personalised offers.

For example, marketplaces or retailers that implement BNPL or digital wallets gain a competitive advantage without becoming banks.

Benefits for Banks

Banks also benefit significantly from the development of embedded finance.

Here's how:

1. New distribution channels. Through partnerships with businesses, banks can offer their services where customers are — in apps, marketplaces, and mobile services.
2. Reduced customer acquisition costs: When financial services are integrated into a third-party platform, banks do not need to spend resources on separate marketing or UX.
3. There's an opportunity to experiment. Embedded services allow banks to test new products without creating separate channels.
4. Banks can undergo digital transformation. Collaborating with fintech stimulates banks to modernise their IT infrastructure, open APIs, and implement financial innovations faster.

In fact, embedded finance provides banks with the opportunity to transform themselves from service providers into platforms.

The Challenges of Embedded Finance

Despite its advantages, this approach has its challenges:

• Regulation and responsibility. For example, who is responsible for a financial transaction—the bank or the platform? This issue is still being discussed at the regulatory level.
• Data security is another challenge. Integration via API involves the exchange of sensitive information and requires strict security controls.
• User trust. Not all customers are willing to trust "non-bank" platforms with financial transactions.
• Technical compatibility. Not all companies are prepared for the complexities of fintech integration, which necessitates modern architecture and resources.

However, companies that successfully overcome these barriers gain a powerful competitive advantage in the market.

The Future of Embedded Finance in 2025 and Beyond

In 2024, the volume of payments through buy now, pay later (BNPL) exceeded $490 billion. Experts predict that this figure will reach $560 billion in 2025. The market continues to grow rapidly, at a rate of about 10% annually, and is expected to double by 2030.

Key fintech trends in this area for 2025 include:

• Development of AI and personalisation. Modern algorithms can generate real-time credit offers, insurance options, and payment plans based on user behaviour, purchase history, and preferences. This makes financial services more relevant and convenient.
• Embedded investments. Applications and platforms will offer investment services directly within their products, such as the ability to invest small amounts while shopping online or saving money. This will simplify access to investments, even for those who have not previously used financial markets.
• Collaboration between banks and fintech companies. Competition is gradually transforming into partnerships, with banks providing reliable infrastructure and regulatory support and fintech companies providing speed, flexibility, and a convenient customer experience. This synergistic approach accelerates the introduction of new financial products.
• Ecosystem approach. Businesses are creating digital ecosystems where financial services are an integral part of the customer's value proposition. For example, there are marketplaces where you can buy goods, arrange instalment plans, insure purchases, and invest without using third-party services.

Embedded Finance is thus evolving from a mere technological trend into a strategic direction for the development of the financial sector, transforming the way people and businesses interact with money.

Conclusion

Embedded finance is about more than just integrating payments, loans, or insurance. Rather, it is a new way for businesses, banks, and customers to interact, where financial services are seamlessly integrated into everyday processes.

Embedded finance enables the creation of valuable services for users while opening up new revenue streams for businesses. It is a chance for banks to accelerate digital transformation, for companies to expand their capabilities, and for consumers to enjoy convenience, speed, and a personalised experience.

In a world where the line between financial and non-financial services is gradually disappearing, embedded finance is becoming a strategic tool for building new business models where everyone wins: companies, banks, and customers.

FAQ

What is embedded finance in simple terms?

Financial services, such as payments, loans, and insurance, are embedded directly into the everyday services you use, like stores, apps, and marketplaces.

How is embedded finance different from open banking?

Open Banking involves the open exchange of data between banks via API. Embedded finance takes it a step further by integrating financial functions directly into non-financial platforms.

What are some examples of embedded finance that are currently in use?

Some examples include BNPL services, embedded insurance, digital payments, business loans on e-commerce platforms, and payments in transportation apps.

What risks do users face?

The main risks are data security issues, the potential for an excessive amount of credit products (as in the case of BNPL), and a lack of transparency regarding terms and conditions. Addressing these issues requires cooperation between businesses, banks, and regulators.

Embedded finance is a game-changing financial innovation.

Those who begin integrating it today will become the leaders of the new digital economy tomorrow.