Embedded finance is estimated to be worth $7 trillion USD globally in the next ten years. This blog will look further into embedded payments, a form of embedded finance.
What is Embedded Finance?
Embedded finance is when financial products or services are offered via a non-financial platform, with embedded payments acting as one of its more well-known examples.
Use without Realisation
Paysafe’s 2022 Lost in Transaction Survey involved 11,000 respondents over Europe, North America and Latin America. In this survey, 49% of respondents said that they had never heard of embedded payments. However, Paysafe stated:
“In reality, many consumers already use embedded payments on a daily basis without realising they’re doing so- on e-commerce websites, through ride-sharing apps, and when paying for countless other products and services.”
This is a significant point, as embedded finance can certainly be bigger scale, such as securing an auto loan from a car dealership, but much of it operates on a smaller scale in our day-to-day life in the form of embedded payments.
Embedded Payments
Embedded payments allows payment processing for consumer purchases to take place entirely on a business’ website, rather than the consumer being redirected to a third party in order to complete payment.
A prime example of this is Uber, which allows its users to leave at the end of their journey without having to take any steps to complete payment. This is because their card is already linked to the Uber app for payment and is automatically charged each journey without the need to re-enter any details.
Another example is Buy Now Pay Later (BNPL) firms which allow consumers to buy products without payment at the point of purchase, instead paying at later dates in instalments. BNPL financing is being offered as a payment option by many online retailers and other businesses, acting as another form of embedded finance.
Blurring of Boundaries
Embedded finance is making financial products and services more accessible and efficient for consumers as they are becoming entwined with the services and businesses that they already use. It is part of a larger trend of FinTech (financial technology) and of the growth of digitalisation and technological enhancement.
It is something increasingly used by non-financial businesses, not just by financial institutions. This is because many businesses have consumers which have a demand for these financial services so they are trying to meet this themselves rather than sending them to an external source. This has created a blurring of boundaries between industries, rather than those in the financial sector being entirely separate.