- Embedded finance — adding financial offerings in non-financial experiences — is on the rise.
- From ride-share apps and barbershops to the music industry, payments are becoming streamlined.
- Embedded finance needs to strike a balance between simplicity and transparency.
- See more stories on Insider’s business page.
Embedded finance is one of the hottest topics in fintech, as non-financial firms look to offer payments, banking, and investing features directly to their consumers.
From seamless payments in a ride-share app to musicians selling merch directly to fans, consumers are increasingly engaging with financial products in non-financial settings. Powering these integrations are a set of infrastructure players, like Finix for payments, Mantl for bank accounts, and DriveWealth for investing.
These players are making it easy for companies to roll out financial offerings on their apps.
“Everyone wants to spin up these financial products, but may not want to dedicate team time or resources to do so,” Ashley Paston, principal at Bain Capital Ventures, told Insider. “So these companies are making it really easy for those players to become financial technology companies.”
Paston said around half the startups she meets with have an element of embedded finance to their pitch, either as a facilitator of it or by offering some type of financial feature.
Revenues from embedded payments alone totaled $16.1 billion, and are projected to reach $140.8 billion by 2025, according to a report from Barclays Rise.
Embedded finance can boost revenue and enhance customer retention
Weaving financial offerings into a business model comes with plenty of benefits.
Payments, credit, and banking can become an additional source of revenue. Finix, for one, sells software for companies to manage payments in-house, which means they earn fees from processing transactions.
There are also industry-specific use cases that embedders offer. Squire sells business management software to barber shops, enabling them to accept payments and pay out tips and commissions to barbers digitally.
Adding payments to an existing offering means Squire can deepen its relationship with existing customers without the cost of acquiring new ones — something a pure payments provider has to consider.
“That’s a masterful difference in go-to-market,” Paston said.
In addition to new revenue streams, companies can often cut out a middleman by embedding finance. The music industry, for example, is filled companies selling event tickets, merchandise, and streaming services.
Players like Dice and Kobalt are targeting the space. Kobalt is a one-stop shop for artists to manage their royalties and payments across platforms like Spotify, Apple Music, and YouTube.
Dice facilitates virtual shows and meet-and-greets, meaning artists can reach fans no matter the timezone. It manages the payments, accepting multiple currencies, and uses its data to help users discover new artists.
Ticket sales are often accompanied by high fees that consumers have no choice but to pay. Embedding ticket sales into artists’ own websites could put pressure on those fees.
“We accept it because that’s the way you get tickets, unfortunately. There’s no choice to not pay them,” Mariquit Corcoran, group chief innovation officer at Barclays, told Insider.
“Over time, as these transactions get simpler by taking out the middleman, I do see those charges getting reduced over time,” Corcoran added.
Embedded finance still poses risks if not properly disclosed
Adding payments and lending into non-financial areas simplifies the consumer experience, but there are risks of making things too streamlined.
Having those types of features outside the guardrails of traditional financial firms does pose risks.
Players need to balance ease of use with transparency, ensuring consumers aren’t accidentally signing up for a service or buying a product they don’t want.
“The awareness for the consumer of what it is they’re actually doing is going to be crucial, and that’s where I see the risk,” Corcoran said.
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