Mastering embedded finance: a complete guide for fintech innovators

The embedded finance industry is revolutionizing how people interact with financial services, creating new opportunities for companies to serve a wider market. This article explores the various aspects of this transformation and provides insights into the industry’s future trends and growth outlooks.

Introduction to embedded finance

Embedded finance integrates financial services, such as lending, insurance, and payments, within a non-financial customer journey. Companies embedding financial services play a crucial role in this ecosystem by creating digital infrastructure to connect financial institutions and nonfinancial companies. For example, one might offer financing options at checkout during online shopping. Point-of-sale finance solutions have existed in physical stores for some time; however, embedded finance refers specifically to the technological integration of financial services, especially in e-commerce. Embedded finance allows businesses to enhance their offerings, create customer value, and unlock new revenue streams. A recent Juniper Research study predicts that embedded finance revenue will increase 148% from $92 billion in 2024 to $228 billion in 2028.

What is embedded finance?

In short, embedded finance refers to integrating financial services into non-financial products and services. However, a diversity of features can be incorporated, from payment processing to lending, insurance, and more. Companies can embed financial services into various business models, from e-commerce platforms to ride-sharing apps.

To understand this by example, consider two mainstream and successful business use cases from Klarna and Starbucks.

Klarna: Buy Now, Pay Later

The most well-known financing option is Buy Now Pay Later (BNPL), where customers buy a product or service on credit and pay it back in installments. Klarna is a leading FinTech company in this space. Klarna offers a mix of interest-free and interest-bearing BNPL schemes for select retail partners, paid back in monthly installments (from 6 months up to 36 months). Klarna has even extended its product to services such as monthly subscriptions. Overall, Klarna has become a significant player in the embedded finance space, partnering with thousands of retailers worldwide to enhance customer engagement and drive sales. Klarna now manages 2.5 million daily transactions for a total annual revenue of SEK 23.5B ($2.2B). With its multi-trillion-dollar scale, the embedded finance market offers significant opportunities for fintech companies like Klarna to integrate financial products and services into nonfinancial environments.

Starbucks: the bank that sells coffee

In 2009, Starbucks launched its mobile app and the My Starbucks Rewards program. Unlike traditional financial institutions, Starbucks has integrated financial services directly into its app, representing a significant departure from conventional banking practices. Among other things, today’s app allows in-app mobile payments, mobile pre-orders, and curbside pickup. The program has over 32 million members, representing 57% of Starbucks’s total revenue. But that’s not all. Starbucks also provides financial services through its ‘closed loop’ stored value wallet. Funds on the Starbucks wallet are only for purchases at Starbucks. In addition to using in-app incentives to keep users engaged and increase spending, these preloaded funds act as free lending for the company and allow them to circumvent transaction fees in their daily operations. Starbucks has accumulated an estimated $1.6 billion in spent prepaid cards, generating an additional $118 million in interest. By 2021, Starbucks was reported to have the largest mobile payment user base in the U.S. (31.2 million active users), serving over 100 million customers across 78 markets. In other words, Starbucks is a bank that sells coffee.

The evolution of financial services integration

Financial service integrations have evolved from simple payment functionalities to more complex products like those embedded finance offers today. The rise of APIs and cloud computing has chiefly driven this acceleration. Banking-as-a-service enables businesses to provide financial services through API integrations, such as branded debit cards, personalized savings accounts, and instant bank transfers, embedding these services directly into their platforms.

Application Programming Interfaces (APIs) are the backbone of embedded finance. In essence, they allow different systems to communicate and share data. For example, when a user is checking out on an e-commerce website, they might see a PayPal or Apple Pay integration that allows them to pay without the friction of inputting all their card details. APIs power this.

Similarly, cloud computing enables storing and processing large amounts of data. Cloud computing has eliminated the need for significant capital upfront to purchase hardware and data centers. Cloud computing is typically pay-as-you-go, meaning businesses only pay for the resources they use. In the case of empowering embedded finance, cloud computing has allowed for the scalability and flexibility of providing financial services across platforms.

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The business case for embracing embedded finance and new revenue streams

Whether it’s a lending solution like Klarna’s BNPL or an internal innovation like Starbucks’ loyalty and gift card program, embedded finance can offer businesses a variety of significant economic and strategic advantages. It can increase revenue, reduce friction on the customer journey, improve customer loyalty, reduce costs, and even create new revenue streams. Businesses well placed to offer embedded finance, such as retailers, online marketplaces, and telecoms companies, can build, partner, or buy to integrate these services, with providers like Unit,, and Plaid facilitating these partnerships.

In a crowded market, this competitive edge can allow businesses to differentiate themselves and provide users with a more convenient and personalized experience.

By removing the need for customers to navigate multiple platforms and providers during the customer journey, businesses can streamline the user experience, reduce friction, and improve customer relationships.

How embedded finance works

In the evolution of embedding financial services, we noted that APIs and cloud computing were the core enablers of embedded finance. However, implementing embedded finance requires a whole host of components, of which APIs and cloud computing at the integration stage are just a part.

Key components of embedded finance systems


This is where everything gets started. A non-financial company can integrate embedded finance in one of two ways: either a) provide a unique embedded finance offering or else b) integrate an existing one.

In the case of the first choice, non-financial companies (for example, a retailer) need to partner with a financial services provider such as traditional banks and fintech companies and use APIs to integrate financial services into their platforms. 

In the second choice, non-financial companies may not wish to reinvent the wheel. They simply desire to make their user experience more scalable and frictionless. In this case, they might partner with a technology company like Shopify and integrate their financial services into their core offering.


As stated previously, APIs and cloud computing are the core enablers of embedded finance. APIs provide access to banking services, payment processing, and lending, while cloud computing accounts for real-time transaction processing and other resource-intensive activities.

Lastly, Software Development Kits (SDKs) are incredibly important to a seamless integration. SDKs are essential tools that allow developers to integrate financial functionalities into the application instead of building it all from scratch. 


While security is always good, this is even more true regarding financial services. Securing transactions is crucial.

While your security protocol should always evolve, at minimum, you should ensure that your integration is encrypted, your APIs are secure, and, lastly, that you have robust fraud detection mechanisms.

Regulatory compliance

Following data security, you must comply with regulations such as the General Data Protection Regulation (GDPR) and the Payment Card Industry Data Security Standard (PCI DSS).

Secondly, embedded finance providers must comply with whatever financial regulation pertains to their offering and obtain any necessary licenses. Typically, this requires working with regulated financial institutions.

Embedded finance primary use cases

The potential use cases of embedded finance are innumerable; however, the most common use cases and real-world examples are provided below. The digitization of commerce and business management has significantly expanded opportunities to embed finance in nonfinancial customer experiences.

Embedded Payments:

-In-app purchases and transactions within non-financial apps

-Integrated payment options for e-commerce platforms

-Seamless checkout experiences within various services

-Examples include Stripe & Shop Pay (Shopify)

Embedded Lending:

-Point-of-sale financing options for online and offline purchases

-In-app lending for specific purchases or services

-Integrated credit offerings within business management platforms

-Examples include: Klarna & Afterpay

Embedded Insurance:

-Contextualized insurance offerings within related platforms or services

-On-demand insurance for specific activities or purchases

-Integrated insurance options within e-commerce or travel booking platforms

-Examples include Cover Genius & Qover

Embedded Loyalty Programs:

-Reward points or cashback features integrated into payment transactions

-Loyalty programs embedded within e-commerce or service platforms

-Gamified saving or investment features within financial apps

-Examples include Starbucks & Honey

Regulatory and compliance considerations

While the exact legal landscape governing embedded financial services is largely subject to where your business is operating and the service being provided, it is also important that general requirements, such as know-your-customer (KYC) and anti-money laundering (AML) requirements, are similar in most jurisdictions.

Thus, companies should prepare to have stringent KYC and AML procedures from the start. They should also conduct ongoing monitoring and reporting to detect and prevent fraudulent activities. Lastly, best practices should include staying current with the latest regulatory developments in all applicable jurisdictions.

Future trends in the embedded finance market

Innovative technologies driving embedded finance

Just as cloud computing and APIs kicked off the rapid acceleration of embedded finance, blockchain and AI are two key technologies with immense potential to revolutionize the sector further.

For example, blockchain enables secure and transparent financial transactions, offering increased efficiency and enhanced trust. Similarly, AI can innovate upon existing financial services and customer insights. As one example, AI-powered lending solutions would be faster and easier, with businesses offering lending solutions in just four clicks.

Challenges and pitfalls when embedding financial products and services

Common obstacles to adopting embedded finance can be divided into challenges for companies wishing to implement embedded financial systems (purchasers) and providers.

The main challenges for purchases include:

– Understanding compliance requirements involved in providing financial services

– Fraud prevention: Purchasers must utilize sophisticated fraud detection systems combining existing customer data with machine learning to minimize risk.

– Brand trust: Consumers might hesitate to trust non-financial brands with financial transactions.

– Poor end-user experience: Integrating financial services seamlessly into platforms can sometimes lead to complex user interfaces. Further, consumers may need time to adapt to the new embedded financial services.

Reliance on the internal teams’ understanding of an external service

– No control over the uptime of the embedded feature

The main challenges for providers include: 

Regulatory compliance:

– Licensing and Regulation: Ensuring compliance with financial regulations across different regions and jurisdictions.

– Anti-Money Laundering (AML) and Know Your Customer (KYC): Implementing robust AML and KYC processes to prevent fraud and illegal activities.

Technology integration

– System Integration: Integrating financial services with existing platforms can be technically complex and resource-intensive.

– Data Management: Efficiently manage and secure vast amounts of data generated by financial transactions.

And, lastly,

– Affordability: Providers need robust data to assess customers’ affordability accurately, using tools like Open Banking and income verification to reduce risk for high-value items.

To overcome these challenges, businesses should consider partnering with experienced technology providers who can offer expert guidance and support throughout the implementation process. Partnering with experienced financial companies can help navigate these challenges by leveraging their expertise and established systems.

Seeking legal and regulatory advice is crucial to ensure compliance with applicable laws and regulations.  Additionally, having a clear roadmap, securing stakeholder buy-in, and fostering cross-functional collaboration can help businesses navigate the complexities of embedded finance and achieve successful implementation.


In this post, we’ve explored the transformative impact of embedded finance on the fintech and commercial business landscapes. Importantly, we’ve covered the core components of any good embedded finance implementation strategy, important regulatory considerations, and future trends. By understanding embedded finance’s opportunities and challenges, companies can position themselves for rapid growth, diverse revenue streams, and increased customer loyalty and engagement.


Is embedded finance the future?

Embedded finance can enhance your business offering by seamlessly integrating financial services into non-financial platforms, enhancing user experience, and creating new revenue streams. Its rapid growth is driven by technological advancements and the increasing demand for convenient, on-the-spot financial solutions.​

What is the difference between embedded finance and fintech?

Fintech is a far more general term, referring to a broad spectrum of technologies that improve and automate financial services. Embedded finance specifically refers to the process of integrating financial services into non-financial platforms and ecosystems. In brief, the latter is a subset of the former, as it incorporates financial functionalities into other services and applications. 

Is embedded finance part of open banking?

No, embedded finance is not part of open banking. However, they can work together. Since open banking allows third-party developers to build around financial institutions, embedded finance can be implemented by providing the necessary data and connectivity.

Who uses embedded finance?

Embedded finance is used by businesses to service both other businesses and consumers, depending on the case. It is most commonly used on e-commerce platforms, ride-sharing, delivery apps, and marketplaces to offer financial services such as payments, ending, and sometimes even insurance. Consumers benefit through its convenience and streamlined user experience.

What is the demand for embedded finance?

The business demand for embedded finance is driven by the need to improve customer engagement and/or create additional revenue streams. Consumers prefer the convenience of accessing financial services directly with the platform they regularly use, driving the adoption and expansion of embedded finance solutions.


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