I was reading about embedded finance and had a question about how it actually works, since it is often described as just adding a payment button to an app, which seems too simple. Here is what I understood from my reading, and I would appreciate anyone correcting me or adding context.
Embedded finance refers to non financial companies offering financial products directly within their own platform, rather than sending customers to a separate bank or provider to get something like a loan, insurance, or a payment account. Examples include a retailer offering buy now pay later at checkout, a software platform offering business loans to its users based on their transaction history, or a ride sharing app offering insurance to its drivers. The difference from a simple partnership with a bank seems to be how seamless it feels, with the financial product built directly into the existing user experience.
This is usually made possible through banking as a service providers, which handle the regulatory and infrastructure side of payments, lending, or card issuing, while the front facing brand focuses on customer experience and distribution. That seems to be a big reason embedded finance has grown so quickly, since a company does not need to become a licensed bank to offer financial products.
My question is how much of the revenue and margin sits with the front facing brand compared with the banking as a service provider behind it, and whether embedded finance is genuinely more profitable for most companies or mainly useful for improving customer retention and reducing churn.
Has anyone here built or worked on an embedded finance product? What were the real technical and regulatory challenges, and did the economics work out the way you expected?
Found a fairly clear explanation of this on Entrepreneur Plus while I was reading around the topic, helped me understand the founder side of it a bit better.
