In recent years, the line between financial and non-financial companies has begun to blur, thanks to the rapid rise of embedded finance. This emerging trend refers to the integration of financial services—such as payments, lending, insurance, and investment—into the platforms of non-financial companies. By embedding these capabilities, firms in sectors like retail, technology, healthcare, and transportation are evolving into quasi-banks, offering seamless financial experiences to their customers without the need to build a bank from scratch.

What is Embedded Finance?

Embedded finance allows non-financial businesses to incorporate financial products into their offerings using APIs and fintech infrastructure platforms. For example, a ride-sharing app might offer drivers a debit card for instant earnings access, or an e-commerce site may provide installment loans directly at checkout. Unlike traditional banking, where customers need to interact with a separate financial institution, embedded finance keeps the user experience within the original platform, reducing friction and increasing convenience.

Drivers of Growth

Several technological and market forces are fueling the rise of embedded finance:

EQ.1. Revenue Impact from Embedded Finance:

1. Fintech Infrastructure

Startups like Stripe, Plaid, Marqeta, and Solarisbank have created plug-and-play APIs that make it easier for any company to offer financial services. These platforms handle complex regulatory, compliance, and technical aspects, allowing non-financial firms to offer services like payments processing, issuing credit cards, or even launching branded bank accounts.

2. Customer Expectations

Consumers now expect seamless, on-demand digital experiences. Offering integrated financial tools enhances customer retention and engagement. For instance, Amazon’s “Buy Now, Pay Later” financing keeps users on the platform longer and increases order volume.

3. Data and Personalization

Non-financial companies often possess vast amounts of customer data. This data allows for more personalized and relevant financial products. For example, Uber can offer vehicle loans to its drivers based on ride history and earnings data, while Shopify offers loans to merchants based on sales performance.

4. Revenue Diversification

Embedded finance provides new revenue streams through interest, interchange fees, and other financial products. With thin margins in sectors like e-commerce or logistics, financial services can offer a more profitable addition to the core business.

Real-World Applications

Retail and E-commerce

Companies like Amazon, Shopify, and Walmart have integrated payments, lending, and even checking accounts into their ecosystems. Shopify, for example, launched “Shopify Capital” to offer cash advances to merchants, while Walmart has created a fintech startup to offer banking services.

Transportation

Uber and Lyft offer drivers instant pay, debit cards, and even savings tools. These services not only attract new drivers but also reduce churn by providing more financial flexibility.

Technology Platforms

Apple has ventured into financial services with Apple Pay, the Apple Card, and now Apple Pay Later. Similarly, Google and Meta have explored payment and wallet systems within their ecosystems.

Healthcare

Some healthtech platforms offer embedded insurance or financing options for expensive procedures, simplifying the process for patients and increasing conversion rates for providers.

Regulatory and Ethical Considerations

While embedded finance opens up numerous opportunities, it also presents significant regulatory and ethical challenges. Financial services are highly regulated to ensure stability, security, and fairness. Non-financial companies entering the space must navigate:

Licensing and Compliance: Most embedded finance partners rely on regulated banks or fintechs for licensing. However, ultimate responsibility for compliance still poses risk.
Data Privacy: As companies gain access to sensitive financial information, data protection becomes a key concern.
Consumer Protection: There’s a risk that consumers may not clearly distinguish between financial and non-financial entities, leading to confusion over accountability in cases of fraud or disputes.

Governments and regulatory bodies are beginning to scrutinize embedded finance more closely, especially as Big Tech firms deepen their involvement in financial services.

EQ.2. Loan Profitability (Net Interest Margin):

Future Outlook

Embedded finance is expected to become a $7 trillion market by 2030, according to some industry forecasts. As APIs and fintech infrastructure improve, the barriers to entry will continue to fall. In the future, we may see embedded finance becoming ubiquitous—across education platforms offering student loans, travel platforms bundling insurance and payments, or even social media sites enabling peer-to-peer lending.

What’s more, the next phase of embedded finance may integrate more advanced technologies like AI-driven credit scoring, blockchain-enabled transactions, or even decentralized finance (DeFi) tools being offered via mainstream platforms.

Conclusion

The rise of embedded finance marks a transformative shift in how financial services are distributed and consumed. By empowering non-financial companies to offer financial products, embedded finance is reshaping industries and challenging the traditional banking model. While the trend unlocks new value and convenience for consumers, it also raises new questions around regulation, data privacy, and systemic risk. As the financial landscape continues to evolve, companies, regulators, and consumers must navigate this new frontier with both enthusiasm and caution.

The Rise of Embedded Finance: How Non-Financial Companies Are Becoming Banks