When ordering food, calling a taxi, or making a purchase in an online store, a person increasingly receives a loan, insurance, or cashback account, without any bank brand on the screen. The service is simply sewn into the button to pay or confirm the order. Embedded finance is embedded finance, and it is this model that is shaping the economy of the next decade, – Artem Lyashanov.
Below, why this model has accelerated right now, in which cases it is best seen, and where its real limits lie.
Prerequisites for the accelerated development of the model
Store credit cards performed a similar function a decade ago. The current scale became possible due to the coincidence of three factors:
- Open banking APIs that allow non-financial companies to connect to licensed infrastructure without their own license;
- Regulatory clarity regarding partnership models between banks and platforms;
- Changed consumer behavior, accustomed to covering all needs in one application.
None of these factors alone would have had such an effect. An API without regulatory clarity would have remained a technical possibility without a business model, and regulatory clarity without changed user behavior would not have created demand. It was the simultaneous action of all three that transformed embedded finance from a niche practice into a structural trend.
Market dynamics and size
According to estimates by Dealroom and ABN AMRO Ventures, the global embedded finance market could reach $7.2 trillion by 2030.
According to fintech expert Artem Lyashanov, ten years ago, a customer’s expectation of waiting three days for a loan decision was considered the norm, but today such an expectation is formed by platforms that make decisions in seconds.
Practical cases of implementing the model:
- A platform for online stores through Shopify Capital issues loans and advances to merchants based on their sales data;
- Uber embeds financial instruments for drivers, turning one-time trips into long-term involvement in its own ecosystem;
- Amazon makes payments so invisible that the purchase decision is often made faster than a person has time to realize it.
What all three examples have in common is that the company looks at the customer not as an account with a balance, but as behavior, activity and context.
Embedded finance is beneficial not only to the user, but also to the platform itself, which is why the growth rate is so high:
- Behavioral data is more accurate than balance data;
- The decision point coincides with the point of need;
- Loyalty is transferred to the ecosystem, not to the bank brand.
The appeal of embedded finance does not mean that there is no downside:
- Operational risks
When a platform adds payments or lending, it inherits not only revenue, but also the complexity of the financial infrastructure.
- Regulatory uncertainty
When a non-financial company offers a banking service, the question arises: who is responsible for compliance, the platform, the partner bank or the technology infrastructure provider?
- Behavioral risks for the consumer
The traditional path to obtaining a loan from a bank involved a pause. When a financial decision is embedded directly in the checkout of an online store and approved in seconds, this pause disappears, and with it some of the protection against impulsive financial decisions.
The speed that makes embedded finance profitable for business is the same speed that weakens the consumer’s natural self-control mechanism.
Artem Lyashanov
Frequently Asked Questions
What is embedded finance in simple terms?
This is the embedding of financial services (loans, insurance, payments) into non-financial products and applications, so that the user receives the service without switching to a separate banking application.
How does embedded finance differ from the old-style banking partnership?
Previously, the partnership between a bank and a store looked like a separate product with its own brand (for example, a store credit card). Embedded finance removes even this brand: the service becomes an invisible part of the familiar interface.
Is it safe to use a loan embedded in the checkout of an online store?
Technically yes, since such products are usually backed by a licensed partner bank. The risk lies in the speed of decision-making, the lack of a pause between the decision and payment can push to impulsive purchases on credit.
