Embedded Finance

Modern consumers often encounter financial services outside of traditional banks – for instance, paying for a ride within a cab-hailing app, or opting for installment payments while shopping online. This blending of finance into other industries is known as Embedded Finance.

In simple terms, embedded finance means the seamless integration of financial services into non-financial platforms or products. Instead of directing customers to a bank or a separate app for a financial transaction, companies embed the capability right at the point of need, providing a smoother customer experience.

For example, when you book a flight on a travel website and it offers you travel insurance with one click – that’s embedded finance (insurance integrated into a travel service). Or when an e-commerce site lets you “Buy Now, Pay Later” (BNPL) at checkout – essentially giving a small loan for the purchase without you having to visit a bank or fill a lengthy form – that is embedded lending.

The goal is to simplify financial processes for customers and meet them where they are, so they can obtain credit, make payments, or invest with minimal friction, all within the primary service they’re using.

Common Forms and Examples

Embedded Payments

This is one of the most ubiquitous forms. It allows customers to pay for a service within the service’s app/interface itself, without being redirected.

A classic example is ride-sharing apps (Ola, Uber) which have an in-app wallet or UPI integration – when the ride ends, the fare is paid automatically via the stored payment method or wallet, no cash exchange needed.

Food delivery and e-commerce apps also have one-click payment setups. The customer doesn’t explicitly think “I am using bank so-and-so’s service now”; the payment is embedded behind the scenes.

This speeds up checkout and enhances convenience. UPI’s proliferation has supercharged embedded payments in India – now even small merchants or utility apps use UPI intent or handles to accept payments within their flow.

Embedded Lending (Buy Now, Pay Later)

Here, credit is offered at the point of purchase. For instance, BNPL options on Amazon/Flipkart or at a retail checkout allow customers to instantly avail a small loan or split the payment into instalments.

Instead of applying for a loan at a bank, the loan is provided seamlessly by a fintech or bank partner integrated with the retailer. Similarly, some travel sites allow you to book an expensive ticket on a no-cost EMI – the interface makes it appear as just another payment method, though a lending transaction is happening in the background. Another growing example: instant credit for sellers on e-commerce marketplaces based on their sales data (as mentioned in the sabpaisa example) – here the platform partners with financiers to offer working capital loans to its sellers, embedded in the seller dashboard itself. Embedded lending eliminates paperwork and delay; eligibility is often checked via APIs (using your digital transaction history) and approval is in real-time.

Embedded Insurance

Non-financial companies can bundle insurance into their products. For example, when you buy a smartphone online and at checkout it offers “Accidental Damage Protection” – that’s insurance embedded into the purchase journey. Or booking sites offering flight insurance, as mentioned.

Car dealerships integrating auto insurance issuance at the point of car sale is another case. The user benefits by getting relevant insurance with minimal effort, and the insurance is provided by a third-party insurer via API integration. With more tech-savvy consumers, this has taken off because it’s far simpler than separately shopping for an insurance policy.

Embedded Investment/Wealth

Some apps that are not primarily financial are adding investment features. For instance, telecom or lifestyle apps might allow users to invest spare change in mutual funds or buy digital gold within the app.

Super-apps in some countries embed savings/investment modules so users can grow money without going to a bank or broker separately. An Indian example is certain payment apps offering direct mutual fund investments or digital gold purchase in-app (powered by partnerships with investment platforms).

Embedded Banking Services

Sometimes called banking-as-a-feature, this is where non-bank businesses offer what are essentially bank accounts or cards to their users. A prime example globally: Apple’s credit card (issued by Goldman Sachs) which is offered to Apple users within the Apple Wallet app – to the user, Apple is offering a card, but the backend banking is done by a bank partner.

In India, large consumer companies have started offering co-branded prepaid cards, or wallets with features similar to bank accounts (like interest or UPI payment addresses). Prepaid payment instruments (like prepaid cards or wallets) issued by fintechs in collaboration with banks also fall in this space, often giving a quasi-bank account experience on a non-bank platform.

Role of Banking-as-a-Service (BaaS)

Under the hood, Banking-as-a-Service (BaaS) is what makes much of embedded finance possible. BaaS is a model where a regulated bank opens up its systems via APIs such that a non-bank company can offer banking products under its own brand. The bank provides the license and compliance oversight, while the non-bank focuses on the user experience and distribution. For example, consider an online airline that wants to offer its customers a branded credit card or a travel wallet. Without BaaS, the airline would have to either acquire a banking license (impractical) or partner in a very limited way with a bank. With a BaaS partnership, the airline can integrate the bank’s account/card issuance API, and issue co-branded cards or accounts to users right on its app/website. The customers interact only with the airline’s brand interface, but in reality a bank at the back-end holds the deposits and handles regulatory compliance. This is often termed white-label banking, as the bank’s services are delivered through the branding of the non-bank.

To illustrate, fintech neobanks like Jupiter, Fi, or Niyo in India do not have their own banking license; they operate via BaaS partnerships with banks (like Federal Bank, SBM Bank, etc.). They provide a slick mobile app, great user features, but the accounts and balances are actually with the partner bank. BaaS thus allows any business (with sufficient user base) to embed tailored financial products. It could be as simple as a payments company offering escrow accounts, or a retail chain offering a loyalty-linked debit card, all powered by a bank’s infrastructure via APIs.

Advantages of Embedded Finance

For the consumer, it means convenience – accessing financing, insurance, or payments when and where needed, with minimal hassle. It often results in a better user experience (e.g., one-click checkout with stored credentials vs. manually doing a bank transfer). It can also improve access – for instance, someone with thin credit history might get BNPL approval based on alternative data (like e-commerce purchase history) even if they might not get a traditional credit card easily.

For businesses (the non-bank platforms), offering financial products can create new revenue streams and increase customer engagement. A platform with embedded finance can earn commissions or interest spreads, and customers tend to stay within the ecosystem longer (improving retention) because all needs are being met in one place. For banks and financial institutions, embedded finance is both an opportunity and a challenge. It’s an opportunity to extend their reach through partners – e.g., a bank can lend to a much larger pool of customers by partnering with an e-commerce giant, than through its branch network alone. It’s also a way to keep up with fintech disruption by collaborating (the bank provides the pipes, fintech provides the frontend). The challenge is that the bank’s brand may become invisible in the process (since the non-bank’s brand is customer-facing), and banks must ensure that their partners adhere to compliance norms to prevent any misuse or reputational risk.

Regulators are watching embedded finance and BaaS models to ensure consumer protection. In India, RBI has issued guidelines for digital lending, including those through merchant apps, to curb any reckless lending or violation of fair practices (like transparent interest disclosure). The gist is that even if the interface is a fintech app, if a regulated bank/NBFC is powering the loan, that regulated entity is responsible for compliance. Similarly, for prepaid instruments or neo-bank arrangements, RBI has set certain limits and oversight mechanisms.