The embedded finance opportunity: A new era for banks and non-finance applications

April 18, 2024
5
minutes to read
by
Justin Bohlmann
Table of Contents

We're moving from a multi-app world to a super-app world. Whoever provides the most value with the lowest level of friction will win the customers' hearts and minds. The way customers interact with finance, in particular, is undergoing a seismic shift. They no longer seek standalone financial services but seamless integration within their daily activities. This is where embedded finance thrives.

What is embedded finance?

Imagine your financial admin being done from within your banking app, buying coffee with a single tap in your favourite cafe's app, or securing insurance on a new gadget at checkout. 

Embedded finance directly integrates financial products – financial admin, payments, loans, insurance – into non-financial platforms, vice versa and interestingly, financial products into other financial products.

Why is embedded finance important?

Embedded finance offers a win-win for customers and businesses, including banks and non-financial brands.

  • Customers get frictionless, convenient access to financial services when and where they need them.
  • Banks can unlock new revenue streams by reaching customers beyond traditional channels or providing additional value within existing products.
  • Non-financial Brands can enhance customer loyalty and engagement.

The power of embedded finance

The next generation of embedded finance leverages AI to personalise financial experiences within the digital interfaces and products we use daily. This translates to streamlined processes, data-driven insights, and a significant market opportunity –  
KBV research estimating the Global Embedded Finance Market size is expected to reach $384.8 billion by 2029, rising at a market growth of 30.0% CAGR during the forecast period.

Embedded Finance Market Size - Global Opportunities and Trends Analysis Report 2019-2029
Embedded Finance Market Size, By End-use 2021 - 2029 - Source: www.kvbresearch.com


And ey.com estimating that the market size of global embedded finance across the entire value chain will grow from US$264b in 2021 to US$606b in 2025.

Thriday is at the forefront of this revolution, using embedded finance in the form of Banking as a Service and combining that with AI to automate bookkeeping and accounting for business owners and then white labelling the same offering into banks powering innovative offerings like NAB's NAB Bookkeeper product.

What are the key benefits of embedded finance?

Embedded finance is designed to streamline the customer journey. Imagine sending an invoice from within your banking application. Then, when the invoice is paid, the transaction is reconciled, the invoice is marked as paid, the tax is calculated, and the month-on-month cash flow forecast for the business is updated, all in real-time!

Or imagine applying for a loan to purchase furniture within the retailer's app, eliminating the need for separate applications and approvals. 

Embedded finance removes pain points, reduces friction, and simplifies financial tasks. 

Additionally, embedded finance creates new opportunities to leverage customer data. By analysing spending habits within a specific platform, banks can offer personalised financial products and recommendations and provide previously unobtainable levels of automation and efficiency to customers.

What are some examples of embedded finance?

The possibilities for embedded finance are vast. Here are a few examples:

  • Business Accounting: Picture a small business owner managing invoices, receiving payments, and generating reports directly within their banking app.
  • Digital wallets: Mobile wallets like Apple Pay and Google Pay allow users to store payment information securely and make contactless payments. Or think of the possibility of international currency sub-accounts integrated directly into your accounting platform.
  • Buy Now, Pay Later (BNPL): This popular option allows customers to split purchases into smaller instalments, often integrated directly at checkout.
  • Ride-Sharing Apps: Apps like Uber and Lyft seamlessly integrate payment processing within their platform for a frictionless user experience. They provide their drivers with cash flow and expense management features, giving them more time and substantial business.

Who offers embedded finance?

While traditional banks are crucial in providing financial products and infrastructure, a vast ecosystem enables embedded finance. Including:

  • Banks - Banking as a Service is banks' primary embedded finance offering.

    Thriday is a prime example. Our consumer-facing product enriches data fed in from Banking as a Service APIs. Then, it uses AI and machine learning models to categorise and assign charts of accounts to inbound and outbound transactions. This, combined with crucial integrations with other critical business features such as receipt and expense management, quoting and invoicing, means business owners can manage their end-to-end financial management obligations in a single platform, creating huge efficiency gains.
Thriday can be embedded into your existing banking application
Thriday can be embedded into your existing banking application


  • Fintech companies: These innovative players develop the technology and partnerships that power embedded finance solutions.

    The flip side of Thridays' consumer-facing product is our white labelled product, where banks, apps and other business applications can take our AI smarts for transaction categorisation, expense management, tax calculation, and cash flow forecasting to automate their client's financial admin from within the banking application.

    Embedding these features adds to the banks' critical services and provides a massive value-add to the customer. This greatly benefits the banks, improving acquisition and reducing churn.

    A bank account is a sticky product, but it becomes exponentially stickier when combined with other critical business tools.

    Embedded finance delivers the most value at its core by being where the end-user spends the most time. Banks can feed their services into other applications and utilise others within their platforms to truly own the customer's attention.
  • Non-financial platforms: These businesses integrate financial services to enhance their core offerings. Take a large rideshare app, for example. There’s a two-sided marketplace where multiple embedded finance opportunities exist.

    Payments, of course, are a revenue opportunity. Still, the value-added services of financial management can not only help to acquire more drivers and reduce churn but also ensure more of them are more successful and more of them have more time to deliver the service.

    Thriday, for example, can save small business owners up to 6 hours per week by automating their financial admin. A rideshare app can white label this service and give their drivers 6 hours back each week while helping them build a better business.

Who captures the value of embedded finance?

The value chain of embedded finance benefits all participants. Banks gain access to new customer segments and revenue streams. Non-financial brands enhance customer loyalty and engagement. Ultimately, customers benefit from a more convenient and personalised financial experience.

Who will win in embedded finance?

The winners in embedded finance will be those who can create a seamless and valuable user experience. Banks that develop a strong embedded finance strategy, partner effectively with the right fintechs, and leverage technology will be well-positioned for success.

Non-financial applications where people spend much time can provide value-added services to improve acquisition and engagement and significantly reduce churn.

Summary

Customers increasingly expect financial services and products to form a part of their daily lives. Non-financial services brands are meeting customers' evolving expectations by offering embedded finance solutions, such as payments, at customers' points of need. 

Banks must determine an embedded finance strategy to unlock new distribution opportunities within this developing ecosystem that enhances their core strengths and delivers long-term growth.

The future of finance

The future of finance belongs to those who embrace embedded finance. By creating a frictionless and personalised financial experience, banks and businesses can build lasting customer relationships and unlock significant growth opportunities.

Whoever has the highest level of attention and engagement from the customer wins. They get there by providing the most value with the lowest level of friction.

Embedded finance is a huge opportunity for productivity gains

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360 AFSL 241167 (Regional Australia Bank). Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you. Team Thrive No 2 Pty Ltd ABN 26 677 263 606 (Thriday Accounting) is a Registered Tax Agent (No.26262416).

Why waste time on financial admin when Thriday can do it for you?

JOIN FOR FREE
Already have an account? Login here
Thriday Debit Card

SEE HOW THRIDAY HELPS
SMALL BUSINESSES

Live demo this Thursday at 12:30pm.
SAVE YOUR SPOT
Close