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Embedded Finance APIs

Fintech and banking

Aug 8, 2023

4 min. read

James Irwin

Author

If you are familiar with embedded finance, you’ll know that it requires communication between several parties — including companies, customers, and third-party financial services. Here’s how embedded finance works and how APIs make it possible.

Embedded Finance Definition

“Embedded finance” refers to various financial services that companies can offer alongside more commonplace services. For example, companies may provide embedded payments, banking, lending, and insurance alongside their regular offerings.

More specifically, online stores and businesses may offer embedded payments so that their customers can make transactions from external accounts without ever having to leave the store’s website or app. Or, a company may use embedded lending so that users can borrow money at the time of their purchase without the need to wait for a traditional bank loan.

Embedded finance allows customers to engage with a business as simply as possible while also allowing businesses to accommodate customers in a variety of financial circumstances.

However, companies usually need to make use of external, third-party financial services in order to provide these features. This is where embedded finance APIs come in.

Embedded Finance & Financial APIs

Embedded finance APIs are interfaces that allow companies to connect to third-party financial services, then integrate those services with their app or website.

API stands for “application programming interface,” and this type of interface is extremely common across all types of computer, mobile, and web applications.

However, APIs are gaining popularity in the area of finance for a variety of reasons. Regulations that promote access to financial data, such as the EU Payment Services Directive 2, have encouraged banks to open their payment services to others. This in turn promotes embedded finance and necessitates the use of embedded finance APIs.

Additionally, embedded finance is highly valuable to companies and banks that want to attract new customers and handle more transactions. As the number of services that can be integrated rises, more services are starting to offer APIs that can accomplish that task.

What can I do with an embedded finance API?

Embedded finance APIs allow your company to offer almost any financial service alongside its other services. Though the exact details depend on the API and service that you choose, we’ll outline some services that are commonly supported by embedded finance APIs.

In most of the following categories, embedded finance services use an API at some level to transmit data between companies, clients, and a third-party financial service.

Payments and Transactions

Companies and vendors can offer embedded payments, thereby giving customers the ability to pay with a variety of integrated payment methods at the point of sale.

For example, if you operate an online storefront, you can allow customers to pay with credit cards, bank cards, payment apps, and many other commonplace transaction methods. Embedded payments allow you to offer support for many payment types at once, and you’ll likely need to use a service’s API to interact with all of these payment options.

Companies that offer and use embedded payment APIs must collect and transmit user data safely and securely. This is often accomplished through compliance with a set of rules called the Payment Card Industry Data Security Standard (PCI DSS).

Digital Wallets and P2P Transfers

Digital wallets or “wallets-as-a-service” also fall into the category of embedded finance. This type of service allows companies to provide users with full-featured, branded digital wallets that can be used to store funds and make everyday transactions.

Unlike basic embedded payments, digital wallets can be used beyond the checkout point of a single company. Instead, digital wallets allow customers to make transactions including store payments and peer-to-peer (P2P) payments from a single app or web account.

Because many digital wallets are offered in partnership with major payment processors such as Visa, digital wallets are often accepted nearly universally.

Banking and Account Services

Embedded banking services allow customers to save, manage, and transact funds from an option that is integrated with a company’s main services.

This feature can be seen in certain apps that rely on freelancers and independents. Shopify, for example, offers Shopify Balance, which provides sellers with an account that is comparable to a business bank account. Lyft, meanwhile, offers a service called Lyft Direct, which provides drivers with an account that is similar to a standard bank account.

Embedded banking is important because it allows companies to offer bank-like services without the need to worry about compliance with regulations and extended customer support. Because embedded banking is provided through a trusted and established financial service, companies can provide embedded banking options safely and with minimal effort.

Lending and Financing

Embedded lending typically occurs when companies provide users with ways to obtain a loan, or when companies receive a loan through another service.

For example, DoorDash allows participating restaurants to receive advance funding before they repay those loans with funds raised from DoorDash sales. Amazon, meanwhile, provides business with lines of credit to sellers alongside its broader seller features.

While some types of embedded lending require users to pay interest on their loan, as is traditional, this is not always the case. “Buy now pay later” (BNPL) services, which typically do not require users to pay any interest, are often considered a type of embedded lending.

Investment and Wealth Management

Some companies offer embedded investments and wealth management. This approach allows users to access investment vehicles from within another application.

The major payments app PayPal, notably, offers cryptocurrency investments through a third-party exchange. The healthcare benefits company First Dollar, meanwhile, is allowing customers to invest their Health Savings Account (HSA) through DriveWealth.

This type of service could potentially offer access to various types of investment such as investment funds, stocks, micro-investments, or any other asset.

Embedded Finance Use Cases

While the above section describes applications for embedded finance, it should be noted that embedded finance can also be used within certain industries.

E-commerce and Retail

Embedded finance is often used in e-commerce and retail services such as online storefronts, app stores, and game stores. This is because retail companies and their customers are a natural fit for a wide variety of payment options and related APIs.

Retailers can take advantage of all of the categories discussed in this article — especially embedded payment services — in order to provide advanced features to their customers. By doing so, they can attract a wider variety of customers and provide more streamlined services while also creating new revenue streams and improving customer loyalty.

Fintech

Not all instances of embedded finance are seen in e-commerce. Fintech service providers may also choose to offer embedded finance services alongside their regular features.

For example, existing wallet and payment apps can be extended to provide embedded lending, banking, and investment options that go far beyond what a single company can normally provide. The embedded financial services that are included in popular payment apps such as PayPal could determine the standard for the industry in the coming years.

Companies in the fintech industry also have an opportunity to provide embedded financial services to other firms by offering an API or other connections.

B2B, Transport, and Logistics

While embedded finance often powers transactions between commercial businesses and customers, it can also be used in business-to-business (B2B) transactions.

For example, transportation and logistics companies that handle transactions between businesses may make use of integrated applications that are considered embedded financial applications. One example of this is embedded invoice financing, which allows involved parties to get certain types of funding without the need to rely on a traditional provider.

Once again, most of the above examples use APIs at some level, as this is necessary to communicate data across companies’ various platforms.

The Advantages and Opportunities of Embedded Finance

Embedded finance and related APIs offer many benefits, including:

Reduced costs: Because embedded finance usually involves working with a third-party service or its API, subscribing companies do not need to spend large amounts of time or money to provide financial services to their customers
New revenue streams: Embedded finance APIs are highly efficient and versatile and often have support for many different financial networks; as a result, embedded finance can help companies bring in revenue from new channels
Increased profits: If embedded finance succeeds in bringing in more users and creating new lines of business, it can bring in more revenue and profits
Reputation and brand recognition: Businesses can work with trusted third parties to provide embedded financial services; they can also benefit if they become associated with the more popular embedded financial provider
Easier compliance and management: Companies that use embedded finance can spend less time and money complying with standards and regulations, as the third-party financial service provider may be responsible for these matters
Reduced staffing: Because third-party financial services power embedded finance, businesses can generally hire few or no staff to manage and maintain the service; plus, they may not need to provide customer service in the relevant area
Oversight of funds: Companies that use embedded financial services may be able to monitor finances to the extent that they need, while also allowing third-party embedded service provider to manage more complex financial concerns

The Future of Embedded Finance

Embedded finance is growing thanks to the success of the internet and mobile devices, both of which have given rise to an interconnected network of financial services.

The trend is expected to become even more popular as regulations allow for the integration of financial services and as companies take advantage of the trend.

According to data from global consulting firm Bain and Company, multiple trends are underway. The company suggests that embedded finance revenue in the U.S. will more than double from $22 billion to $51 billion between 2021 and 2026.

It also suggests that consumer payments and consumer lending play a significant role in embedded finance, and that this trend will continue despite the growth of business payments and lending. It says that consumer embedded finance transactions could reach $3.5 trillion by 2026, producing $21 billion in revenue as it enters the retail and food service industries.

Embedded B2B payments could, by 2026, reach $2.6 trillion and generate $6.7 billion in revenue for companies that are active in this area. Bain and Company also describes growth in numerous other areas including embedded banking, cards, and BNPL.

Get in Touch

Payset offers a wide variety of financial services including virtual IBAN accounts, a multi-currency wallet, and foreign currency trading. Click below to find out more.

A UK multi-currency account can streamline how you manage your finances. Whether for business or personal use, a multi-currency account provides you with added freedom and flexibility and removes barriers to payments and transfer methods.

Here is everything you need to know about UK multi-currency accounts.

A Payset UK multi-currency account is a single account with which you can hold, send, and receive funds in up to 38 currencies. This allows business or personal account holders to save endless time and money on foreign exchange, and money transfers, which from a traditional bank account would be far more expensive and slow.

From your personal UK-based IBAN account, you can transfer money to bank accounts around the world as well as send and receive free and instant transfers to and from other Payset clients. You can send funds using a diverse network of payment networks, including SWIFT, SEPA, Target2, Faster Payments, CHAPS, and more.

When you exchange funds from one currency to another, there are no margins added to our exchange rates and the fees are clearly displayed before you click send. If you, for example, work with multiple currencies, make purchases in other countries, travel frequently, invest in foreign currencies, pay staff in other countries, or receive payments in other currencies, a multi-currency account can save you time, money, and work compared to a traditional bank account.

There are lots of banking institutions and financial services that will aid you in opening a multi-currency account. Often they can allow you to convert and transfer a considerable number of currencies.

Before you open a UK multi-currency account with any platform or service, make sure you have explored all of the different options available to you and have found the best type of account to suit your financial needs.

How Does a UK Multi-Currency Account Work?

A UK multi-currency account works in the same way as a standard bank account or electronic wallet. Although the services provided will change depending on where you choose to open your account and who you choose to open the account with, all multi-currency accounts should allow you to:

Withdraw money

Send and receive payments in multiple currencies internationally

Access your funds for electronic transfers

Earn interest on your account total

In the same way that fees can occur with a standard bank account you may run into additional charges with a UK multi-currency account.

You could be charged for a number of actions including; making withdrawals, account opening and closure fees, transfer fees, and more.

The frequency or amount of these charges will often vary and if you ask your banking agency they will usually be able to tell you exactly how much you will be charged and which services you will be charged for before you open your account.

Alternative Options to Consider Before Opening a UK Multi-Currency Account

There are many alternatives to opening a UK multi-currency account. For example, there are also money transfer services and online electronic wallets such as Payset that allow you to send your money in over 34 currencies without the need for a UK multi-currency account. You can start sending money across the globe or in person today using your existing bank account.

Frequently asked questions

What is a UK multi-currency account/IBAN?

Are there limits to the amount of money I can send and receive with a UK multi currency account?

Which currencies can I send and receive in my UK multi currency account?

How do I add money to my UK multi currency account?

Types of UK Multi-Currency Accounts

Multi-currency IBAN accounts
Personal multi-currency accounts
Multi-currency accounts for business
Multi-currency cash passports
Multi-currency wallets

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