The concept of embedded finance has been around for quite some time. Traditionally, businesses like car dealerships used embedded finance to offer loans when someone wanted to purchase a vehicle. But as the digital economy skyrockets — passing the $10 trillion mark in 2023 and expected to grow at a CAGR rate of 9.52% from 2024 to 2028, peaking at $16.62 trillion worldwide, according to Statista — embedded finance becomes the norm and a main driver of wealth.
Ray Fernandez, writing for TechRepublic Premium, looks at how embedded finance works, the different types and use cases, big names in the sector, the benefits, challenges and best practices.
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TYPES OF EMBEDDED FINANCE AND USE CASES
There are numerous embedded finance examples across the fintech landscape. As the sector continues to modernize, new models and services also emerge. But let’s look at the eight most common types of embedded finance and what sectors leverage them.
1. Embedded payments
These services integrate different payment options, such as digital wallets, buy now, pay later, invoice financing or split payments directly into non-financial platforms.
Embedded payments are popular among e-commerce platforms, ridesharing apps, food delivery platforms and point-of-sale systems.
Airbnb: Leveraging Buy Now, Pay Later
In May 2023, Airbnb partnered with Klarna to offer travelers flexible payment options and financing opportunities. Under the option to buy now and pay over time, Klarna gives Airbnb users the option to access monthly plans between 6-36 months, interest-bearing or interest-free. But Airbnb is not the only company seizing the buy now, pay later opportunity.
According to data from Adobe, in early 2024, buy now and pay later during the holiday seasons accounted for $16.6 billion in online spending — up by 14% compared to the previous year. Year-over-year growth for the trend was set at 17.5%, totaling $9.2 billion spent.
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