Embedded Finance

The core business model of Embedded Finance operates on a partnership structure that fundamentally redefines the distribution of financial services, shifting the point of sale from a dedicated financial institution to the non-financial platform where the customer is already conducting a primary activity. This model typically involves a non-financial company (the distributor), such as an e-commerce platform or a software provider, and a Financial Service Provider (FSP) or a Banking-as-a-Service (BaaS) platform (the manufacturer). The manufacturer provides the regulated financial infrastructure—including licenses, core banking systems, and compliance—via robust Application Programming Interfaces (APIs) and white-label solutions. The distributor then integrates these services—be it payments, lending, insurance, or card issuance—directly into their existing customer journey, making the financial transaction contextual and instantaneous. This strategic integration transforms the distributor from a simple product or service provider into a financial service distribution channel, creating a powerful new revenue stream and a significant competitive moat. The value generated for non-financial companies is multi-faceted and financially substantial. Firstly, it unlocks new, high-margin revenue streams. Instead of simply facilitating a transaction, the distributor earns a commission or revenue share on the financial product sold. For instance, a B2B software company offering embedded payments might earn an interchange fee of 1% to 3% on every transaction, or a lending platform might earn a percentage of the interest on a point-of-sale loan. The Boston Consulting Group (BCG) estimated the total addressable market (TAM) for embedded finance in North America and Europe to be approximately $185 billion across four core products by 2025, underscoring the massive financial opportunity. Secondly, Embedded Finance dramatically increases Customer Lifetime Value (CLV) and reduces churn. By offering a seamless, one-stop-shop experience—such as a logistics company providing instant freight financing or a retailer offering "Buy Now, Pay Later" (BNPL) at checkout—the distributor deepens its relationship with the customer. This convenience makes the customer less likely to switch to a competitor who forces them to seek financing elsewhere. Thirdly, the model provides a wealth of proprietary customer data and insights. By observing both the primary commerce activity and the associated financial behavior, the distributor gains a 360-degree view of the customer, enabling hyper-personalized product targeting and risk assessment, which further optimizes the financial offerings. Finally, the ability to offer financial services provides a significant competitive advantage and market differentiation. Companies like Shopify, which offers "Shopify Capital" (embedded lending) to its merchants, or Uber, which provides debit cards and instant payouts to its drivers, demonstrate how embedded finance can become a core pillar of a non-financial company's value proposition, driving both financial gains and customer expansion. The market size, which surpassed $104.8 billion in 2024 and is projected to grow at a Compound Annual Growth Rate (CAGR) of 23.3% from 2025 to 2034, confirms that this model is not a niche trend but a fundamental shift in financial service delivery.