Artem Lyashanov: Embedded Finance. How every application becomes a little bit of a bank
When ordering food, calling a taxi or making a purchase in an online store, a person increasingly receives a loan, insurance or cashback account. A financial service is no longer provided as a separate product with its own name and bank logo. It is simply sewn into the “pay” or “confirm order” button. This is embedded finance, and it is they who determine what the economy of the next decade will look like.
In this article, we will analyze why embedded finance is growing so quickly, what examples best illustrate this, and where the boundaries of this model lie.
Why is this happening right now
Embedded finance has been around for years; store credit cards were the prototype of this model a decade ago. But the scale it has now achieved has been made possible by the confluence of three factors:
- Open banking APIs, which allow non-financial companies to connect to licensed infrastructure without their own banking license;
- Regulatory clarity on partnership models between banks and platforms;
- Changing consumer behavior, who are used to solving everything in one application and are not willing to tolerate unnecessary steps.
According to analysts Dealroom and ABN AMRO Ventures, the global embedded finance market could reach $7.2 trillion by 2030. In the UK, the market is forecast to grow from about $6.5 billion in 2024 to more than $15.7 billion in 2029 (that’s an average annual growth of almost 20%).
“When a bank asked if a customer was willing to wait three days for a loan decision, it sounded normal even ten years ago. Today, expectations are shaped by platforms that issue decisions in thirty seconds right on the payment page,” notes Lyashanov.
How it works in practice
The most illustrative examples of embedded finance
Companies that initially had nothing to do with finance:
- Shopify started as a platform for online stores, and now through Shopify Capital it issues loans and advances to merchants based on data on their sales (this is a more accurate risk assessment than that available to a traditional bank that only sees an account statement);
- Uber embeds financial tools for drivers, turning one-time trips into long-term involvement in its ecosystem;
- Amazon makes payment so invisible that the purchase decision is made faster than a person has time to realize it.
What is common in all these cases
The company looks at the customer not as an account with a balance, but as behavior, activity and context. This is a fundamentally different view of risk and loyalty than the one that banks have historically used.
“The platform knows more about its user than a bank ever knew about its client. Not because the platform collects more personal data, but because it sees real behavior in real time, not a certificate of income issued a month ago,” emphasizes Artem Lyashanov.
The limits of the model
Despite all its appeal, embedded finance has a downside that is often left out of the headlines.
- First, operational
When a platform adds payments or lending, it inherits not only revenue, but also the complexity of the financial infrastructure. A large bank has entire divisions that deal exclusively with this. A technology company that adds a financial function as one of the product features often underestimates the depth of this work and encounters accounting discrepancies only when the scale no longer allows them to be corrected manually.
- Secondly, regulatory
When a non-financial company offers a banking service, the question arises of who is responsible for compliance, the platform, the partner bank or the technology infrastructure provider.
- Thirdly, behavioral
The traditional path to obtaining a loan from a bank included a pause: application, waiting, documents. This pause unconsciously served as a warning. When a financial decision is embedded directly in the checkout of an online store and approved in seconds, this pause disappears and with it part of the protection against impulsive financial decisions.
Conclusion
Embedded finance is a structural restructuring of where and how a person encounters financial decisions. It makes financial services invisible, contextual and fast and that is why they are so effective from a business point of view.
But invisibility comes at a price, in particular, a more complex infrastructure, blurred regulatory responsibility and the disappearance of the pause that previously protected the user from rash decisions.