Top 7 trends in Embedded Finance to watch in 2024

Embedded finance is the integration of financial services into non-financial platforms. It allows businesses to offer financial products and services within their existing apps and websites. Integrating well improves customer experience and opens up new business opportunities.

Embedded finance evolves incredibly fast as a segment within Fintech – a sector guiding how our digital future will work. Financial services are rarely so exposed to the real-time digital user experience of consumers as they are with things like embedded banking.

1. Integration with E-commerce Platforms

Possibly the most notable embedded finance trend for 2024 is its increasing integration with e-commerce platforms.

Consumers now expect more than just a variety of payment methods at checkout. They want features like one-click buy buttons, pre-approved financing options, and loyalty programs with instant rewards. By embedding these financial services directly into their platforms, e-commerce businesses can provide a smoother, more personalised shopping experience. This can also drive higher sales and customer retention.

Complacency here is a risk. What was cutting-edge for the past few years will quickly look dated as e-commerce integrations improve. That presents a real danger at the point of transactions because digital consumers do not hang around long if the experience is better elsewhere.

2. Rise of Buy Now, Pay Later (BNPL) Services

Buy Now, Pay Later (BNPL) services revolutionised the experience of financial services for younger consumers when they developed a few years ago. In 2024 this embedded finance trend will keep growing.

We have seen the rise of brands like Clearpay and Klarna to household-name status. Their progression to embedded banking options on checkout pages across a slew of major websites and apps was a watershed moment.

BNPL providers allow customers to make purchases and pay for them in instalments, often with little to no interest. It has seen rapid growth, especially with younger consumers.

This embedded finance trend is commonplace and established. There is room to bring even more flexibility to transaction payments. As BNPL’s success is driven by the most tech-savvy age cohorts, expanding its reach in new and innovative ways is both a necessary and profitable enterprise.

Integrating BNPL options directly into the checkout process made it easier for customers to make purchases. This year, more BNPL options will emerge. Providers will partner with a wider range of businesses as they keep adapting to consumer spending habits.

3. Expansion into new sectors

Embedded finance is no longer limited to e-commerce and retail, where it first made its name by making the inaccessible accessible (through BNPL), improving customer experience with embedded banking, and cultivating loyalty programs by packaging financial services into consumers’ purchasing journeys.

Those opportunities in online and offline retail were relatively low-hanging fruit, but major sectors are ripe for harvesting in 2024. Embedded finance trends are appearing in enormous sectors where the opportunities are enormous.These include:

• Healthcare: Patients can access financing options for medical procedures or subscriptions to wellness programs directly at point of care.
• Automotive: Car dealerships and ride-hailing platforms can offer car loans, insurance products, and instant financing for rentals and maintenance services within their apps.
• Travel and Hospitality: Travel booking platforms and airlines can provide travellers with instant financing for flights and hotels, travel insurance, and currency exchange within their booking processes.

4. FinTech partnerships flourish

The success of the embedded finance ecosystem depends on collaboration. Unsurprisingly, this means Fintech partnerships are an embedded finance trend, but 2024 predictive indicators suggest that the sector is now mature enough for these partnerships to become more complex. This is opens up new fields of opportunity,

Traditional financial institutions are recognising that maturity and are responding by increasingly partnering with Fintech companies.

Fintechs bring agility and tech, while banks offer regulatory compliance, a broad customer base, and the benefits of trust and reputation.

These partnerships are the indicator of a maturing sector that is now able to integrate with the traditional industry it originally spun off from. These Fintechs bring in the innovations and practices that matured outside traditional financial services, and a primary benefit of that will be giving access to embedded finance trends, embedded banking solutions, and a customer experience suited to the modern digital consumer.

5. Cybersecurity centre stage

Cyber threats have been a major issue for years and mass fraud campaigns that attempted to hijack checkouts were a big feature of the spike in fraud that hit at the start of the Covid-19 lockdowns.

Cybersecurity will always be necessary, but the 2024 predictions for embedded finance will have been noted by criminal groups, too.

These major embedded finance trends also mean the attack surface for cyber threats is expanded in this transitory phase. Criminals will inevitably target traditional institutions now partnering with fintechs and embracing embedded banking – the opportunity to find a vulnerability to exploit during the period of transition is too good for them to pass up. The same is true across industries, all of which present opportunities for fraud, theft, and ransomware attacks.

Protecting sensitive data from hacking will be as crucial as protecting the embedded financial services themselves. This is the case for finance providers, Fintechs, and the big firms in industries like insurance or healthcare that have sensitive patient and consumer data to protect.

Advanced security measures like strong authentication protocols, data encryption, and continuous monitoring for suspicious activities will be necessary. Collaborating with cybersecurity experts and conducting regular security audits will be crucial for building and maintaining trust with consumers and businesses.

The cost for implementing increased measure may be high but the risks come with consequences – monetary, reputational, or regulatory – will be severe,

6. Evolving regulatory landscape

The regulatory environment for embedded finance changes all the time. Predicting what will happen is as important as adapting to the new reality when it actually happens.

As the industry grows, regulators are coming to grips with a fast-changing environment, but 2024 predictions suggest a slew of new guidelines to ensure consumer protection, data privacy, and fair competition is coming the industry’s way.

Embedded finance providers need to stay informed about these changes and adapt \ to remain compliant. Collaboration between industry players and regulators will be key to creating a sustainable and healthy embedded finance ecosystem. So will planning for where legislation and regulation is likely to come and ensuring strategies manage the risk appropriately – maximising opportunities without compromising long-term prospects.

7. Open Banking fuels data-driven solutions

Open banking regulations are paving the way for a data-driven approach to financial services.

Embedded finance providers can use open banking APIs (Application Programming Interfaces) to access consumer financial data with their consent. Open banking APIs have been on the market for a while, but their analysis and use look like they are becoming more sophisticated.

This will lead to the creation of more personalised financial products and services, such as tailored insurance quotes, automated savings plans, and pre-approved credit options. It also means more financial services will reach more consumers and businesses that occupy the vast market gaps in financing that traditional services have failed to adequately serve.

As open banking adoption increases, embedded finance solutions leveraging the analyses they provide will also become more sophisticated: the better the data they get from open banking APIs, the more data-driven and far-reaching they can become.

The risk of misreading data has kept open banking from surging ahead, but ultimately the consequences of what it enables will be huge and transformative for economies and populations. Any progression brings huge opportunity.

2024 predictions make a febrile atmosphere

Among these 2024 predictions is a common theme – once-transformative embedded finance solutions could transform into vulnerabilities through the year, but only because of the massive opportunities that are opening up as embedded banking proliferates and financial services adapt.

The sector’s future is filled with possibilities, but dangers still lurk and they are very real. And so are the threats of missing out. 2024 will reward those who focus on continually improving the reach of financial services through things like embedded banking – it will also punish those slow off the mark. This is a dynamic sector poised for significant growth and innovation.