Top Takeaways:

  • Embedded finance is the integration of financial services directly into a business’s products, services, and processes, with the goal of placing banking services directly where and when they are needed.
  • It can not only help businesses streamline internal operations and reduce costs, but also provide a differentiated experience for their customers.
  • Embedded finance technology, such as platform connectors and APIs, are flexible and customizable.
  • Businesses looking to implement embedded finance tools should consult financial institutions that have a demonstrated commitment to innovating through technology.
  • Learn more about a business that has capitalized on the benefits of embedded finance, eCommission.

It wasn’t that long ago when, for many, the concept of “GPS” involved a standalone device mounted to a dashboard, available only when a driver was in the car with somewhere to go. Now, GPS is embedded everywhere – in cars, smartphones, smart watches – providing integrated, convenient access to maps and location information any time, from anywhere.

Such is the power of financial services combined with embedded technology. It’s the engine behind embedded finance, which is transforming financial services and helping businesses leverage technology to create tailored experiences for their customers, improve their operational processes, and drive better performance. 

What Is Embedded Finance?

Embedded finance is the integration of financial services – such as payment acceptance and initiation, balance and transaction reporting, lending, and investing – directly into a business’s products, services, and processes, with the goal of placing banking services directly where and when they are needed. It can not only provide valuable utility for businesses looking to streamline internal operations, but also help them drive revenue by providing an enhanced experience for their customers. 

Back-office Benefits of Embedded Finance

“One way to think about embedded finance is the swivel chair problem,” said Howard Forman, head of Digital Channels for PNC Treasury Management. “Treasurers and treasury teams often find themselves swiveling around to manage separate systems for accounts payable, accounts receivable, foreign exchange, cash forecasting, and other functions. What embedded finance can do is integrate functions across multiple systems so that they can be managed through a single platform that is familiar and readily accessible to users.”

Embedded finance integrations stand to offer real value to treasury teams, who often find themselves being asked to do more with less. According to a survey PNC Bank commissioned jointly with GTreasury, 70% of treasury departments have five or fewer team members, so it stands to reason that the highest ranked priority among these teams was improving treasury operational efficiency (58%). Surveyed CFOs were focused on similar concerns, citing reducing overall costs as their top focus (49%).1

Much of the value of embedded finance integrations lies in their ability to deliver on these objectives of improving efficiency and reducing costs. One of the main benefits of embedded finance integrations is that they can reduce operational expenses by leveraging technology to offload repetitive tasks. They can also help to control fraud risk and associated expenses by integrating a financial institution’s automated account verification services into treasury workflows to verify payee information before a payment is sent.

Embedded finance integrations can also help simplify payments, presenting opportunities to move away from checks and handle payments electronically, adding them into existing workflows. Intelligent routing technology can also play a part, leveraging integrations to allow a financial institution to determine the best payment rail to use based on payment timing and specified instructions for a payee. If payments are being initiated from multiple systems and processes, integrations may present a way to consolidate complicated workflows into a single system.

Streamlining reconciliation is another common treasury pain point, as teams look to import transactions and balances automatically into systems in real time and connect that data to purchase orders and invoices. Embedded finance integrations can automate this reconciliation process, which may be one of their most valuable benefits for treasury teams.

APIs and Platform Connectors: How Do They Work?

When it comes to implementation, having an integration strategy is important. “Before you implement new financial technology, you need to think about your specific objectives and what processes you are hoping to improve,” said Forman. “The options are flexible – it may be that you need a customized experience, or you might be able to improve efficiency through a pre-built connector – so it’s important to consider the particular areas of friction in your business you want to focus on.”

  • Platform connectors – Platform connectors may be a good option for businesses looking to make the Enterprise Resource Planning (ERP) or Treasury Management System (TMS) platform they already use more efficient. Connectors, such as PINACLE Connect® (winner of the Celent Model Bank 2023 Award for Embedded Banking), are pre-built integrations that facilitate connecting banking data with an ERP or TMS. This allows businesses to manage functions like reporting, transactions, balances, and payments within their existing ERP or TMS, rather than logging into a financial institution’s banking portal. Connectors are often quick and easy to implement, as they don’t require users to have deep technical knowledge.
  • APIs - API (application programming interface) is an intermediary technology that allows software applications to communicate with each other, working behind the scenes of a user interface to provide an integrated experience. APIs allow users to seamlessly send ACH, wire, and real-time payments (RTP) within digital experiences that businesses own and operate.  Other frequent uses for APIs include functions like obtaining current day transaction data and verifying accounts before sending payments. APIs are often more dynamic and real-time in nature than pre-built connectors and can be integrated to create a customized experience.

Embedded Finance Enriches the Customer Experience

Embedded finance can help businesses not only improve back-office operations, but also provide a differentiated experience for their customers. By integrating embedded finance tools into their websites or mobile apps, businesses can offer customers convenience and security in purchasing goods and services. Some examples include enabling immediate payments for refunds or insurance claims, or embedding payment processing to allow customers to make payments without leaving the app or webpage. These integrations can also take the form of offering additional financial services within the flow of a transaction, such as buy-now-pay-later offerings at the time of purchase, or product insurance and financing offers that are tailored to a client’s profile, making the purchase decision easier and increasing customer engagement.

Security is an added benefit, as API technology uses a secure token technology model that ensures that only a narrow slice of secure, encrypted data is provided for payment initiation, thus reducing the risk of fraud.

Trusted Guidance for Digital Transformation

Implementing embedded finance technology can be an important part of a company’s digital transformation journey. But, according to Forman, any digital automation plan should be incremental, measurable, and adaptable. “As businesses start thinking about what embedded finance tools might help them improve their operations, they should consider reaching out to financial institutions who have a demonstrated commitment to innovating through technology,” said Forman. “PNC is one example of a bank that has readily available embedded finance solutions that can easily integrate into a company’s existing systems and processes to meet immediate needs. We can also offer consultative insight into overall strategic approaches to optimize business performance.”

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1. Pressure Points, Payments & Plans for Automation: The Road Ahead for CFOs and Treasurers survey report