Why embedded finance will accelerate in 2024

Last year, Mastercard and the tech platform provider Fabrick announced an expanded strategic partnership to develop embedded-finance solutions for businesses across Europe. The deal will enable companies to integrate financial services directly into their products through application protocol interfaces (APIs), allowing them to provide payment, banking, and insurance services without the need to build their own proprietary financial infrastructure.

The embedded-finance use cases enabled by APIs are almost endless. For example, they can enable healthcare providers to offer out-of-pocket payment options to patients right on the provider’s own website. Retail businesses of just about any type can offer loans to consumers without the need for them to leave the original website where they’re shopping, making the customer journey easier and increasing the likelihood of future purchases.

Until recently, limited offerings of economically attractive APIs—the necessary “pipes” that share personal financial data securely between banks and third-party developers—has governed the market’s growth. Now, thanks to continued innovation of APIs, financial sector leaders have gained confidence in their ability to support automation and generate scalability with new embedded-finance offerings. This in turn has encouraged the rise of third-party banking-as-a-service companies that use APIs to embed financial services into the customer experience and enable companies to target a broader range of demographics, including the so-called “unbanked and underbanked.”

Coincidentally, the spread of smartphones around the globe has been a major driver of the embedded-finance market’s development. Statista forecasts the number of smartphone users globally to continuously increase between 2024 and 2029, with 1.5 billion (31%) additional users. The ongoing growth in mobile wallets and the Unified Payments Interface (UPI) developed by the National Payments Corporation of India, which has over 300 million active users, are further indications of the embedded-finance trend. As an industry sector, it’s now projected to rise dramatically in the coming years, with the market accounting for $384.8 billion in revenue by 2029—an almost 17x growth rate from the $22.5 billion generated in 2020.

EMBEDDED INSURANCE

To see embedded finance in practice, look no further than Wysh, a digital-first life insurance company that enables businesses to embed financial protection into existing applications and product offerings. Wysh offers a no-cost life insurance policy that can be embedded into a variety of financial products, such as savings accounts, and is particularly well-suited to customers with insufficient or no coverage. Banking institutions are viewing it as a way to attract and retain deposits in a highly competitive environment.

Alex Matjanec, CEO of Wysh, says recent advances in secure financial data-sharing APIs has enabled his company to execute rapid product integrations with new partners. In the case of Wysh’s recently formed alliance with family financial planning website UNest, the company offers an embedded life insurance policy as a complimentary benefit tied to customers’ savings account balances. “We are able to offer a transparent experience for consumers to automatically acquire coverage as a benefit that’s embedded with a savings account, for example,” Matjanec tells Fast Company.

From a perspective of the customer journey, Wysh’s offering overcomes a widespread consumer misperception about the complexity of obtaining life insurance, making the process almost frictionless instead. LIMRA’s 2023 Insurance Barometer Study found only around half of Americans own a life insurance policy, while 41% of both insured and uninsured individuals say they don’t have sufficient coverage. A majority of millennials (66%) say they won’t buy life insurance because it’s too expensive, while 29% say they are overwhelmed by the perceived complexity of acquiring coverage.

“There’s a lot of research that shows people think acquiring life insurance is too complex and at the same time, financial institutions feel that adding a layer of protection to their products is also too complex, but it doesn’t have to be that way,” Matjanec says.

GREAT EXPECTATIONS

After reaching a customer count of 12 million in the third quarter of 2023—more than a 100% increase from the year before—the embedded finance company MoneyLion said it expects by 2025 to get its products into the hands of around 12% of Americans. The company operates a financial product search engine, API, and an embedded-finance platform that delivers personalized recommendations through multiple touch points with customers, a sizable portion of whom suffer from less-than-perfect credit scores.

MoneyLion is also witnessing significant growth in its B2B offerings for enterprises, which contributed roughly 35% of the company’s total revenue in the first half of 2023. In the third quarter, the company reported a revenue increase of 24% from the year earlier to over $110 million, with a list of over 1,100 enterprise partners. “Because we’re embedded in so many websites, the cost to generate that revenue is significantly lower,” MoneyLion cofounder and CEO Dee Choubey recently told the Financial Brand.

Another company making a similar shift toward B2B embedded-finance offerings, Neo Financial, started in 2019 with a mission to provide new types of banking products for consumers. As the company has evolved, it’s working more and more with businesses to provide them with embedded financial solutions. Recently, Neo Financial announced both a new rewards and cashback debit card for consumers, as well as a partnership with Intuit TurboTax to provide loan advances secured by personal tax returns. The deal with Inuit is an embedded-finance product, in which the loan is provided by Neo Financial through its banking partners.

Array, another provider of an embedded-finance innovation platform used by fintechs, financial institutions, and digital brands, recently announced a multiyear agreement with FICO to provide credit scores and related data to millions of consumers. By providing access through Array to their credit scores, the service helps consumers better understand and manage their fiscal health, while building stronger relationships with financial service providers as a result.

FAVORABLE REGULATIONS

The current regulatory winds in Washington, D.C., seem to favor continued advances of embedded-finance innovation, encouraging competition among financial institutions and giving consumers more freedom and access to new services.

In October of 2023, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule requiring U.S. financial firms that offer checking accounts, prepaid cards, credit cards, and digital wallets to give consumers access to their personal financial data at no charge, so it can be shared with other service providers. The proposed rule would expand consumers’ access to their financial data across a wide range of financial institutions, ensure privacy and data security for consumers, and push for greater efficiency and reliability of data access across the industry to reduce costs, according to CFPB. (It’s difficult to predict if or when the ruling will go into effect. The CFPB has to make a detailed review of all the submitted public comments and then make a final decision.)

“The CFPB proposed rule represents an exciting shift in the North American financial services landscape,” says Laurent Van Huffel, senior VP of financial services and open banking for North America at Axway, a provider of enterprise data integration services. “This is an opportunity for financial institutions to eliminate sharing customer data via unsecured screen scraping and to seize first-mover advantage.”

Last year, Mastercard and the tech platform provider Fabrick announced an expanded strategic partnership to develop embedded-finance solutions for businesses across Europe. The deal will enable companies to integrate financial services directly into their products through application protocol interfaces (APIs), allowing them to provide payment, banking, and insurance services without the need to build their own proprietary financial infrastructure.

The embedded-finance use cases enabled by APIs are almost endless. For example, they can enable healthcare providers to offer out-of-pocket payment options to patients right on the provider’s own website. Retail businesses of just about any type can offer loans to consumers without the need for them to leave the original website where they’re shopping, making the customer journey easier and increasing the likelihood of future purchases.

Until recently, limited offerings of economically attractive APIs—the necessary “pipes” that share personal financial data securely between banks and third-party developers—has governed the market’s growth. Now, thanks to continued innovation of APIs, financial sector leaders have gained confidence in their ability to support automation and generate scalability with new embedded-finance offerings. This in turn has encouraged the rise of third-party banking-as-a-service companies that use APIs to embed financial services into the customer experience and enable companies to target a broader range of demographics, including the so-called “unbanked and underbanked.”

Coincidentally, the spread of smartphones around the globe has been a major driver of the embedded-finance market’s development. Statista forecasts the number of smartphone users globally to continuously increase between 2024 and 2029, with 1.5 billion (31%) additional users. The ongoing growth in mobile wallets and the Unified Payments Interface (UPI) developed by the National Payments Corporation of India, which has over 300 million active users, are further indications of the embedded-finance trend. As an industry sector, it’s now projected to rise dramatically in the coming years, with the market accounting for $384.8 billion in revenue by 2029—an almost 17x growth rate from the $22.5 billion generated in 2020.

EMBEDDED INSURANCE

To see embedded finance in practice, look no further than Wysh, a digital-first life insurance company that enables businesses to embed financial protection into existing applications and product offerings. Wysh offers a no-cost life insurance policy that can be embedded into a variety of financial products, such as savings accounts, and is particularly well-suited to customers with insufficient or no coverage. Banking institutions are viewing it as a way to attract and retain deposits in a highly competitive environment.

Alex Matjanec, CEO of Wysh, says recent advances in secure financial data-sharing APIs has enabled his company to execute rapid product integrations with new partners. In the case of Wysh’s recently formed alliance with family financial planning website UNest, the company offers an embedded life insurance policy as a complimentary benefit tied to customers’ savings account balances. “We are able to offer a transparent experience for consumers to automatically acquire coverage as a benefit that’s embedded with a savings account, for example,” Matjanec tells Fast Company.

From a perspective of the customer journey, Wysh’s offering overcomes a widespread consumer misperception about the complexity of obtaining life insurance, making the process almost frictionless instead. LIMRA’s 2023 Insurance Barometer Study found only around half of Americans own a life insurance policy, while 41% of both insured and uninsured individuals say they don’t have sufficient coverage. A majority of millennials (66%) say they won’t buy life insurance because it’s too expensive, while 29% say they are overwhelmed by the perceived complexity of acquiring coverage.

“There’s a lot of research that shows people think acquiring life insurance is too complex and at the same time, financial institutions feel that adding a layer of protection to their products is also too complex, but it doesn’t have to be that way,” Matjanec says.

GREAT EXPECTATIONS

After reaching a customer count of 12 million in the third quarter of 2023—more than a 100% increase from the year before—the embedded finance company MoneyLion said it expects by 2025 to get its products into the hands of around 12% of Americans. The company operates a financial product search engine, API, and an embedded-finance platform that delivers personalized recommendations through multiple touch points with customers, a sizable portion of whom suffer from less-than-perfect credit scores.

MoneyLion is also witnessing significant growth in its B2B offerings for enterprises, which contributed roughly 35% of the company’s total revenue in the first half of 2023. In the third quarter, the company reported a revenue increase of 24% from the year earlier to over $110 million, with a list of over 1,100 enterprise partners. “Because we’re embedded in so many websites, the cost to generate that revenue is significantly lower,” MoneyLion cofounder and CEO Dee Choubey recently told the Financial Brand.

Another company making a similar shift toward B2B embedded-finance offerings, Neo Financial, started in 2019 with a mission to provide new types of banking products for consumers. As the company has evolved, it’s working more and more with businesses to provide them with embedded financial solutions. Recently, Neo Financial announced both a new rewards and cashback debit card for consumers, as well as a partnership with Intuit TurboTax to provide loan advances secured by personal tax returns. The deal with Inuit is an embedded-finance product, in which the loan is provided by Neo Financial through its banking partners.

Array, another provider of an embedded-finance innovation platform used by fintechs, financial institutions, and digital brands, recently announced a multiyear agreement with FICO to provide credit scores and related data to millions of consumers. By providing access through Array to their credit scores, the service helps consumers better understand and manage their fiscal health, while building stronger relationships with financial service providers as a result.

FAVORABLE REGULATIONS

The current regulatory winds in Washington, D.C., seem to favor continued advances of embedded-finance innovation, encouraging competition among financial institutions and giving consumers more freedom and access to new services.

In October of 2023, the Consumer Financial Protection Bureau (CFPB) announced a proposed rule requiring U.S. financial firms that offer checking accounts, prepaid cards, credit cards, and digital wallets to give consumers access to their personal financial data at no charge, so it can be shared with other service providers. The proposed rule would expand consumers’ access to their financial data across a wide range of financial institutions, ensure privacy and data security for consumers, and push for greater efficiency and reliability of data access across the industry to reduce costs, according to CFPB. (It’s difficult to predict if or when the ruling will go into effect. The CFPB has to make a detailed review of all the submitted public comments and then make a final decision.)

“The CFPB proposed rule represents an exciting shift in the North American financial services landscape,” says Laurent Van Huffel, senior VP of financial services and open banking for North America at Axway, a provider of enterprise data integration services. “This is an opportunity for financial institutions to eliminate sharing customer data via unsecured screen scraping and to seize first-mover advantage.”