Embedded finance has come of age, as more corporates are integrating or embedding financial services, such as bank accounts or wallets, payments and lending, into their product offerings to monetize their customer base, drive growth and add new revenue streams. Analysts at Juniper Research project that the embedded finance market will grow three-fold from US$43 billion in 2021 to $138 billion in 2026.

In fact, Oracle estimates that embedded finance represents a massive opportunity that will be worth over $7 trillion in the next ten years, twice the combined value of the world’s top 30 banks today. This augurs well for embedded finance and suggests that it can be a game-changer for non-financial companies.

Furthermore, payment service provider Stripe’s Insight Report 2023 confirms that embedded finance may be the next big thing for businesses because “Almost all companies—regardless of business model—plan to add embedded finance.”

The report, titled Stripe Insights 2023: Payments and fintech strategies in an economic downturn, polled over 2,500 business leaders in nine markets around the world (the US, the UK, Australia, Brazil, France, Germany, Japan, Mexico and Singapore), who estimate their businesses make at least 10% of their revenue from online sales. The survey was done to find out how they plan to grow their organizations in today’s economic climate.

Three in four companies interested in becoming a financial services provider

Of all the business leaders surveyed across a variety of industries such as technology, ecommerce, financial services and manufacturing, “In 2023, 75% of all global businesses plan to offer embedded finance to their customers.”

“This means that almost every single company we surveyed, regardless of business model, is interested in becoming a financial services provider”, the survey noted.

The proliferation of Banking-as-a-Service (BaaS) tools driven by application programming interfaces (APIs) has made it easier for companies to offer their customers financial services – charge cards, bank or money management accounts, payment services, business expense cards and loans – without building any financial infrastructure themselves or having to go through compliance and regulation as financial entities.

Of the products that companies plan to embed financial services for, “Most will start by offering bank accounts and charge cards”, observed the survey.

Source: Stripe Insights 2023 Report

This may be because companies that issue charge cards can earn revenue from interchange fees and monthly subscriptions while better serving customers who are seeking a smarter way to manage spending and stay on budget. With embedded bank accounts, non-financial companies can increase client stickiness as well as offer their users a checking account to hold funds and make payments.

Companies in emerging markets more likely to embed financial services

As per the Stripe Insights survey, “Businesses in emerging markets, such as Brazil and Mexico, are more likely to offer embedded financial services than businesses in more established economies. This is likely because incumbent financial service providers in emerging markets aren’t meeting customers’ expectations, making the need for alternatives more acute.”

Source: Stripe Insights 2023 Report

The survey highlights some differences in the likely adoption of embedded finance based on business location. While business leaders of organizations in maturing markets like Brazil (62%) and Mexico (52%) are very likely to adopt embedded finance, in comparison, business leaders of corporations in developed economies are less likely to do so, with only 43% of US companies and 32% of German organizational leadership very likely to integrate financial services in their platform.

The Stripe survey also found that UK (18% very likely) and Japan (5%) are the least likely to consider embedding financial services in 2023. Stripe offers a possible explanation for the particularly low number in Japan: “This is likely a result of many traditional Japanese companies still using in-house legacy systems, which can’t accommodate additional financial services.”

While corporations are expected to seek new ways to generate revenue, the study shows regional differences among respondents in terms of their focal area, e.g., focused on cutting costs or investing in growth. Companies in Mexico and Brazil are more focused on boosting revenue, while those in mature markets, such as Germany and the UK are prioritizing cost reduction, and this may explain why organizations in emerging markets are more likely to pursue embedded finance as a new revenue opportunity.

Dan Carter, Senior Director, Global Payment Strategy, Redbridge Debt & Treasury Advisory, shares his thoughts in the Stripe survey report about what he believes is the reason emerging markets are leading the embedded finance race: “Emerging markets tend to be leaders in payments innovation because of the lower penetration of card networks and traditional financial services coupled with the fast development of internet and telecom operators. The rapid expansion of smartphone and internet availability within those countries has presented those consumers with what we, in more established financial markets, consider as alternatives.”

The survey advocates businesses build financial services products to meet the needs of a specific audience rather than develop general offerings for the entire market as is done by traditional financial institutions. Working directly with a bank or partnering with a BaaS provider so that the corporation can remove the need to own the financial infrastructure or technology in use is recommended.

In conclusion, with the pace of global corporate embedded finance uptake gaining momentum, capitalizing on the large actionable market opportunity to generate new revenue streams, reducing purchasing friction, leveraging data to find better-matching finance options quickly, and increasing customer engagement can help finance chiefs and corporate treasury stay ahead of their competition. For that to happen, they may have to incorporate embedded finance as a part of their core business strategy.