As the global economy heads into uncharted waters, businesses are seeking efficient ways to manage cross-border business-to-business (B2B) transactions and enhance customer relationships through improved convenience and personalized experiences. Embedded finance, particularly embedded foreign exchange (FX) and embedded payments solutions, offers a transformative approach to handling international payments.
By integrating financial services directly into business platforms, companies can streamline operations, enhance their ability to efficiently manage international transactions, and unlock growth opportunities.
Introduction to embedded finance
Embedded finance refers to integrating financial services, such as payments, lending, or insurance, into non-financial platforms. This integration allows businesses to offer cross-border payments within their existing ecosystems, eliminating the need for their customers to navigate separate financial institutions. These solutions are designed to meet specific needs and enhance user experience, making financial transactions more efficient and convenient.
Real-world examples of embedded finance
Buy now, pay later (BNPL), digital wallets, and embedded payments are just a few use cases of embedded finance found in the real world. For example, a software company can incorporate payment processing directly into its platform, providing a seamless experience for users. Or in the education space, Convera’s embedded payments solution enables international students to make tuition payments directly through the institution’s website, simplifying the cross-border payment process and reducing errors.
Today, embedded finance — and embedded payments in particular — can also be found in these industry sectors:
- E-commerce: Online retailers can offer localized payment options, enhancing customer satisfaction and expanding global reach.
- Travel and hospitality: Businesses can manage bookings and payments in multiple currencies, improving the customer experience for international travelers.
- Healthcare: Providers can streamline billing processes for international patients, reducing administrative burdens.
- Software-as-a-Service (SaaS): Companies can integrate payment solutions into their platforms, creating new growth opportunities and enhancing user engagement.
Across all industries, the adoption of embedded payments is rapidly growing. According to EY, embedded payments are projected to grow at a 23% compound annual growth rate between 2021 and 2026. The volume of payments through embedded channels is expected to reach $6.5 trillion in 2025.
What is embedded FX?
Embedded FX refers to integrating foreign exchange services directly into a company’s platform or application, allowing businesses to manage cross-border payments and transactions more efficiently. This technology enables companies to provide their customers with a seamless payment experience, regardless of the currency or country involved.
By embedding FX services, businesses can facilitate international trade and commerce, making it easier to expand into new markets and countries. As more businesses venture into global markets, the role of embedded FX becomes increasingly vital, offering streamlined services that enhance customer satisfaction and operational efficiency.
The crucial role of financial institutions in embedded finance
On the one hand, financial institutions, such as banks and financial service providers, play a crucial role in facilitating cross-border payments and transactions. They provide the necessary infrastructure and services for businesses to send and receive payments in different currencies.
However, traditional banking services can be out of reach in emerging markets, prompting many companies to seek alternative providers that offer a more convenient and easily accessible solution. That’s where embedded payments come in. The rise of embedded finance technologies is reshaping traditional banking models, making financial services more integrated and user-friendly. To stay relevant, financial institutions must adapt to the changing needs of businesses and consumers by providing innovative solutions that meet the demands of the digital age.
Key benefits of embedded FX solutions for cross-border payments
International payments are key for businesses operating globally, facilitating trade and transactions across borders. Managing cross-border B2B payments involves navigating complex FX markets, fluctuating exchange rates, and varying regulatory environments.
Embedded FX solutions address these challenges by offering these key benefits:
- Real-time currency conversion: Businesses can empower their customers to transact in their preferred currencies, with real-time exchange rates, enhancing transparency and trust in transactions with other countries.
- Automated compliance: Integrated compliance tools ensure adherence to international regulations or sanctions, reducing the risk of penalties and delays.
Three key benefits of embedded finance and payments driving business growth
Adopting embedded finance solutions offers several benefits that contribute to business expansion:
- Process automation: Automating financial operations reduces manual errors, accelerates transaction times, and frees up resources for strategic initiatives.
- Real-time insights: Access to up-to-date financial data, such as interest rates, enables informed decision-making and agile responses to market changes.
- Streamlined compliance: Integrated compliance features simplify adherence to financial regulations across different jurisdictions.
Businesses embracing embedded payments as a growth driver see marked increases in customer lifetime value, with ancillary benefits including heightened loyalty and a richer data pool for personalized offerings. Embedded finance solutions also enhance customer and employee retention by providing added value during the existing customer journey.
Beyond large-scale financial deals, embedded finance can potentially improve cash flow and accelerate growth. By offering user-friendly apps and online tools, these platforms make it easier for a diverse range of users, including small businesses, previously excluded from the formal financial system, to manage their finances, access credit, and build financial confidence. Simplified investment tools, personalized financial advice, and real-time financial management features demystify finance and empower users to make informed decisions and find new customers.
How are embedded payments applied across industries?
While educational institutions are receiving a multitude of benefits from embedded cross-border payments, many more industries are embracing these innovations to secure better customer experiences and operational efficiencies. Businesses are actively undertaking digital transformation efforts to stay competitive in this rapidly evolving market.
Notably, the trend is picking up momentum in the banking sector. Embedded finance solutions are designed to enhance user experiences by simplifying financial processes and ensuring greater efficiency. According to Tariq Bin Hendi, CEO of Astra Tech, writing for the World Economic Forum, the traditional narrative of banks versus fintechs is evolving into one of collaboration, often termed “coopetition.” Fintech companies bring agility and innovative solutions, while banks offer scale, trust, and regulatory expertise. By partnering, both can leverage their strengths to deliver enhanced services.
The rise of embedded finance technologies is reshaping customer experiences and enhancing business opportunities across various industries.
“The next frontier of embedded payments is their adoption across industries,” says Scott Johnson, Vice President of Technical Program Management at Convera. “But for many businesses, such as retailers or manufacturers, adopting these new tools on their own may be difficult. Partnerships will not only help to shape their offerings but also ensure that they have robust security and compliance measures.”
What’s the future of embedded finance?
Developing new financial products in traditional banking can take months or even years, while the adoption of embedded finance can simplify the process and address the growing demand. Convera’s Payments Pulse report predicts total cross-border payment flows will reach $290 trillion by 2030, including solid growth in business-to-business (B2B) transactions that are projected to expand from $39 trillion in 2023 to $56 trillion.
Hence, the embedded finance market is poised for significant growth. As technology advances, we can anticipate:
- Broader integration: Financial services will become more deeply embedded across various platforms and industries, directly into moments when consumers need them.
- Enhanced personalization: Data analytics will enable more tailored financial solutions, improving customer experiences.
- Increased accessibility: SMEs will gain greater access to sophisticated financial tools, leveling the playing field.
These innovations are poised to make embedded finance a seamless facilitator of cross-border payments for businesses, offering streamlined processes, growth opportunities, and improved customer experiences.
By integrating these solutions, companies can position themselves for global expansion. As embedded finance continues to evolve, businesses that embrace these innovations will be better equipped to navigate the complexities of the global marketplace and drive sustained growth.
Want more insights into the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.
