Embedded Finance: What it is and how it works

We live in an era of speed and convenience, where customers expect financial products to be seamlessly built into the digital tools they already use. Embedded finance is driving this shift, transforming how businesses and consumers access services like payments, banking, lending, insurance, and investing.

At its core, embedded finance refers to the integration of financial services into non-financial platforms through application programming interfaces (APIs) and infrastructure. Rather than directing users to banks or external providers, businesses can now embed financial products directly within their apps and workflows, unlocking new capabilities and revenue streams.

Non-financial companies are using embedded finance to deliver banking-like experiences without becoming financial institutions themselves. Meanwhile, traditional financial institutions are adapting by partnering with technology providers to embed their services in third-party platforms.

As embedded finance continues to evolve, understanding how it works and how to implement it effectively can give your business a competitive edge.

In this guide, we’ll break it down and show how embedded financial services can help your business create better customer experiences, boost engagement, and open up new growth opportunities.

What is embedded finance?

As we briefly touched on, embedded finance refers to the seamless integration of financial services, such as banking, payments, lending, insurance, or investing, into non-financial platforms, products, or services. It enables companies outside the traditional financial sector to offer these capabilities directly to their customers as part of their core offerings.

This is made possible through APIs, which allow financial functionality to be embedded into everyday digital experiences. API banking, where banking services are accessed and delivered via APIs, plays a central role in this ecosystem, allowing non-bank platforms to offer financial features quickly and securely.

For end users, the experience is often so seamless that the financial aspect is nearly invisible. For businesses, embedded finance opens up new revenue streams, improves customer experience, and provides deeper data insights. Financial services can be tailored based on customer behavior, creating personalized and contextual experiences that drive engagement and loyalty.

By delivering financial services exactly when and where customers need them, embedded finance enhances convenience, deepens trust, and creates long-term value across industries.

How embedded finance works

Embedded finance is made possible by digital infrastructure that connects financial institutions with non-financial businesses through APIs, licensing frameworks, and compliance technology.

At its core, embedded finance combines API-accessed infrastructure, regulatory support, and backend financial systems to enable seamless integration of services like payments, lending, payroll, and insurance into platforms that aren't traditionally financial, such as SaaS tools, marketplaces, and eCommerce platforms.

Let’s break down the key components that power embedded finance:

Technical infrastructure

• API integration: APIs are the backbone of embedded finance. They enable software systems to communicate and share financial data securely and in real time. This makes it possible to embed services such as invoicing, lending, payouts, and money movement directly into non-financial products.

  • Embedded finance platforms utilize these APIs to connect with banks, payment providers, and regulatory frameworks, thereby eliminating the need for companies to build financial infrastructure from scratch.

• Cloud computing: Cloud-based systems provide the scale and agility required to support embedded finance. They ensure the secure storage, retrieval, and processing of financial data across multiple geographies and currencies, enabling businesses to scale financial offerings quickly and cost-effectively.

Licensing and compliance

Embedded finance solutions must meet strict regulatory standards. While the technology enables seamless financial integrations, compliance ensures these services are legal, secure, and trustworthy.

Key regulatory components of embedded finance include:

• Financial licensing: Businesses offering embedded financial products must do so under the appropriate licenses. Most non-financial platforms rely on their embedded finance provider’s regulatory coverage. These providers typically partner with licensed financial institutions or hold their own licenses to offer services such as payments, credit, insurance, and the safeguarding of funds.

  • These licensed partners are responsible for originating regulated financial products and ensuring compliance with regional and international laws (e.g., PSD2 in the EU, FINTRAC in Canada, etc.).

• KYC and AML: Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements are foundational. Embedded finance providers must verify customer identities and monitor transactions for suspicious behavior to prevent fraud and financial crime. The level of KYC/AML required depends on the services offered and local regulations.

• Data protection: Embedded finance providers must comply with global data protection laws such as the GDPR (EU), CCPA (US), or PIPEDA (Canada) to securely collect, store, and process personal data. These laws help ensure customers’ data is handled responsibly and transparently.

• PCI compliance: If the embedded solution involves card payments, the provider must adhere to Payment Card Industry Data Security Standards (PCI DSS). These standards ensure that cardholder data is encrypted, stored securely, and protected against unauthorized access.

User experience

• Easy integration: Embedded financial services are designed to blend naturally into the host platform or product. Embedded finance providers offer customizable, native experiences that allow businesses to make financial interactions more convenient and efficient, without redirecting users or interrupting their journey.

• Intuitive interfaces: User-friendly, accessible designs help simplify complex financial tasks, like making payments, managing funds, or applying for credit. Embedded finance often supports flexible options (e.g., installment payments or 'buy now, pay later') to meet diverse user needs and improve conversion rates.

• Contextual offerings: Financial products are surfaced at relevant points in the customer journey. For example, offering embedded insurance during the checkout flow or displaying financing options during high-ticket purchases enhances relevance and improves the customer experience.

Data flow and management

• Secure data sharing: Customer and transaction data are securely exchanged between the platform, embedded finance provider, and financial institutions. Providers use advanced technologies like AI and real-time monitoring to detect fraud, ensure compliance, and protect sensitive data.

• Real-time processing: Transactions and system updates are processed instantly, giving users immediate feedback and enabling seamless financial interactions within the platform.

• Data analytics: Embedded finance solutions analyze user behavior and transaction patterns to optimize experiences and deliver personalized financial products, such as tailored credit offers or spending insights.

Monetization models   

As embedded finance offerings mature, new business models are emerging, allowing companies to monetize financial services in innovative ways and adapt to changing market dynamics.

• Transaction-based revenue: Generate revenue from each payment, FX conversion, or payout processed through your platform.

• Subscription pricing: Offer embedded financial services as part of a premium tier or SaaS plan, with recurring revenue from customers.

• Earnings from financial products: Monetize through FX markups, interchange on card usage, or interest spreads on lending products.

• Insight-driven growth: Use transaction data to inform personalized offers, product development, and cross-sell strategies.

Example of embedded finance in action

To illustrate how embedded finance works, consider the difference between two car-selling experiences:

Traditional car sale:

• A consumer lists their car on a marketplace where dealers can place bids.

• The consumer selects a winning offer and arranges vehicle pickup.

• The marketplace has no visibility into when (or if) the dealer pays, and the consumer is left waiting for funds to arrive via an external method like bank transfer or check.

Car sale 2.0 (with embedded finance):

• A consumer lists their car on the same marketplace.

• As part of the onboarding process, the consumer is issued a digital wallet within the platform.

• Dealers also open marketplace-linked accounts (powered by an embedded finance provider) to deposit funds securely.

• When the consumer selects a bid, the funds are transferred directly within the app, with no need to leave the platform or use third-party payment tools.

• The marketplace can see when the payment is initiated, track it in real time, and confirm when the funds reach the consumer.

• The consumer receives an in-app notification confirming payment and is given options: withdraw the funds to a bank account, keep them in the wallet, or spend using a branded debit card issued by the marketplace, potentially earning discounts or rewards.

This example demonstrates how integrating embedded finance products directly into a company's platform can enhance the user experience, enable users to transfer money efficiently, increase platform sales, and offer financial services in a contextually relevant manner.

Different types of embedded finance

Embedded finance encompasses various financial services that can be integrated into non-financial platforms and products. Each type serves different needs and offers unique benefits to businesses and consumers. Embedding financial services is a strategic approach for companies to generate new revenue streams and enhance their offerings by integrating fintech solutions directly into their platforms.

🔸 Embedded payments are a widely recognized and popular form of embedded finance. Key features include seamless checkout experiences, multiple payment options, real-time transaction processing, recurring payment capabilities, and bill pay functionality.

Examples range from one-click purchasing on eCommerce platforms to in-app payments for ride-sharing services and automatic payments via IoT devices like smart fridges. Embedded payments also streamline transactions and financial management for home service professionals, making it easier for them and their customers to handle payments within service platforms. For most embedded finance use cases, there’s an element of embedded payments to move money on and off the platform.

The benefits of embedded payments are significant. They reduce business cart abandonment rates, improve user experience and consumer convenience, and enhance security through tokenization and encryption.

🔸 Embedded banking refers to the integration of bank-like services, such as accounts, issued payment cards, and money transfers, directly into non-financial platforms like ride-sharing apps and eCommerce platforms. This enables seamless financial management features for users, enhances user loyalty, and streamlines financial transactions.

🔸 Embedded credit and loan products provide various financing options at the point of need. Key features include instant credit decisions, flexible loan terms, and alternative credit scoring methods. Examples include BNPL options in online stores, financing within B2B platforms, and microloans for small businesses via eCommerce dashboards.

🔸 Embedded insurance offers contextually relevant insurance products during the purchase journey of related goods or services. Key features include instant quotes and policy issuance, customized coverage based on user data, seamless claims processes, and usage-based insurance options. Examples include travel insurance during flight bookings, product protection plans for electronics, and pay-per-mile car insurance through connected vehicle apps.

🔸 Embedded investments integrate wealth management services into various platforms, making investing more accessible and convenient. Key features include fractional investing, robo-advisory services, automated savings tools, and access to a diverse range of asset classes. Examples include round-up investing in personal finance apps, stock trading on social media, and crypto investing within payment apps.

Embedded investments typically require some form of embedded payments to facilitate account creation and fund top-ups/withdrawals. These platforms often include financial management tools to help users organize, track, and optimize their investment activities.

🔸 Embedded foreign exchange (FX) solutions offer currency conversion and international payment capabilities directly within platforms. Key features include real-time currency conversion, multi-currency wallets, international payment processing, and FX risk management tools. Examples include currency conversion on travel booking platforms, multi-currency accounts for eCommerce sellers, and integrated FX for payroll systems.

🔸 Embedded compliance ensures regulatory adherence and enables embedded finance. Key features include automated KYC processes, AML screening, transaction monitoring, and regulatory reporting tools. Examples include identity verification for account opening, automated sanctions screening for international transactions, and real-time transaction monitoring.

🔸 Embedded payroll integrates salary processing into broader business management platforms. Key features include automated salary calculations, tax withholding, employee self-service portals, and integration with time tracking and HR systems. Examples include payroll processing in accounting software, gig economy platforms with integrated payment systems, and embedded payroll in small business management apps. Embedded payroll solutions often offer financial management features, including expense tracking and real-time financial oversight, for both employers and employees.

Implementing these various embedded finance solutions requires careful consideration of regulatory requirements, technological capabilities, and user needs. Banking services are a core component of embedded finance, offering essential products such as accounts, safekeeping, and tailored financial solutions through APIs and embedded platforms.

Embedded financial services enable the integration of multiple financial products, such as payments, lending, insurance, and investments, into non-financial platforms, powered by API integrations and third-party providers.

This approach expands financial access by enabling users to compare, select, and utilize a range of financial services through a single, integrated platform, thereby improving convenience and broadening access to financial products. When leveraging embedded finance, you should assess which type aligns with your strategic goals and customer demands. Then, start with one or two key areas before expanding offerings over time.

The importance of embedded finance in 2025

The embedded finance market is experiencing rapid growth, with projections indicating it could reach a value of trillions of dollars by 2030. The global embedded finance market is expected to experience significant expansion, underscoring its importance as a key driver in the fintech industry.

Embedded finance is at the forefront of financial transformation, enabling modernization and increased efficiencies across sectors. To remain competitive, companies must continually innovate and adapt to the evolving landscape of embedded finance.

Embedded finance is gaining traction for many reasons:

Advancements in technology

Increasing collaboration between fintechs, traditional banks, and non-financial entities is democratizing embedded finance solutions and providing more competitive products in the market. Technology development has also made it more cost-effective to integrate financial services.

Evolving consumer expectations

Consumers expect seamless, integrated experiences across all aspects of their lives. They want to be able to manage their finances, make purchases, and access services without the need to navigate multiple platforms. Embedded finance enables tailored financial products based on user behavior and context.

Expanding market opportunities

Embedded finance enables businesses to quickly enter new territories, markets, and segments and differentiate themselves through unique financial offerings. Non-financial companies can tap into financial services revenue. Nonfinancial companies' platforms, such as eCommerce or ride-sharing apps, are integrating embedded finance to expand their offerings and provide seamless financial tools directly within their existing digital platforms. This is particularly valuable for established digital platforms that need new ways to drive lifetime value from customers.

Improved financial inclusion

Embedded finance brings financial services to underserved populations by democratizing access to financial features for the underlying businesses. Financial service providers supply the core financial products that power embedded solutions, making it easier for more people to access payments, credit, and investments. Simplified access to payments, credit, and investments provides convenience within the experience of trusted brands.

Data-driven insights

The data from financial products used in the platform provides deeper insights into customer behavior. Data sharing between platforms and providers enables more comprehensive analysis of customer data, leading to better insights in embedded finance. Better data improves risk assessment and forecasting for commercial trends and can be used to drive the creation of more relevant financial products or even the upsell of new personalized offers.

Regulatory landscape evolution

Governments and regulatory bodies are becoming more supportive of embedded finance, recognizing its potential to improve financial inclusion and innovation.

Competition and innovation

Increased competition drives innovation. Embedded finance enables rapid adaptation to market changes and customer needs. Integrated financial services boost loyalty and increase the customer's lifetime value, as unique financial offerings set businesses apart from competitors.

Three examples of embedded finance companies

Embedded finance companies come in all shapes and sizes. They'll often specialize in different areas. Here are three:

Airwallex

Airwallex is a global financial platform that offers embedded finance solutions across borders.

Key offerings in Canada:

• Global infrastructure: Financial licenses in 60+ countries to support global businesses and enable expansion to new markets.

• Global Treasury: Multi-currency virtual accounts for collecting, holding, and sending money domestically and internationally with a competitive FX engine.

• Customized experience: Businesses can retain their own UI and customize Airwallex components in their websites and apps.

• Streamlined onboarding and compliance: Outsource KYC, AML, sanctions screening, and identity verification requirements to Airwallex.

Stripe

Stripe is known for its online payments gateway but has expanded to offer embedded finance capabilities.

Key offerings:

• Stripe Connect: Platform for marketplaces and platforms to manage multi-party payments.

• Stripe Issuing: API for creating and managing virtual and physical payment cards.

• Stripe Capital: Embedded lending solutions for platforms to offer financing to their users.

• Stripe Treasury: Banking-as-a-Service offering for platforms to embed financial services.

Plaid

Plaid is an open banking provider that gives secure access to financial and identification data needed to onboard new customers and fund accounts.

Key offerings:

• Account linking: APIs that allow apps to connect with users' bank accounts securely.

• Transaction data: Access financial transaction data for analysis and insights.

• Identity verification: Tools for verifying user identities and account ownership.

• Balance checking: Real-time account balance information for various financial products.

• Income verification: Income verification solutions for lending decisions.

Why Airwallex for embedded finance solutions in Canada?

The early exploration of embedded finance has largely remained in domestic markets. For this reason, many embedded finance providers have focused only on providing their services to their domestic market. As more and more businesses – especially those operating at scale – begin embedding finance into their products, they'll quickly need a solution that spans markets.

Airwallex's financial infrastructure has extensive global coverage, with financial licenses in 60+ markets. Businesses such as Brex and Navan choose Airwallex's embedded finance solutions to integrate financial services directly into their platforms.

Our embedded finance solution for Global Treasury in Canada allows businesses to integrate multi-currency accounts and seamless global fund transfers into their platforms – without needing local banking relationships or complex payment infrastructure. This solution enables platforms to manage multi-currency accounts, hold funds securely, and facilitate seamless global fund transfers.

By embedding multi-currency accounts and FX solutions, businesses can seamlessly manage international fund movements while reducing reliance on traditional banking systems. Likewise, our payout network allows their customers to send funds to 200+ countries. By bringing payments in-house, platforms can offer a convenient service that can be monetized by charging transaction fees or markups for FX and payouts.

Embedded finance use cases

Navan: streamlining global reimbursements

Challenge: Navan, a leading travel and expense platform, needed a global partner to manage and accelerate global payouts to their customers' employees worldwide.

Solution: Through Airwallex's Global Treasury solution, Navan efficiently manages employee reimbursements for multinational customers at scale. With a single API integration, Navan seamlessly added multi-currency accounts and automated FX management to optimize global reimbursements.

Stake: facilitating global share trading

Challenge: Digital trading platform Stake needed a reliable global technology partner to support global share trading, hold funds in multiple jurisdictions, and make timely programmatic payouts.

Solution: Stake embedded Airwallex's solution to manage multi-currency accounts, facilitate FX conversions, and enable seamless global fund transfers for investors. This product enabled customers to share trades in new markets, quickly implemented new functionality, and easily tracked real-time high-volume money movement and balances.

By choosing Airwallex for embedded finance services, you'll leverage our powerful, flexible, and globally oriented financial infrastructure. This lets you focus on your core competencies while offering sophisticated financial services to your customers intuitively.