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Embedded finance: what it is, examples, and how it works
Learn what embedded finance is, how it works, and how it differs from BaaS. Explore examples, business models, provider selection, and stablecoin payment rails.
Embedded finance is the integration of financial services into a nonfinancial product or platform. This guide explains the main models, how providers divide responsibilities, and what to evaluate before launch. For the stablecoin account model, explore stablecoin accounts on Tempo.
Consider a marketplace seller who receives $600 from completed orders. An embedded account could let them use $400 to pay a supplier and withdraw the remaining $200 to a bank, all from the marketplace dashboard. The seller avoids moving between applications, but the platform still needs to track which funds are available and whether each payment has completed.
What is embedded finance?
Embedded finance is the integration of financial services into a nonfinancial product or platform. It places a financial function inside the workflow where a customer needs it.
The platform usually controls the interface. Banks and other financial providers supply the services their roles require, while technology providers connect the systems. The exact division depends on the product and market.
Embedded finance vs. embedded payments
Embedded payments are one category of embedded finance. They let customers pay or get paid inside software. Embedded finance also includes accounts, cards, financing, and insurance. An application that adds checkout has embedded payments without necessarily offering an account or lending product.
Embedded finance vs. BaaS and open banking
As Stripe's BaaS comparison explains, BaaS is an enabling model. Open banking describes another type of connection.
| Term | What it describes | Example |
|---|---|---|
| Embedded finance | The customer-facing financial experience | A merchant requests financing in a sales dashboard |
| Banking as a service (BaaS) | Banks providing banking capabilities to other businesses, often through APIs or intermediaries | A bank supports accounts offered through a software platform |
| Open banking | Permissioned access to bank data or payment initiation through APIs, depending on the market | A customer authorizes an app to connect to an existing bank account |
Embedded finance examples and product types
Embedded finance works best when the financial service helps complete the product's existing job. These examples illustrate common designs, not universal availability or identical regulatory arrangements.
| Product type | Example | Customer benefit |
|---|---|---|
| Embedded payments | Accounting software pays an approved invoice | Payment stays linked to the invoice |
| Embedded accounts | A marketplace shows a seller's available balance | Earnings and payout controls appear together |
| Embedded cards | An expense tool issues a virtual card for a trip | Spending can follow the approved budget |
| Embedded lending | An ecommerce platform presents merchant financing | The merchant applies within a familiar workflow |
| Embedded insurance | A booking service presents travel coverage | The customer can arrange coverage while booking |
For lending, the lender evaluates eligibility and sets the terms. For insurance, coverage depends on the policy and insurer. Presenting either product inside software does not make approval or coverage automatic.
Embedded finance benefits and business models
Customers can manage payments where they work. A finance team can approve an invoice without copying payment details into another system.
Platforms can charge for financial features or receive agreed fees from providers where permitted. Payment fees and card-program economics are common models. The commercial agreement determines what the platform receives and who bears losses.
Revenue alone is an incomplete measure. Provider minimums and support costs can make a lightly used feature expensive. Compare contribution after direct costs with changes in adoption or retention.
How embedded finance works
A typical program connects four layers. One provider can perform several roles, but each role still needs an owner.
- The platform serves the customer. It presents balances and payment actions, collects required information, and explains status and fees.
- Infrastructure connects the systems. APIs and event notifications connect onboarding and payment instructions to the platform's records.
- Financial providers perform their agreed functions. Depending on the model, a bank holds deposits, a lender provides financing, or another provider handles payments or custody.
- Payment rails move the funds. Bank transfers, card networks, or blockchain networks carry the relevant part of the payment.
Return to the marketplace example. An order being marked complete does not necessarily mean its payment is available for withdrawal. The platform needs separate records for pending funds and available balances. Track each withdrawal until the receiving provider confirms delivery or reports a failure.
The payment reconciliation guide explains how to match payment events to internal records.
Embedded finance metrics to track
Measure whether customers use the service and whether it performs reliably. Use consistent definitions across providers.
| Metric | What to measure | Why it matters |
|---|---|---|
| Activation | Customers completing a first financial action divided by eligible customers | Separates sign-ups from actual use |
| Payment completion | Completed payments divided by valid attempts | Reveals failed customer journeys |
| Time to usable funds | Time from a defined starting event until funds are available to the recipient | Measures more than API response speed |
| Contribution | Revenue less direct provider, processing, loss, and support costs | Tests the business model |
| Reconciliation exceptions | Unmatched records and how long they remain unresolved | Identifies operational exposure |
Separate the results by payment method and market. A fast onchain transfer and a completed local-bank withdrawal measure different stages.
Embedded finance risks and compliance responsibilities
Integrating a provider does not transfer every responsibility to that provider. Requirements depend on the activity and jurisdiction, as well as each participant's actual role.
- Customer checks and monitoring. Agree who performs identity or business verification and who handles sanctions screening. Assign suspicious-activity escalation and ongoing monitoring rather than assuming the API covers them.
- Funds protection and disclosures. Explain who holds the money and what the balance represents. A deposit account, a stored-value balance, and a stablecoin holding can have different protections and access conditions.
- Fraud and disputes. Define who investigates unauthorized activity, handles complaints, and pays losses. Card chargebacks and mistaken blockchain transfers require different processes.
- Provider dependence. Plan for outages or a provider ending the relationship. Keep usable records and test how customers recover access or move their funds.
In the US, the FDIC's guidance on banking through third-party apps explains that a nonbank app is not itself an FDIC-insured bank. Do not infer deposit insurance from an app's branding or a provider logo. Confirm the specific product and applicable conditions with your providers and legal advisors.
How stablecoins change embedded finance
Stablecoins add a way to hold and transfer value on blockchain networks within the same application. A platform can use an embedded wallet to present these functions through its own interface. This changes the account and settlement infrastructure without requiring customers to operate a separate wallet application.
Onchain transfers can run around the clock. Supported ramp providers connect them to local-currency funding and withdrawals, but conversion and bank delivery still follow provider processing times and local payment rails. Market coverage and capital controls still apply.
Stablecoins also introduce issuer and redemption risks. Custody arrangements determine who controls assets and how access is recovered. Liquidity can affect conversion, and a stablecoin can trade away from its target value.
How to choose an embedded finance platform
Start with a specific customer task rather than a list of financial features. Compare embedded finance solutions against the complete flow your customers need.
- Define the first use case. Specify the customer, market, and action. For example, let approved sellers withdraw earnings to a supported local bank account.
- Map funds and responsibilities. Document who holds assets at each stage, which approvals apply, and who handles failed payments. Have qualified advisors review the proposed arrangement.
- Verify coverage and economics. Check supported customer types and payment methods. Model minimum charges alongside conversion costs, support, and losses at realistic usage levels.
- Test operations before expanding. Run delayed payments and duplicate requests through the system. Test reconciliation, account recovery, and customer exit paths, then expand from a limited launch using measured results.
Where Tempo fits
Tempo provides software infrastructure for platforms that embed stablecoin accounts and payments.
- Accounts inside your product. Tempo Accounts support embedded wallet integrations and passkeys, letting customers authorize payments within an application.
- Sponsored network fees. Fee sponsorship lets a platform cover a payment's network fee. It does not cover the payment amount or separate provider charges.
- Payment references. Transfer memos attach references to payments so teams can match onchain activity to their own records. Keep sensitive customer details offchain.
- Round-the-clock onchain settlement. Stablecoin transfers settle onchain in under a second. The settlement guide explains how that stage differs from conversion and bank delivery.
Platforms and their providers remain responsible for the obligations assigned to their roles, including customer onboarding and applicable compliance requirements.
FAQ
These answers summarize the main distinctions when evaluating embedded finance.
What is embedded finance?
Embedded finance is the integration of financial services into a nonfinancial product or platform. Customers can pay, hold balances, or access financing inside the software they already use, with providers performing the underlying financial and technical functions.
What are examples of embedded finance?
Examples include accounting software with bill payments, a marketplace with seller accounts, virtual cards inside an expense tool, and merchant financing within an ecommerce platform. Insurance offered during a travel booking is another example.
What is the difference between embedded finance and banking as a service?
Embedded finance describes the financial service a customer uses inside another product. Banking as a service (BaaS) describes a model in which banks make banking capabilities available to other businesses, often through APIs and intermediaries. BaaS can support embedded finance, but not every embedded financial product uses it.
How do embedded finance platforms make money?
Platforms can charge for financial features or receive agreed fees from payment, card, or other providers where permitted. Profitability depends on those agreements and on operating costs, including fraud losses and customer support. Adding a financial feature does not guarantee additional profit.
Do platforms need a license to offer embedded finance?
Licensing requirements depend on the activity, jurisdiction, and role of each participant. Working with licensed providers does not automatically remove a platform's own obligations. Map responsibilities with qualified legal advisors before launching.
How do stablecoins fit into embedded finance?
Stablecoins can support balances and onchain payments inside a platform, with ramp partners handling local-currency funding and withdrawals. Onchain transfers can operate around the clock, while bank delivery depends on providers and local payment rails. Stablecoins introduce issuer and custody risks and do not remove compliance requirements.