What it means
At its simplest, embedded finance means placing a financial product inside a non-financial experience. A software company that sells booking tools to dental practices might also offer those practices a business account, card acceptance and a short-term loan, all inside the same dashboard they already open every morning.
The commercial appeal is easy to see once you look at distribution costs. The platform already has the customer, already holds their trading data and already owns the moment when money changes hands, which makes selling a financial product far cheaper than a bank advertising to strangers.
That turns a pure software subscription business into one that also earns a slice of every transaction flowing through it. Most of that revenue arrives as a take rate, meaning the small percentage the platform keeps on money passing across its rails.
Payments usually earn somewhere between a small fraction of 1% and roughly 2%, lending earns an origination or servicing share, and insurance earns a commission on each policy sold. Behind the scenes the platform almost never holds a banking licence of its own.
It partners with a licensed bank or a banking-as-a-service provider that carries the capital requirements, the compliance obligations and the regulatory reporting, while the platform keeps the customer relationship and controls the interface. The nuance that finance teams often miss is risk.
Embedded lending can expose the platform to credit losses if borrowers default, and embedded payments can expose it to fraud and chargebacks, so a sensible model treats take rate as gross revenue and subtracts processing costs, loss provisions and support headcount before anyone calls it margin.
In practice
Real-world examples.
Example
A fitness studio management platform adds card acceptance so studios can take class payments inside the app instead of using a separate terminal. The platform keeps 0.75% of every payment, and within a year the payments line contributes more gross profit than the monthly software fee does.
Example
A food delivery marketplace offers couriers instant payouts for a $0.50 fee rather than making them wait for the weekly cycle. Roughly a third of couriers use it each week, creating a steady fee stream and noticeably better courier retention.
Example
An online furniture retailer adds a buy now, pay later option at checkout, supplied by a regulated credit provider. The retailer pays the provider a merchant fee but sees average order values rise, so the trade is worth making.
Think of it
“Embedded finance is financial services built into other apps-finance where you already are.
Formula
Calculation
Embedded finance revenue = (payment volume x payment take rate) + (loan volume x lending fee rate) + insurance commissions.
Consider a scheduling platform for small clinics with $2,000,000 of annual software subscription revenue. Its clinics process $40,000,000 of card payments a year through the platform, and the platform keeps a net take rate of 0.90% after paying its processing partner: $40,000,000 x 0.90% = $360,000. It also originates $5,000,000 of working capital loans through a lending partner and earns a 4% origination share: $5,000,000 x 4% = $200,000. Total embedded finance revenue is $360,000 + $200,000 = $560,000, which is $560,000 / $2,000,000 = 28% on top of the existing subscription line.Case study
Seen in the real world.
This is an illustrative, fictional example. Verdano Fields Software sells inventory tools to independent grocers and had $3,000,000 of subscription revenue growing slowly. Its grocers were already recording $60,000,000 of supplier payments inside the product, so the leadership team asked why that money was being paid through a separate bank portal.
Verdano partnered with a licensed banking provider and launched supplier payments and a small overdraft facility inside its own product. In the first full year 40% of the supplier payment volume moved onto the platform, and at a 0.60% net take rate that produced $144,000, with a further $180,000 from overdraft interest sharing.
The finance director insisted the board see the numbers net rather than gross. After fraud losses, two extra support staff and a provision for overdraft defaults, the contribution was closer to $210,000, which was still meaningful but a long way from the headline figure the sales team had been quoting internally.
Watch out
Common mistakes.
- Treating take rate as profit. Processing costs, fraud losses, compliance staff and credit provisions all sit underneath that percentage, and ignoring them badly overstates the opportunity.
- Assuming the platform must become a bank. In almost every case a licensed partner carries the regulatory burden while the platform supplies distribution and the customer interface.
- Modelling revenue as if every customer will adopt the financial product. Real attach rates are often between 10% and 40%, so a forecast built on full adoption will miss badly.
Questions
People also ask.
Is embedded finance the same as banking as a service?
They are two sides of one arrangement: banking as a service is the licensed infrastructure sold to platforms, and embedded finance is the customer-facing product built on top of it.
How much extra revenue can a software business realistically expect?
It varies widely by sector, but platforms that sit at the point of payment often add anywhere from a fifth to more than the value of their existing subscription revenue over several years.
Who is liable when an embedded payment turns out to be fraudulent?
Liability is set by the contract with the banking or payments partner, and platforms frequently retain more of it than they expect, so the loss-sharing terms deserve close reading.
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