Embedded Finance: A Glossary for Strategic Decision-Makers
Embedded finance is transforming the way businesses deliver financial services, yet many executives struggle with the terminology needed to effectively evaluate related tools.
Whether you're exploring new revenue streams or enhancing your customer experience, understanding the language of embedded finance is essential for making informed strategic decisions.
This guide cuts through the jargon to provide product and innovation leaders at horizontal and vertical software-as-a-service (SaaS) companies serving small businesses with a clear vocabulary for assessing embedded finance initiatives. We'll define key concepts, break down various types of embedded finance, and spotlight embedded accounting—a particularly promising but often overlooked segment of this rapidly growing market.
Consider this your executive briefing on embedded finance terminology, equipping you with the language you need to confidently discuss opportunities, evaluate solutions, and communicate value to stakeholders.
What Is Embedded Finance?
Let’s start by breaking down this terminology:
1. Embed
embed /em·bed, im-ˈbed / verb
- To fix or integrate something firmly and deeply in a surrounding environment or context.
- To make something an integral part of a larger system or structure.
Example: "The developer will embed the invoicing API into our platform.”
In finance and technology, embedding refers to the process of incorporating financial services or functions directly into financial or non-financial platforms or business processes.
For example, a platform owner might embed invoicing capabilities directly into their small business platform. As a result, SMBs could send invoices from the same platform they use to perform other business operations.
2. Embedded Finance
Embedded finance is the integration of financial services directly into non-financial platforms, applications, or business processes. It allows companies outside the traditional financial industry to offer banking, lending, accounting, insurance, investment, and other financial services through their existing platforms without requiring them to build and maintain these functionalities in-house—and without requiring their customers to engage with a separate financial institution to complete key tasks.
Think of embedded finance as financial capabilities becoming invisible yet accessible exactly where and when users need them. Rather than directing users to third-party financial providers, embedded finance weaves these capabilities seamlessly into their experiences within platforms they already use and trust.
Core Embedded Finance Definitions
Certain terms come up frequently in the course of embedded finance research. Here’s how we would define some of the most common embedded finance concepts:
3. Banking-as-a-Service (BaaS)
This is the technological foundation or infrastructure that enables banks and fintech companies to provide digital financial services through their websites and apps.
BaaS refers to back-end operations that allow access to financial services on digital platforms. It’s a model where financial institutions provide access to their core banking functions through APIs, enabling third-party businesses to build financial products without becoming banks themselves.
4. APIs
Application programming interfaces (APIs) are standardized sets of protocols that allow different software applications to communicate with each other.
In embedded finance, APIs enable non-financial and fintech platforms to connect securely with banking systems, payment processors, and other financial infrastructure. They serve as bridges that transmit data and instructions between systems, making it possible to integrate financial services without rebuilding entire banking systems from scratch.
5. Open Banking
Open banking is a banking framework that allows regulated financial institutions to securely share customer data with authorized third-party providers through standardized APIs, enabling the development of new financial products and services.
Key Types of Embedded Finance
Embedded finance transforms financial services from standalone products to contextual features that enhance the core offering of non-financial companies and fintechs, creating more integrated and frictionless user experiences.
6. Embedded Banking
Embedded banking provides a non-financial institution with a branded checking account through a bank, enabling it to hold funds, make payments, track expenses, and withdraw earnings seamlessly.
One example of embedded banking is Square Banking, which allows merchants using Square’s point-of-sale (POS) technology to open a dedicated business account without going through a traditional bank. Small business customers using Square’s embedded banking can instantly access sales proceeds and make payments from the same platform they use to process transactions. This helps Square’s customers improve their cash flow and gives Square an opportunity to grow revenue through deposits.
What would it look like if Square embedded accounting into its platform? Here’s our answer. →
7. Embedded Payments
Embedded payments refers to the integration of payment processing directly into other platforms, eliminating the need for redirects to third-party payment processors.
You can see embedded payments at work with restaurant management platforms like Toast, where restaurant owners can process customer payments, manage tips, and split checks directly within the same system they use for order management—creating a seamless experience for both the business and its customers.
8. Embedded Lending
Embedded lending is the integration of lending products into non-lending platforms or services. Through embedded lending, consumers can access credit seamlessly within their existing user journey, often without leaving the platform they're interacting with. By integrating lending capabilities directly into platforms and services that SMBs already use for their daily operations, embedded lending solutions streamline the entire borrowing process.
For example, e-commerce platform Shopify offers merchants direct funding based on their store's performance history and location data through Shopify Finance. Not only does embedded lending make Shopify’s platform stickier, it also helps its small business customers access the capital they need to grow.
9. Embedded Accounting
Embedded accounting is the integration of accounting software and financial management tools directly into business platforms, enabling real-time, accurate financial visibility. Embedded accounting eliminates the need for separate accounting systems, allowing businesses to automatically perform bookkeeping operations (like reconciliation and reporting), file their taxes, submit invoices, and more within their primary operational software.
Housecall Pro, a field service management platform for home service professionals, embedded accounting into its platform so small business owners could generate invoices, track payments, and manage their finances without switching to a separate accounting application. Thanks to embedded accounting, Housecall Pro’s small business customers no longer need to manually transfer data between systems, saving them an average of 10 hours per week on administrative tasks.
Learn how Tight helped Housecall Pro build an all-in-one solution for home service professionals. →
10. Embedded Insurance
Embedded insurance enables providers to integrate coverage options into external platforms and digital ecosystems, placing insurance solutions directly in customers' regular digital environments. This integration removes the barriers of seeking separate insurance coverage, allowing customers to get secure protection within platforms they already use.
For small businesses shopping online, Amazon’s ecommerce platform offers embedded insurance opportunities for products like technology and furniture. When furnishing an office space, small businesses can choose to purchase insurance directly through Amazon, eliminating the need to take out policies from a number of different companies.
11. Embedded Investing
Embedded investing enables non-investment platforms to offer investment options within their existing ecosystem, creating new revenue streams while providing added value to users.
Cash App, for instance, allows small businesses and consumers using its platform to invest directly in the app without paying commission fees. Users can choose how often they want to invest and can even put spare change towards their investments automatically. Instead of investing and forgetting with third-party solutions, Cash App customers can track the status of their investments and cash out directly from the app.
Strategic Implementation Considerations
You can use the following terms to facilitate discussion about the strategic implementation of embedded finance:
12. API Economy
As a term, API economy describes the shift away from traditional integration models and toward more flexible, customized services. The API economy is what enables businesses to leverage financial services as modular components, so they can assemble custom solutions tailored to their specific needs. This flexibility creates opportunities for specialized providers while reducing barriers to entry for non-financial companies seeking to offer financial services.
13. Ecosystem Partnerships
Ecosystem partnerships are strategic alliances between different entities in the embedded finance value chain that collaborate to deliver integrated financial services. Knowing what you’re looking for in these ecosystem partnerships is necessary for successful implementation.
14. Native Experiences
In the user experience (UX) space, a native experience means the interface feels like a natural, seamless part of the application rather than something added on.
In embedded finance, native experiences refer to financial functions that are so well-integrated into the host platform that users don't perceive them as separate services. The integration appears cohesive with the platform's design, workflow, and user experience—creating a frictionless interaction without the jarring transition typically experienced when redirecting to third-party financial services.
15. White-Label
White-label embedded finance solutions are fully developed products or services that can be rebranded and offered under another company's name.
In embedded finance, these solutions allow platforms to offer financial capabilities that appear native to their brand, even though they're powered by a third-party provider behind the scenes. This approach gives platforms the benefits of sophisticated financial tools without having to build them from scratch or requiring users to interact with multiple brands.
Learn the factors behind the rise of white-label accounting solutions →
16. Regulatory Compliance
Regulatory compliance refers to the process of following the laws, regulations, standards, and guidelines relevant to specific business operations and financial reporting workflows. Embedded finance often brings new compliance risks into the mix, which must be properly managed.
Get embedded finance definitions related to compliance and data security here →
17. Technology Infrastructure
Technology infrastructure refers to the underlying digital systems, platforms, and architecture required to support embedded finance solutions. Building the right underlying digital infrastructure and data architecture is important to enable agility and adaptation in the rapidly evolving embedded finance environment.
Explaining the Business Value of Embedded Finance
The following terms are commonly used to describe the value of embedded finance. This benefit-focused language includes familiar phrases that can help you get stakeholders on board with an embedded finance investment:
18. New Revenue Streams
New revenue streams are the additional sources of income generated by embedding financial services into existing business platforms—typically through transaction fees, interest income, or subscription services related to embedded financial capabilities. According to Capterra, 94% of businesses that offer embedded finance noted an increase in revenue since implementation.
19. Enhanced Customer Loyalty and Retention
Embedded finance creates a frictionless, integrated experience that meets multiple needs within a single platform or ecosystem, reducing the need for customers to seek out additional, alternative providers. Offering financial services as an added value within the existing customer journey reduces friction and increases convenience, improving customer acquisition and retention rates.
20. Valuable Data Insights
Embedded finance provides businesses with valuable data about customer behavior, which can be used to personalize services and foster loyalty. It also makes predictive analytics possible.
21. Competitive Advantage
Competitive advantage refers to the strategic benefit a business gains over competitors by embedding financial services into their platform or products, creating differentiation through enhanced customer experience, additional value, or reduced friction. Companies that fall behind on embedded finance risk losing market share to more innovative competitors and missing out on critical opportunities for growth and customer retention.
22. Market Growth Potential
Market growth potential is the projected expansion opportunity for embedded finance solutions within specific industries or across the broader economy, measured by total addressable market, adoption rates, and revenue forecasts. A large majority (70%) of banking executives say that embedded finance is either core or complementary to their business strategy, according to a study by IBM.
23. Value Chain Transformation
Value chain transformation represents the fundamental restructuring of traditional financial services’ delivery models through embedded finance—creating new roles, relationships, and revenue opportunities for participants in the financial ecosystem. It speaks to the role embedded finance plays in helping consumers and businesses build and manage relationships with financial services more broadly.
Explaining the Embedded Accounting Opportunity for SMBs
Embedded accounting in particular represents a huge opportunity for strategic decision-makers serving SMBs.
It boils down to this:
- Universal need: Whether an SMB is reliant on spreadsheets or third-party accounting providers, accounting processes are fundamental to their operations. In other words, accounting is not optional.
- Proven pain points: SMBs waste money on fragmented accounting. Research shows they spend up to 20% of revenue on disconnected accounting services, with 60% still struggling to accurately maintain their books.
- Market timing: Unlike embedded payments, the embedded accounting market isn't saturated yet. That means first movers and early adopters still have room to capture significant market share.
For product leaders at SaaS and BaaS companies, embedded accounting delivers platform value expansion without the regulatory headaches of banking or lending products. It's the lowest-hanging fruit in the embedded finance tree. And, it’s a huge value-add for SMBs.
When you embed accounting into platforms SMBs already use, you solve a real problem while making your platform stickier. Customers who manage their finances through your platform don't leave to handle essential accounting tasks elsewhere.
Use this language to teach stakeholders how embedded accounting benefits SMB customers:
24. Real-Time Financial Reporting
Real-time financial reporting is a financial management capability that continuously generates up-to-date financial statements, metrics, and analytics as transactions occur, rather than at periodic intervals such as month-end or quarter-end.
25. Automated Reconciliation
Automated reconciliation is the automatic matching and verification of transactions across different financial systems and accounts, reducing manual data entry and errors.
26. Integrated Expense Management
Integrated expense management is an approach to financial management where expense tracking, processing, and reporting capabilities are seamlessly incorporated into broader business systems or workflows. This allows for automatic capture, categorization, and reconciliation of expenses without requiring separate applications or manual data transfer.
27. Smart Invoicing
Smart invoicing involves automated invoice creation, delivery, and management. Smart invoicing tools are often embedded into sales and service platforms to streamline accounts receivable processes.
28. Cash Flow Forecasting
Cash flow forecasting often involves predictive tools embedded within business software. These tools provide forward-looking visibility into expected cash positions based on historical patterns and confirmed future transactions.
29. Tax Compliance Automation
Tax compliance automation in embedded finance involves built-in tax calculation, reporting, and filing capabilities. In embedded accounting, compliance automation is built into each transaction.
30. Financial Data Integration
Financial data integration involves the seamless flow of financial information between different business systems and accounting platforms through APIs and connectors, eliminating manual data transfers and ensuring consistency across the technology ecosystem.
31. Intelligent Financial Controls
Intelligent financial controls are automated rules and governance mechanisms embedded within transaction systems. These enforce accounting policies, prevent errors, and reduce compliance risks through real-time monitoring and intervention.
32. Contextual Financial Insights
Contextual financial insights are a part of embedded analytics, providing business-specific financial performance metrics directly within an operational platform.
33. Tighter Bookkeeping
Tighter bookkeeping refers to an embedded accounting benefit where automatic transaction categorization and reconciliation reduces errors, helping SMBs maintain more accurate financials without the need for manual intervention. This benefit significantly decreases the time bookkeepers spend on routine tasks, allowing them to focus on higher-value financial analysis and strategic activities.
tight /tīt/ adj.
- Fixed, fastened, or closed firmly; hard to move, open, or loosen.
- In accounting and financial management: Meticulously organized, accurate, and up-to-date with no discrepancies or errors.
- Efficiently managed with minimal waste or redundancy.
Example: "The CFO insists on keeping our books tight."
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