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February 23, 2022

What Is Embedded Finance?

Banking
Insurance

Embedded finance, open banking, and API management strategies are allowing banks and insurance organizations to offer consumers streamlined digital payment options. But embedded finance is causing confusion for many organizations.

While many see embedded finance and open banking as the same thing, there are critical differences. Let’s unpack the details a bit further.

What Is Embedded Finance?

Embedded finance is an integration strategy involving the blending of financial services into non-financial platforms, applications, and digital offerings. It allows customers to utilize financial services without having to leave the application or service they are utilizing at that moment. As the Covid-19 pandemic accelerates digital transformation, the embedded finance wave is taking over nearly every industry and sector.

Embedded Finance In the Context of APIs

Conceptually speaking, embedded finance is nothing new. Head into any major retailer for a large purchase and there’s a good chance they will provide a financing option. Whether you’re buying a new lawn mower or expensive musical equipment – there’s a good chance the retailer or e-retailer will provide an on-site, or “embedded” financing option.

So why is embedded finance trending in regards to APIs and API management?

In order for embedded finance to succeed, a sound API strategy is required. APIs enable security, scale, and financial integration capabilities and digital services. This is true for FinTechs, banks, insurance organizations, and retailers. In short, APIs are the glue holding all of the various embedded finance applications and experiences together.

What Types of Organizations Enable Embedded Finance?

Embedded finance requires a careful balance of technology, financial partnerships, customer experience knowledge, and regulatory compliance. There are key players that enable a successful strategy. No matter your industry, you’ll need to integrate across the following types of organizations in order to succeed with embedded finance.

Banks & Financial Institutions

Customer transactions are ultimately processed by banks, credit card companies, and credit unions. If you’re getting into embedded finance, you need to be aware of how your platform or technology syncs up with these institutions. Due to the complex regulatory landscape, different embedded finance scenarios will carry unique risk levels and security requirements. 

FinTechs

Most of the leading innovative FinTech organizations have become well-established. Many organizations wishing to offer embedded finance experiences to customers will work directly with a FinTech solution. While some large organizations may not need to utilize FinTech offerings, it is far easier to adopt a platform offered by a FinTech.

API Management Platforms

APIs and API management are critical to the success of embedded finance offerings. Ultimately, APIs are how organizations access FinTech applications, consume these applications, and ‘embed’ them for customer use somewhere on their website, app, or within their digital ecosystem. Navigating the API-FinTech-vendor relationship for optimal collaboration is key to success or failure of embedded finance.

Embedded Finance Versus Open Banking: What’s the Difference?

Embedded finance is about offering customers financial services without having to leave the application or service they are utilizing. It is focused on simplifying customer payment options across a variety of platforms and purchasing patterns.

Open banking, on the other hand, is centered on banks and financial institutions revising their data practices. Open banking allows third-party financial services to access consumer banking, transaction, and other financial data via the secure use of APIs. This creates innovation for banks and improved digital experiences for customers. In Europe, Open Banking comes with specific security requirements that ensure privacy, consumer control, and an improved financial services ecosystem.

Embedded finance and open banking both require APIs to succeed. Although, APIs play a more central role in open banking. Embedded finance requires a healthy balance between FinTech solutions and API management.

How To Get Started With Embedded Finance

No matter your industry, you can likely benefit from streamlining your customer’s digital payment options. And while there’s no specific playbook for success, there are a few factors you should consider as you wade into the embedded finance world. These include:

  • Find the Right FinTech Partner or platform. There are hundreds and they range in size. Select a partner that has experience and software tailored to your industry.
  • Leveraging mature and secure API management tools. Finding a partner like Akana can improve security, scale, and automation for your APIs. This will simplify your FinTech integration significantly. 
  • Know how to serve your customers. Don’t just build an embedded finance experience for the sake of it. Get a keen understanding of exactly what your customers are after. 

How Akana Can Help With Embedded Finance

In order for embedded finance to succeed, you’ll need to scale, secure, and manage a complex network of APIs. Because some of these APIs will deal with financial data, taking a manual approach is not feasible or safe. Likewise, allowing organizational silos to take on embedded finance in a one-off fashion will open up many security and governance risks. Akana can help you automate your APIs and sync up with various embedded finance platforms. Because we are vendor-agnostic, Akana is the perfect partner for helping you manage FinTech tools, internal systems, applications, and databases.

You can utilize the Akana API management suite to:

  • Rapidly and safely scale embedded finance APIs in hybrid, multicloud, and cloud-native environments
  • Build API monetization strategies out-of-the-box
  • Secure financial APIs in an advanced fashion, with features that Forrester and KuppingerCole have recently ranked best-in-class

Watch our on-demand demo today to learn more about Akana’s comprehensive features.

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