How Banks and FinTech Firms Reshape Embedded Financial Experiences

Learn more about Embedded Payments

From branded credit cards to the ever-present "buy now, pay later" buttons on retailer websites, financial services are increasingly embedded in every aspect of people’s lives, often in realms that have nothing explicitly to do with payments, lending, or any other financial vertical.

Dubbed embedded finance, this transition toward financial offerings placed at the point of need has been steady and unrelenting, redefining how customers interact with financial services. Consulting firm McKinsey estimated that embedded finance revenues reached nearly $20 billion in the United States in 2021 and expected those revenues to double within the next three to five years.

A range of factors is driving the rapid adoption of embedded finance, starting with the digitization of commerce and business management. Small- and medium-sized businesses (SMBs) in the U.S., in particular, are increasingly relying on digital solutions to manage their operations and accept payments, opening up a whole new universe of opportunities around payment methods, point-of-sale loans, and other tools. The benefits are clear, with 88% of companies that implement embedded finance reporting increased engagement with their customers and a further 85% reporting that such offerings improved customer acquisition.

But unlocking the latent demand within embedded finance has only been possible through the rise of fintech infrastructure and deepened partnerships between fintechs and banks. Application programming interfaces (APIs), the protocols used to build application software, have been at the forefront of this movement, enabling fintech firms to plug in to banking data and even make transactions on their customers’ behalf.

As an example, Fifth Third Bank is developing APIs that allow companies to embed wire transfers, ACH, and other payments directly into their platforms, providing direct access to the underlying rails without layers of expensive middleware. Through Fifth Third, software builders can develop innovative, customer-centric embedded products with the security, stability, and scalability of one of the largest banks in the U.S.

Use Case: Property Management Platforms

To illustrate the benefits of embedded finance, one relevant use case is property management, an industry where the same API technology that embeds payments into online checkouts is being used to improve the payment experience for rental and leasing processes. Fifth Third Bank has helped transform this space, launching a bank-agnostic embedded payments solution, Newline^™, that enables property managers to manage cash flows from their different properties on one intuitive digital platform.

Additionally, Fifth Third’s offering provides a single point of contact for overseeing additional payments and services, such as escrow accounts for deposits. This structure allows managers to reduce their payment processing costs, deepen data-driven insights, and streamline relationships between owners and tenants.

The opportunity within property management and B2B payments is massive. A recent analysis from Bain predicted that the total embedded B2B payment market could be worth as much as $2.6 trillion in U.S. transactions by 2026 as buyers shift to e-checks, virtual cards, and value-added ACH to streamline their payment operations.

The Future of Embedded Finance

While wide-reaching, the embedded finance movement is still in its infancy. Embedded finance, as a whole, is expected to grow by 100% despite the current macroeconomic volatility and near-term recession risk. Additionally, as embedded finance becomes part of the fabric of consumer- and enterprise-facing products, such offerings could reach more than $7 trillion in transaction volume within five years, according to Bain.

Some incumbents have already emerged at the forefront of embedded finance, but there is plenty of space for new entrants to the industry, with a wealth of opportunities for fintechs and software-as-a-service providers that are willing to invest and strike partnerships with banks to claim a share of this rapidly expanding market.

While payments will continue to be the largest segment of embedded finance, analysts predict that long-term success largely lies with companies that leverage a full suite of financial products. Lending, insurance, tax, and accounting are just a few of the adjacent value-added services that embedded finance is poised to disrupt.

To help platforms, marketplaces, and other businesses capture this growing opportunity, Fifth Third recently launched Newline, a platform that combines the capabilities and operating expertise of a leading regional bank with the engineering quality and innovation that clients demand in today’s technology environment. "Newline lets clients embed payment, deposit, and lending solutions simply and at scale," said Tom Bianco, General Manager of Newline by Fifth Third. "We’re helping clients build the best products and deliver an optimal user experience, whether that’s in an app to order food or a business operations platform that tracks inventory."

Successful distributors of embedded finance will be able to develop a flywheel effect of embedded products across financial verticals. For example, an e-commerce platform could utilize deposit and payment products to build customer relationships and obtain customer data. In turn, this information can be used to inform underwriting decisions for higher-margin lending products like credit cards and merchant financing.

Financial and non-financial brands that choose the right partners and infrastructure stacks in the next several years will ultimately emerge as the winners. McKinsey estimated that embedded payments products could eventually account for as much as 50% of banking revenue pools, an enormous growth opportunity that could benefit the entire financial sector.

Embedded finance is growing both in terms of volume and use cases, helping virtually every type of business streamline operations, better engage their customers, and improve their bottom line. Embedded finance is now a fundamental part of digital product journeys, reshaping how companies interact with their customers.

Learn more about Fifth Third Bank’s embedded solution, Newline.