Embedded finance is revolutionizing the way businesses interact with their customers and offer financial services. This concept, also known as “embedded finance,” allows banking and financial solutions to be integrated directly into digital platforms or software platforms, enhancing user experience and opening new business opportunities. In this article, we will explore what embedded finance is, its use cases, the landscape in Latin America, the advantages, and the trend of fintechs acquiring other fintechs.

What Is Embedded Finance?

Imagine you’re shopping at your favorite online store. As you select products, you realize you can finance your purchase directly on the same site without needing to leave and look for a bank or a credit app. That is exactly what embedded finance does: it integrates financial services into platforms you already use, such as e-commerce applications, ERPs, or management software.

Embedded finance allows businesses to offer services like payments, loans, insurance, and investments without the user having to switch applications or platforms. This not only simplifies the customer experience but also creates new opportunities for businesses by offering personalized financial solutions at the right time.

Use Cases of Embedded Finance

Embedded finance can be applied across a wide variety of sectors, from e-commerce to fintechs. Some prominent examples include:

• E-commerce: E-commerce platforms can integrate financing options for customers at the point of sale, allowing for installment payments or instant credits.
• Marketplaces: Marketplaces can offer sellers the ability to provide financing to their customers by integrating payment and credit solutions into the purchase process.
• Accounting Systems: Fintechs can offer services such as loans or payment disbursement services, collections, recurring payments, among others. These, through tools like Konvex, can help embed their clients’ accounting systems. This facilitates access to financial services without the need to switch platforms.

The Embedded Finance Landscape in Latin America

In Latin America, embedded finance is gaining ground rapidly. According to a study by Juniper Research along with Galileo Financial Technologies, awareness of the term “embedded finance” is higher in the region (89%) compared to the United States (86%), while the offering of related products is also greater: 80% vs. 63%.

Factors such as increasing digitization, the rise in smartphone usage, and the need for financial inclusion are driving the adoption of embedded finance in Latin America. Startups in the region are leveraging this trend to offer innovative products that address local needs.

Examples of Embedded Finance in Latin America

Mercado Pago (Argentina)

Mercado Pago, a payment platform created by Mercado Libre, allows users to make transactions easily and quickly. It offers payment services for buyers and sellers, integrating financing options and online payments.

Features: Users can collect through various channels, such as payment links on social networks, QR codes, and in-person payments. This facilitates access to financial services for millions of users in the region.

Clip (Mexico)

Clip is a Mexican fintech that allows small and medium-sized businesses to accept card payments through a mobile device. It also offers financing and financial management tools.

Features: The integration of financial services into its platform helps merchants manage their sales and access credit more efficiently.

Rappi (Colombia)

Rappi, a popular delivery app, has begun offering financial services through RappiPay, allowing users to make payments, transfers, and access credit.

Features: This integration of financial services into a daily consumption platform facilitates access to financial products for a wide user base.

Advantages of Embedded Finance

Embedded finance offers multiple benefits for both businesses and users:

• Improved Customer Experience: By integrating financial services into existing platforms, businesses can offer a smoother and more convenient experience for users.
• Increased Conversion: Financing options at the point of sale can increase conversion rates, as customers can easily access credit during the purchase process.
• Access to New Markets: Businesses can reach customer segments that previously did not have access to financial services, expanding their customer base.
• Operational Efficiency: Automating financial processes reduces administrative burden and improves the efficiency of business operations.

Fintech Acquires Fintech

The trend of fintechs acquiring other fintechs in the context of embedded finance is gaining momentum, driven by the need to diversify services and enhance product offerings. These acquisitions allow companies to merge technologies, access new markets, and offer more comprehensive solutions.

This movement also reflects the growing importance of embedded finance, as companies seek to integrate financial services into a variety of platforms and applications. Through Bank-as-a-Service (BaaS), fintechs can offer banking software to other companies without redirecting users to a bank’s site to make payments.

These acquisitions also reflect the growing importance of APIs (Application Programming Interfaces) in the world of embedded finance. APIs enable companies to connect with financial services quickly and efficiently without building the entire infrastructure from scratch.

According to a report by Bain & Company, the global embedded finance market is expected to reach $7 trillion by 2026, with an annual growth rate of 35%. This means that fintechs that position themselves as leaders in this segment will have significant growth and consolidation opportunities.

Advantages of Embedded Finance with the Konvex API

API to integrate +10 ERPs and accounting systems

Konvex’s unified API allows technology companies to integrate multiple ERPs or accounting systems currently used by their clients. This means that companies can offer financing, payment, and financial management options without developing integrations from scratch, saving time and resources.

• Improved User Experience: By incorporating financial services directly into the customer experience, companies can offer a smoother and more convenient user journey. Customers can access financial products without leaving the platform, reducing friction and improving user satisfaction.
• Access to New Markets: The Konvex API allows companies to reach customer segments thanks to the global integrations the API offers. This is especially relevant in emerging markets where financial inclusion is a challenge. By offering embedded financial services, companies can attract new customers and expand their user base.
• Cost Efficiency: Automating financial processes through the Konvex API reduces administrative burden and saves the cost of new integrations and their respective maintenance.
• Reduced Customer Acquisition Costs: Integrating embedded financial services can result in significantly lower customer acquisition costs. While traditional banks may spend between $100 and $200 to acquire a new customer, companies using the Konvex API can achieve this at a much lower cost, improving profitability.
• Flexibility and Personalization: The Konvex API allows companies to customize financial services according to their clients’ specific needs. This means they can offer solutions tailored to different market segments, improving the relevance and effectiveness of their offerings.
• Simplified Regulatory and Security Compliance: Konvex provides the necessary support for companies to comply with financial regulations, which can be challenging in the current environment, including ISO27001 regulations. By using the API, companies can ensure that their financial services comply with local and international regulations, reducing legal risks.
• Embedded finance is transforming how companies interact with their customers and manage their financial operations. As more companies in Latin America and around the world adopt this approach, we will likely see continued growth in innovation and the offering of financial services.

The advantages they offer, from improving customer experience to operational efficiency, make embedded finance an essential component in the future of the financial industry. Through innovative use cases and collaboration between companies from different sectors, embedded finance is opening new opportunities for financial inclusion and economic growth in the region.

Embedded Finance: The Future of Financial Services

Embedded finance is revolutionizing how businesses interact with their customers and offer financial services. This concept allows banking and financial solutions to be integrated directly into digital or software platforms, enhancing the user experience and opening new business opportunities. Through examples in Latin America such as Mercado Pago, Clip, and Rappi, we can see how these innovations are facilitating access to financial services and boosting economic growth in the region.

The Konvex API plays a crucial role in this scenario, allowing companies to efficiently and securely integrate multiple ERPs and accounting systems. This not only improves the user experience but also reduces operating costs and allows companies to reach new markets.

The key to success in this new environment will be adaptability and the ability to leverage available tools to maximize sales and customer satisfaction. With Konvex, companies can integrate effectively and offer financial solutions that truly make a difference.