Embedded Finance
MSME Credit

What is Embedded Finance and how it will change FinTech

Devashish Mulye   /    Product Manager    /    2020-12-02


Non-financial businesses in the MSME, B2C and B2B E-Commerce segments are leveraging Embedded Finance to offer financial services. Embedded Finance increases their customer lifetime value, vertically scales their product, and enhances their core business. Embedded Finance is potentially a 7+ trillion dollar market. It has been called the fourth platform by Bain capital.

What is Embedded Finance

Embedded Finance is the seamless integration of financial services (such as credit products) into a traditionally non-financial service/product/platform or app. It can augment the current offerings of the non-financial service, or even completely reconceptualize it.

Embedded Finance infrastructure enables customer-facing digital platforms (Anchor platform) to “embed” financial services in their platform and offer it to their customers in-context and entirely within their platform (i.e without having to redirect them to a third party). It enables  “native” FinTech experiences “inside” the non-FintTech digital platforms which are closest to the customer, and the point of demand creation i.e “in-context”.

Until recently, if a business wanted to offer financial services, it meant creating a fintech arm within the organization. This requires significant capital expenditure, multiple years to build, and longer to be profitable. Embedded Finance Infrastructure reduces the barrier (by 10x) for digital platforms to natively offer financial services to their customers. 

Embedded Finance Use Cases 

Companies are increasingly collaborating with Embedded Finance Infrastructure companies to offer financial services on their platforms. 

Here are a few examples of how different businesses can embed financial services.

  1. B2B eCommerce marketplaces - MSMEs have a huge demand for short-term credit, and often face difficulty in availing it. B2B E-Commerce platforms are providing Buy-Now, Pay-Later options to retailers at checkout. This grows the platform’s average order value (AOV) and increases its customer lifetime value (CLTV).

  2. Khata apps are offering business loans and cash advances to its MSME and SME customer base using the understanding of the data generated on its platform. This opens up alternate revenue streams and makes their platform more reliable for the customer, improving customer acquisition and retention.

  3. HR Tech and Payroll platforms offer tailored credit products such as salary advances and small personal loans to employees (to help them meet contingencies) on employee portals. The credit rates are affordable and not available to the employees from the open market. This boosts employee morale and performance and improves talent acquisition and retention.

  4. Logistics Platforms that serve trucking fleets and truck drivers offer fuel and maintenance financing to their partners. This makes it easier for their partners to acquire funds during periods of demand fluctuation, without having to go to third parties. Consequently, the perception of the logistics platforms proves to be more reliable, improves their customer acquisition and retention, and unlocks new revenue streams.

  5. Blue Collar Workers aggregator companies - Ride-sharing companies like Uber and Ola can offer personal loans to their driver-partners by leveraging unique data available with them such as driver ratings and trip information. They can also implement deduction at source strategies for collection.

  6. Business Aggregator Companies - Companies such as Zomato and Swiggy can use embedded finance to provide small-sized loans to their partners to help improve their service level. For example - Vehicle purchase/maintenance loans for delivery partners or working capital loans for their restaurants. 

Read more about the various applications of embedded finance here.

Key players in Embedded Finance 

An Embedded Finance infrastructure consists of 3 key institutions that work together to provide financial solutions to users.

1. A digital platform - A non-FinTech company that owns a customer-facing digital platform such as a mobile app, a website, or a desktop application.


A digital platform (businesses) embeds financial services into its platform to start offering financial solutions (such as credit, insurance, payments, or investments) to its customers. 

Users in different domains have different financial needs. With their deep understanding of their customers, digital platforms can innovate efficiently for their customers and effectively market financial services.

SDK (Software Development Kit) - Enables easy integrations to import functionalities quickly with your mobile/web app. In case of embedded finance, the entire loan journey is embedded within your platform/app. You can use FinBox’s Embedded Finance Infrastructure to offer credit solutions on your platform. 

2. Financial institutions - These are banks/NBFC/Small Finance Banks


  • Provide credit as part of their financial offerings - Financial Institutions are in the business of deploying capital most efficiently and have deep capability in managing regulatory, compliance, and credit risk.

  • Manage loan lifecycle - Financial Institutions use their network and manpower to manage the servicing of loans requests from the Embedded Finance Ecosystem.

3. Embedded Finance Infrastructure company - A FinTech company that creates the tech stack.


The Embedded Finance Infrastructure company creates end-to-end software tools (APIs and SDKs), and connects financial institutions with the digital platform. It also provides crucial value-added services like loan lifecycle UI, alternate data underwriting engine, customer servicing and more!

In embedded finance, A digital platform, an embedded finance infrastructure company (fintech), and a financial institution like a bank or NBFC cooperate to deliver value.

Benefits of Embedded Finance

Here is a snippet from our Fireside Chat with ShopKirana, in which we deep dive into Embedded Finance and how it benefits digital platforms. Full transcript available here.  

Embedded Finance brings together multiple parties and enables them to play to their strengths. The final combination is much greater than the sum of its parts and all parties involved are benefitted.

Here are the benefits to various stakeholders involved in embedded finance:

Benefits to digital platforms


Here are the benefits to various stakeholders involved in embedded finance: 

  1. Increases in CLTV and other key business metrics - Platforms see a boost in their revenues through a boost in their Average Order Value (AOV), customer retention, and CLTV (Customer Lifetime Value)

  2. Unlocks an alternate source of revenue -  Platforms benefit from a revenue share while taking on none of the financial liability. 

  3. Increase in customer activation - Typically merchant-oriented businesses face very high acquisition costs. They provide expensive offers/incentives for the activation of the merchant on the platform. Adding credit is known to increase the activation of merchants on a platform in multiple ways.

  4. Stand out from competitors - Offering financial services improves the product offering, vertically scales the platform, and helps it stand out from competitors

  5. Get valuable data to help understand customers better - Offering financial services unlocks valuable data about customers and their behavior which can be leveraged in interesting ways.

Benefits to financial institutions

  1. Access to large pools of customers - Financial institutions can access diverse borrower pools that have specific characteristics. They do so by leveraging the distribution capabilities of platforms (businesses) that have Embedded Finance. Example: A B2B eCommerce platform (like Amazon) is connected with thousands of small businesses. Financial institutions can tap into this network by offering financial solutions to vendors on Amazon.

  2. Build a more profitable business - Enhanced underwriting and efficient loan lifecycle management enable financial institutions to increase their margins and reduce costs for end customers.

Benefits to users

  1. Increased access to affordable financial services - Users get access to an array of flexible, easy, and cheaper financial services. They are approved for more financial services and on user-friendly terms. 

  2. Receive customized offerings - Users can avail tailored financial solutions that perfectly fit their requirements.

  3. Improved customer experience - In-context financial service offerings improve users’ experience on the platform.

Embedded Finance brings together multiple parties and enables them to play to their strengths. The final combination is much greater than the sum of its parts. Ultimately, Embedded Finance comes with superior economic characteristics, and is a win-win for customers, platforms, and lenders!

What is Embedded Credit and how it will transform the credit ecosystem

Embedded Credit is the seamless integration of Lending-as-a-Feature into digital platforms. Platforms can offer credit to their customers through a familiar interface at the point of demand creation rather than having to redirect them to a third-party site.

Embedded Credit infrastructure companies, such as FinBox, provide full-stack lending solutions to digital platforms. This includes the software infrastructure for underwriting, KYC, partnering with banks, and customer servicing. It enables them to quickly deploy multiple lending plans and execute them at a lower cost.

Ultimately, Embedded Credit produces better margins on fintech products and new go-to-market options.

Challenges that Embedded Finance solves

There are deep-seated inefficiencies in the Indian lending space. Here’s how Embedded Finance addresses these directly

The challenge: India is primarily a new-to-credit society

Credit is unavailable or expensive because data to assess borrowers is either unavailable or insufficient. This increases turnaround time for loan approval and makes the process of underwriting expensive.

The Solution

Embedded Finance leverages alternate data such as device data, cash flow data, or platform data to underwrite borrowers

The Challenge: Digital discovery of credit products is hard 

Most of the Indian population is new to the digital world and finds it difficult to search, compare, and choose credit products on traditional digital channels.

The Solution:

Embedded Finance solves this by conveniently positioning credit products “in-context” and by educating consumers.

The Challenge: Digital small ticket loans are too expensive

Digitally acquiring, processing, and servicing a loan is currently very expensive for a lender. These fixed costs make the majority of the Indian population ineligible for credit, along with the sparse availability of the right customer credit data.

The Solution:

Embedded Finance unlocks massive operational efficiencies by eliminating overheads (such as marketing costs), shortening the digital lending journey, and providing hooks for servicing the loans, significantly reducing the cost of processing a loan.

The challenge: Lenders offer rigid credit products

Lenders offer rigid credit products that don’t suit the exact needs of the customer. 

The solution:

Embedded Finance enables effective collaboration between lenders and anchor platforms. It leverages the platform’s deep understanding of the customer and tailors the credit product for the specific needs of the end-customer. One such example is Buy-Now Pay-Later in B2B and B2C E-Commerce.

B2B Buy-Now, Pay-Later will revolutionise MSME lending

Buy-Now, Pay-Later, a B2B credit payment option powered by credit lines, is the fastest growing payment option for E-Commerce and is quickly becoming the standard payment option for B2B E-Commerce. BNPL apps have seen a 162% increase in customer acquisition, with BNPL expected to account for 3% of the global ecommerce spend by the year 2023.

BNPL enables MSMEs to purchase on credit seamlessly and repay later as per their preference. This empowers them to grow their business and manage working capital gaps to run their business.  

Read more about How Buy-Now, Pay-Later will revolutionize B2B eCommerce


Embedded Finance is driving businesses to dramatically change the way they conduct their business. Anchor platforms will play pivotal roles in the distribution of financial services. It will create a new generation of not just innovative, but also more effective, financial products. Businesses in all domains and lenders must leverage embedded finance infrastructure to stay dominant in their market. 

The most exciting part is for the consumers. Embedded Finance will enable access to affordable, tailored, and easy-to-access financial services that will serve customers in all economic and social demographics.

How FinBox enables embedding financial services

FinBox provides effective customer-centric Embedded Credit solutions that comply with the highest regulatory standards with its tech-focused approach and proven underwriting stack. The best part? You can go live in 3 weeks. Contact us to know more!