Embedded finance trends to watch in 2024

Embedded finance trends deserve special attention, as industry experts have highlighted this as a major area of development for financial and non-financial companies alike. If you want to capitalize on the flourishing embedded finance market — which is projected to grow from $63.2 billion in 2023 to $291.3 billion by 2033 — you need to seek out and adopt trends that give your business a competitive edge.

Embedded finance trend #1: The B2B market is primed to take off

Just as embedded finance has transformed the buying experience for consumers, it also holds tremendous potential to improve transactions for B2B companies. Embedded finance could grow to make up a significant share of the B2B payments market, which is expected to grow to an astounding $1.91 trillion by 2028.

B2B financial transactions are notorious for their sluggish pace and tendency to use complex and antiquated processes to move money between businesses. This often leads to poor cash flow visibility for both parties, making financial management more difficult.

Embedded finance stands to offer a more seamless flow of transactions among companies, suppliers, and vendors, including B2B use cases such as:

• Request-to-Pay (R2P): Allows businesses that issue bills to send an electronic invoice, helping to eliminate delays and process bottlenecks across large volumes of payments.
• Purchase Order Finance: Helps businesses cover materials required for product or service delivery without waiting for payments.
• Buy Now Pay Later (BNPL): Authorizes businesses to instantly assess the creditworthiness of another company to inform lending or financing decisions.
• Virtual accounts: Enables businesses to centralize customer information and transactions to streamline and automate payment processing.

Embedded finance trend #2: Account-to-account (A2A) transactions gain popularity

A2A transactions, a payment method in which funds are transferred directly between two bank accounts, are an emerging trend that provides a point of differentiation for B2C and B2B companies alike. According to The Global Payments Report 2023, A2A payments are projected to grow at 13% CAGR through 2026, resulting in a global market size of nearly $850 billion.

A2A transactions are appealing because they don’t require an intermediary or a payment instrument such as a card to be processed. They include push payments (e.g., bank transfers), where money is manually sent to another account, and pull payments (e.g., recurring bill pay), in which money is automatically pulled from an account.

Additionally, A2A payments often fund digital wallet transactions in markets like Brazil, China, and India. Card-linked wallets are still the norm in Western countries, but the increasing popularity of open banking and instant payments indicates that A2A will continue to gain traction in new markets.

Benefits of A2A payments for your business include:

• Greater global reach: Attract global customers who prefer products and companies supporting A2A transactions.
• Lower transaction costs: Skip the interchange fees associated with credit and debit card transactions and save costs on payment acceptance.
• Instant settlements: Enjoy lightning fast settlement times that give you rapid access to funds for improved cash flow management.
• Frictionless user experience: Give customers the ability to connect their account to your app to instantly send payments without having to input card or banking details.
• Higher conversion rates: Sell more products or services when customers can pay directly from the device of their choice with the click of a button.

Embedded finance trend #3: Banks enter the equation

Traditional banks are looking to carve out a space in the new embedded finance ecosystem where tech companies are innovating products that offer a superior digital experience. According to EY, “The ability of nonfinancial service brands to move into the role traditionally held by banks rests on the fact that they can tap into a behavioral response from customers.”

Because many consumers now choose embedded channels to conduct simple finance services such as payments, digital loans, and BNPL financing, several large banks have partnered with tech companies to seize this market opportunity. These partnerships help banks create new revenue streams while improving the user experience, and they help FinTechs access additional resources while reaching a larger customer base.

For example, we’ve recently seen JPMorgan Chase join forces with Gusto to offer embedded payroll services and Goldman Sachs partner with Modern Treasury to help companies launch payment products faster. We will likely continue to see more partnerships between banks looking to stay relevant and fintech companies looking to enhance their offerings — a win-win situation for everyone involved.

Embedded finance trend #4: Emerging technologies begin to overlap

Following the recent boom of artificial intelligence (AI) and machine learning (ML) tool adoption, these technologies are expected to become prevalent in embedded finance. AI can analyze huge amounts of data to identify patterns that humans might miss.

Emerging applications of AI and ML in the embedded finance space include:

• Risk assessments: Identify inconsistencies and potential challenges to enhance risk management in areas such as lending and insurance underwriting.
• Fraud detection: Monitor vast data sets to pinpoint anomalies and apply behavioral analytics that can automatically flag instances of potential fraud.
• Personalization: Analyze customer activity across various channels to anticipate their needs and proactively give them what they need at the right time.

Additionally, as embedded finance products become more popular, demand for financial services to help customers make sense of their increasingly complex and fragmented financial lives will grow. This is another area in which AI and ML can help users make wiser, more informed decisions.

For example, AI can facilitate “smart portfolio management.” According to a Salesforce and MoneyLIVE survey of over 500 senior financial industry executives, these types of services will become mainstream in the next few years as consumer comfort with AI increases in other areas of their lives. The survey also revealed that almost two-thirds (64%) of consumers say they would trust AI to care for their financial interests.

The perfect partner for capitalizing on embedded finance trends

No matter how you’d like to capitalize on these trends, remember that embedded finance product innovation requires a great deal of technical expertise and experience with underlying infrastructures. That’s why a reliable technology partner is required if you want to act fast and unlock a first-mover advantage.

With projects spanning Europe, the UAE, and the USA, Vega IT has a proven track record of helping both financial and non-financial businesses successfully deploy embedded finance solutions that fit their needs. Check out our FinTech solutions page to discover how we can help you with embedded finance, payment processing, banking software, and more.