Raja Debnath, co-founder and managing director of Veefin Solutions, a supply chain finance and digital lending technology company, provides an overview of the embedded finance landscape.


While many people mistake API banking, open banking and embedded finance as being synonymous, they are very different in nature:

API banking involves banks providing access to their core banking functionalities and data through application programming interfaces (APIs). It allows developers, fintechs and financial institutions to build their applications using the bank’s infrastructure. This facilitates seamless integration between banking services and external systems.

Open banking refers to financial institutions opening up their systems to third parties through APIs. This allows third parties to access customer-permitted financial information and initiate transactions on their behalf.

Embedded finance refers to the integration of a financial service into non-financial platforms. With embedded finance, users can access financial products or services such as payments, lending or insurance without leaving the platform they are using.

In summary, API banking involves banks providing APIs to allow others to build their own financial services; open banking focuses on banks opening up their system and data to third parties; and embedded finance integrates financial services into non-financial platforms.


The next step

The concept of embedding financial services into a non-financial product/service has existed for many years but has not been given much attention until relatively recently. The idea started with payments on e-commerce platforms, where consumers could pay for the product/service through a single application without having to leave the existing application. We all use it in our day-to-day lives, right from shopping for our groceries online to buying insurance while booking our travel tickets.

Initially, when companies from different industries partnered together to sell their product/service it was either through data transfer of potential leads or having the consumer navigate to a different page altogether. Although both these options appeared feasible at first, there remained a huge drop-off time and loss of customer attention in the given timespan. The problem was well-defined and embedded finance was the solution to solving both these issues for the price of one.

Using the example of the travel ticket, the probability of the consumer purchasing the insurance on the same page will always remain higher than navigating them to another page for the same offering.

Most digital platforms today are highly inclined to add an embedded finance infrastructure to their platform as the commissions from it adds a stream of revenue to their portfolio. Easy API integrations and developments in open banking have made embedded finance a viable option for all digital platforms.

Financial institutions have a huge role to play in the growth of embedded finance as they have to ensure their API technology is robust and can be easily integrated on multiple platforms.

The successful culmination of API and open banking integrations will be perennial for the rapid growth of embedded finance over time. The advantages of embedded finance remain multi-fold: (i) additional stream of revenue, (ii) increase in access to finance, and (iii) reduction in cost of customer acquisition.

One of the biggest developments in embedded finance has been embedded lending. Being able to lend to the customer at the time of payment enables digital platforms to earn commissions and financial institutions to broaden their customer base. Buy now pay later (BNPL) is one form of embedded lending that has witnessed tremendous success in the business-to-consumer (B2C) and direct-to-consumer (D2C) space. It is still evolving in the B2B space as financial institutions are still concerned about its possible use cases and replicating the same ease and speed of lending as witnessed elsewhere.

Use case possibilities in embedded lending for B2B are endless, yet there are some areas where it could have a significant impact, such as enabling suppliers to obtain a loan through a company’s supplier ordering system, or in B2B marketplaces, where financial institutions could finance large ticket size orders by providing a limit to the suppliers.

Financial institutions must decide if they are willing to take the plunge into B2B embedded lending as they did in the B2C and D2C space. Digitising processes like the analysis of creditworthiness and verifying authentic transactions with the same speed as in B2C and D2C would be key for financial institutions to bet big on B2B embedded lending.

Although a number of players exist in the embedded finance space, a McKinsey report notes that there is still a lot of white space for new entrants, and expects the number to double in the next three to five years.


A Veefin success story

This is where companies like Veefin step in. One of our recent successes has been the development of an embedded finance infrastructure for PRAN-RFL, one of the biggest corporates in Bangladesh. The company had a long-standing issue as it faced the risk of breaching single-borrower exposure limits across all banks. The problem was solved by implementing an embedded finance infrastructure on its digital platform.

PRAN-RFL, with an extensive network of over 50 partner banks nationwide, encountered difficulties in handling multiple supply chain finance (SCF) platforms at once. To avoid the complexity of dealing with multiple bank portals and the learning curve for their vendors and dealers, the company sought to integrate SCF solutions into its existing ERP and ordering systems.

Four banks in Bangladesh: City Bank, Dhaka Bank, EBL Bank and Bank Asia integrated their core banking systems into this solution to provide embedded financing to PRAN’s supply chain. Between the four, they did US$ 1bn-worth of SCF disbursements over two years. Over 250 suppliers and 325 dealers have been onboarded by the banks.

This project was recognised and Highly Commended by the Supply Chain Finance Community at the Supply Chain Finance Awards in 2022. Such recognition underscores the impact and value this initiative has brought to the realm of finance embedded within supply chains.

This is just the beginning of embedded finance, which has tremendous potential to transform industries: technologies will continue to advance, collaborations across sectors will deepen and access to finance will grow.