illustration of rideshare driver and fraudster using embedded finance tools

What does any consumer expect first and foremost from a business in today’s hyper-connected economy?  Convenience. Embedded finance solutions are critical to delivering the convenience consumers expect by making financial interactions easier from any digital platform.

Embedded finance gives many non-bank platforms and organizations the ability to provide financial services they otherwise would not have been able to deliver. This comes with major benefits and considerations for embedded finance providers, financial partners who support them, and their consumers. As embedded finance solution adoption continues, it’s important to keep these platforms secure for all parties.

What are Embedded Finance Solutions?

Embedded finance solutions refers to the technology that integrates financial services and payments into a business’s key infrastructure. It offers customers and users front-end access to financial services. Once in place, embedded finance technology enables users to make payments, access financial accounts, or use other services like loans and insurance without having to visit a third party provider. 

This should not be confused with banking as a service (BaaS) solutions. BaaS providers are generally responsible for delivering back-end services through application programming interfaces (APIs) that can support a platform’s embedded finance products. 

Some classic examples of embedded finance include rideshare providers like Uber and Lyft or delivery services like DoorDash and Delivery Hero. Whenever someone needs to order a ride home or get dinner delivered, platforms like these enable them to pay for their transactions in-app without having to fumble for their wallets or enter a credit card number digit by digit. 

While none of these services are banks, the availability of embedded financial services gives them an added user feature and functionality. And this trend is only expected to continue. The rapid expansion of embedded finance services is turning non-bank entities into Fintechs

What’s Behind the Embedded Finance Push?

Embedded finance is by no means a passing financial fad. In fact, recent research indicates the market is on track to reach $7 trillion by 2031. There are several reasons driving this rise, including:

  • Shifting social expectations. Modern consumers expect to bank, shop, and/or make payments all from a single platform. From rideshare platforms to delivery services to eCommerce and more, consumers want easy payment experiences.
  • Businesses gain new revenue streams. Enabling payments through APIs are motivating businesses to invest heavily in these services. These services allow businesses to accept new payment options like credit cards, debit cards, or offer buy now, pay later (BNPL) options through their platforms. Offering these financial services creates new revenue sources for businesses without requiring them to act as a financial services provider.
  • Rising consumer trust in embedded finance services. Ease of payments frequently translates into greater trust in the platform. Consumers are more likely to trust platforms and services that, for example, enable them to summon a ride, remember their frequent destinations, and pay from a single service. The more they utilize and become comfortable with the provider without incident, the more they entrust platforms with their personal and financial information. 

Platforms Face Big Challenges 

Unfortunately, fraudsters and criminals will always exploit new financial services as they gain popularity. As embedded finance tools make it easier to move money at a rapid pace, it becomes harder to prevent scams or stop transactions connected to potentially illicit activities. 

The inexperience of embedded finance platforms is another challenge in financial crime prevention. New players offer financial services – but these platform providers do not necessarily understand the financial crime risks that often come with these tools. This includes how to detect and prevent fraud from occurring on the platforms. 

If they’re not careful, platform providers, and by extension, the financial institutions who support them, can unwittingly give bad actors access to these systems – making it easier to steal money, access personal information, and transact illegally. These are real considerations that providers, banking partners, and their end-users must take seriously.

3 Steps to Keep Embedded Finance Platforms Secure

The provision of important financial services comes with serious obligations to ensure security and understand financial crime risks. FIs experienced in preventing fraud and financial crime must guide their embedded finance partners on how to navigate these risks and keep their end-users safe.

1. Perform a Risk Assessment 

Embedded finance providers should understand how their services are consumed and the end-users involved. Risk profiles will look different for each party. That’s why it’s important to perform a top to bottom review of the services provided and identify vulnerabilities and controls needed to mitigate them.   

2. Control Your Risks

Once a risk assessment has been performed, embedded finance platforms must implement strong prevention measures to prevent their services from being exploited for illicit purposes. Platform providers should consult with their banking partners on best practices, controls, and how to identify prohibited activity and patterns.

3. Work with Experienced Partners 

It helps to work with knowledgeable partners who possess a clear understanding of the risks involved. The right partnership will drive all parties forward to think strategically about their programs. Experienced partners can also identify new and emerging risks, and help implement appropriate fraud and anti-money laundering controls.

In today’s fast-moving economy, convenience is critical. It’s what embedded finance providers deliver with their offerings, enabling non-banks to offer financial tools. But the inconvenient truth is that even non-banks have regulatory obligations and responsibilities even if they’re not codified. Embedded finance providers can’t afford to neglect their obligations to their clients and their clients’ end-users. Delivering convenience with financial services is critical. But it’s just as important to deliver them responsibly.

Are you looking for a fraud solution that provides strong protection from fraud and scams? Schedule a demo with us today to see how our experts and our technology can help establish digital trust for you and your customers.