Embedded Finance: The Convergence of Financial Services and Business Innovation in Niche Verticals

Introduction

Embedded finance refers to the integration of financial services into non-financial platforms, incorporating products such as payments, lending, insurance, and wealth management into existing business ecosystems. This integration enhances operational efficiency, improves customer experience, and contributes to revenue growth.

According to Accenture, embedded finance is projected to facilitate over $7 trillion in transactions annually by 2030. McKinsey & Company estimates that the global embedded finance market, valued at approximately $66.8 billion in 2023, is expected to grow at a compound annual growth rate (CAGR) of 16.4%, reaching $230 billion by 2030. 

Chart 1: Global Embedded Finance Market Growth, 2023-2030. Source: McKinsey & Company

The payments segment remains the largest contributor, accounting for nearly 60% of total embedded finance revenues in 2024. Additionally, PwC forecasts that revenue from embedded lending will exceed $100 billion by 2026, driven by demand from small businesses and consumers seeking alternative financing solutions.

Chart 2: Segment Breakdown of Embedded Finance Revenues (2024). Source: McKinsey & Company

Technological advancements, particularly in artificial intelligence (AI) and machine learning (ML), have significantly contributed to the growth of embedded finance. These technologies improve automation, enhance risk assessment through advanced credit scoring and fraud detection, and enable personalized financial services. AI’s predictive capabilities also support proactive financial solutions, such as overdraft protection and investment recommendations, aligning services more closely with customer needs.

Benefits of embedded finance

Embedded finance is driving measurable business impact across multiple areas, including revenue growth, operational efficiency, and financial inclusion. According to Bain & Company, companies incorporating embedded financial services have reported a 15-20% increase in revenue and a 22% improvement in customer retention. A report from the India Fintech Report and the World Bank projects that by 2025, embedded finance will generate $140 billion in additional revenue, with global opportunities reaching $230 billion by 2027. Improved data utilization enhances underwriting and risk assessment, with CB Insights reporting that advanced data analytics can reduce non-performing loans by 40% in certain sectors. Additionally, embedded finance expands credit access for SMEs, addressing a significant gap in emerging markets where, according to the World Bank, 70% of small businesses lack formal financing. Operational efficiencies are also achieved through real-time payment integration, as seen in ride-sharing platforms, which eliminate reliance on third-party processors and improve cash flow management.

Embedded Finance in Niche Verticals

Vertical SaaS platforms are designed to serve specific industries by offering specialized solutions that align with sector-specific requirements. Industries such as healthcare, construction, logistics, and fitness benefit from these platforms’ deep industry expertise and tailored functionalities. 

Embedded finance for niche industries enable vertical SaaS companies to incorporate financial products that align with industry-specific needs. Unlike generalized embedded finance solutions, these integrations offer features such as customized underwriting models, dynamic payment structures, and compliance mechanisms tailored to regulatory requirements in different industries and jurisdictions.

For example, in the logistics sector, embedded finance allows trucking companies and fleet operators to access fuel financing and insurance directly through fleet management platforms, reducing the financial burden of upfront fuel costs and mitigating risk with customized insurance policies. In the hospitality industry, embedded finance solutions support hotel chains in optimizing revenue management by integrating dynamic pricing tools with financing options for expansion and renovation projects.

Solving Problems for Niches

When developing embedded finance solutions for a specific vertical, fintech companies must take a systematic approach to assessing industry requirements and addressing existing inefficiencies. 

Firms should conduct a thorough analysis of sector-specific challenges to determine where financial services can improve operational workflows and enhance the customer experience. Identifying obstacles to user adoption and implementing targeted solutions is essential for long-term viability.

Additionally, fintech providers should evaluate their technical capabilities, industry expertise, and competitive positioning to ensure their solution offers a clear advantage over existing alternatives. 

Establishing a well-defined business model—whether B2B, B2C, or B2B2C—is necessary to align with market needs and user expectations. 

Finally, given the complexities associated with regulatory compliance, technological integration, and customer acquisition, a strategic approach and sustained commitment to the sector are critical to achieving scalability and long-term success.

The Large Opportunity in Small and Medium-Sized Businesses (SMBs)

The expansion of embedded fintech presents significant opportunities in addressing the financial needs of niche SMBs, a segment historically underserved by the software industry. BCG estimates that SMBs will contribute to nearly half of embedded finance growth. The integration of financial services such as payments, payroll, and lending into industry-specific SaaS platforms enables more tailored solutions than those offered by generalized providers. Industry data indicates that over 60% of SMBs seek embedded financial services to streamline payment processes, while 50% recognize their potential to enhance payment data insights and improve decision-making.

Embedded Finance in India

According to Research And Markets, India’s embedded finance sector is projected to grow from $5.75 billion in 2024 to $28.6 billion by 2029, with a CAGR of 37.8%. This expansion is driven by technological advancements, increasing digital adoption, and a regulatory environment supporting financial service integration across industries. The sector is undergoing rapid transformation, particularly in digital payments, alternative lending, and insurance integration, reflecting a broader shift toward seamless financial services within everyday transactions.

Chart 3: Embedded Finance Market Growth in India 2024-2029. Source: Research & Markets

Ecommerce platforms like Flipkart and others have integrated Buy Now, Pay Later (BNPL) solutions to improve transaction efficiency and merchant conversion rates, while mobility players such as Ola Money offer ride-based micro-insurance, making financial services more accessible. Healthcare platforms like Practo are embedding lending solutions to help patients finance medical expenses. Beyond consumer applications, embedded finance is reshaping SMB-focused verticals, with platforms like Udaan and Jumbotail offering credit to small retailers for inventory purchases, and logistics startups such as Porter and Shadowfax embedding fleet insurance and invoice factoring to support small transport operators.

Strategic partnerships between fintechs and industry players have been central to this growth, with e-commerce firms collaborating with NBFCs to offer lending, ride-hailing services embedding micro-insurance, and healthcare platforms integrating financial products. For SMBs, fintechs are embedding credit and insurance solutions into supply chain platforms and SaaS tools, addressing liquidity and risk management needs. The Reserve Bank of India (RBI) has also supported this evolution through initiatives like the Regulatory Sandbox, allowing fintech firms to develop and test financial products. 

The Way Ahead

Embedded finance is redefining the financial landscape by integrating banking, lending, and insurance services into non-financial platforms. This transformation is particularly impactful for niche verticals, where industry-specific financial solutions enhance efficiency, improve customer experience, and create new revenue streams. Emerging markets and India, with their increasing digital penetration and evolving regulatory frameworks, present significant opportunities for embedded finance to drive financial inclusion and economic growth. As companies refine their embedded finance strategies, continued innovation, regulatory compliance, and cybersecurity measures will be essential in sustaining long-term industry growth.