Embedded finance is transforming the digital landscape—and fast. A recent Dealroom report predicted the embedded finance market could reach $7.2 trillion by 2030, larger than the value of all fintech startups and the top 30 global banks and insurers combined. But what is it, exactly, and why does it matter for small business owners? In this blog, we’re going to answer both of those questions. Plus, learn how Lili has embraced embedded finance with Lili Connect.
What is embedded finance?
Embedded finance refers to the integration of financial services—such as payments, lending, and insurance—directly into platforms that primarily serve non-financial functions. For example, a business formation service offering a partner’s business banking services within its platform is embedded finance in action.
By embedding third-party financial services into their offerings, non-financial companies can skip the complexity of building financial tools from scratch. They’re also able to provide customers with services like banking or lending without becoming regulated financial institutions or sending customers off-platform.
How does embedded finance work?
Embedded finance requires a partnership between two companies—one that provides financial services and the other that embeds those services into its existing website or app.
These partnerships are typically powered by APIs, which connect the two platforms behind the scenes. Once integrated, customers can access the embedded financial tools alongside the existing features of their current software.
Every partnership looks a little bit different but the goal is the same—to enhance the host company’s offerings by incorporating plug-and-play financial services from a third party.
| Common Embedded Finance Solutions | Common Types of Companies Embedding Financial Services |
| Banking (e.g. checking accounts, savings accounts, automated expense categorization, real-time alerts) | E-commerce platforms |
| Payments (e.g. accepting credit and debit cards, instant payouts, payment processing, integrated invoicing and checkout) | Point-of-sale (POS) systems |
| Lending (e.g. working capital loans, cash advances, BNPL loans, equipment financing, inventory financing) | Business formation services |
| Insurance (e.g. general liability, business owner’s policy, cyber insurance) | Freelancer and creator platforms |
| Accounting and tax tools (e.g. real-time expense tracking, tax categorization, estimated tax tools, bookkeeping automaton, receipt capture) | Invoicing and accounting software |
Embedded finance example
To give you a better understanding of how embedded finance can work, here’s how it can play out in an example scenario.
Problem
An e-commerce platform identifies that many of its sellers are using personal bank accounts to run their businesses. Unfortunately, it’s leading to problems such as trouble tracking their business performance, preparing for tax season, and managing cash flow.
Solution
To help sellers stay in business as long as possible, the e-commerce platform implements an embedded finance solution that offers business banking and accounting services. Sellers can then open dedicated business bank accounts and access financial tools directly from their existing e-commerce dashboard.
Result
After the integration is complete, sellers begin opening and using dedicated business bank accounts. They also gain access to on-demand financial insights and features that help them stay on top of accounting tasks all year long. The result? The e-commerce platform sees an uptick in both customer loyalty and the average lifetime value of their customers.
It’s a win for the e-commerce platform, customers, and embedded finance banking service.
Key benefits of embedded finance for SMBs
As an increasing number of non-financial platforms embed financial services into their platforms, here are four potential ways your small business can benefit.
Consolidation of digital tools
Running a small business today often requires juggling multiple digital tools—one for invoicing, another for customer management, another for taxes, and so on. However, doing so can be tedious. You have to sign up for them all, pay for them on an ongoing basis, learn how they work, and manage them separately. Embedded finance can help on that front by combining multiple services you use in one solution. For example, it can bring your lending into your e-commerce platform and banking into your tax software.
Easier access to capital
Need a loan or line of credit for your business? Embedded finance can make it easier to get the funding you need from the platforms you already use. For example, you may find inventory financing in your point-of-sale system or a working capital loan in your e-commerce dashboard. In some cases, embedded financial products also expand access to capital by using platform data (like sales and cash flow) to help lenders assess creditworthiness. This can remove traditional barriers to capital, such as not having enough time in business or credit history.
Enhanced financial management
Combining financial data with a non-financial business platform can offer new insights that help you better manage your business. For example, you may gain real-time access to integrated financial data that helps you spot trends, track profitability, forecast slow periods, and plan for growth more confidently. Further, platforms may be able to manage and automate things you’d otherwise have to do manually, such as reconciliation and accounting.
Cost savings
Bundled solutions may also help you save money. They can be more cost-effective than purchasing each service separately, although that will depend on how the partnership is priced. Further, reducing the number of platforms you use may lower your transaction fees.
The bottom line: As embedded finance solutions continue to grow, they have the potential to help your small businesses save time, reduce friction, and gain access to more capital—all while keeping operations lean and efficient.
Learn more about Lili Connect
Lili announced Lili Connect in October of 2024—an embedded finance solution that brings our banking and accounting tools to partner platforms. If you’re a small business owner, that means you’ll be able to find our services in a growing number of places, such as within e-commerce platforms, entity formation services, and payroll services. So far, you can find Lili Connect in solutions from Dun & Bradstreet, US Corporate Solutions, Direct Incorporation, GovDocFilings, TouchSuite, and Convesio. As our partnerships grow, we’ll keep you in the loop so you can explore all the different ways you can access Lili’s services.
Ready to see how Lili can streamline your small business finances today? Browse Lili’s plans and try us free for 30 days!
