How UK Business are Scaling Up with Embedded Finance

This article explores the growth of embedded finance in the UK business landscape, shedding light on its potential to unlock new revenue streams, expand customer reach, and maintain a competitive edge.

What is Embedded Finance

Embedded finance involves integrating financial products or services into a business's overall offerings. Examples include bespoke credit cards or insurance products from supermarkets and on-the-spot loans offered at department store counters for large purchases such as a new washing machine.

The aftermath of the 2007-08 financial crisis catalysed the fintech revolution, elevating embedded finance to new heights. As businesses prioritise a smooth user experience within their apps for financial transactions, the adoption of embedded finance has become widespread, with daily interactions ranging from online shopping on Amazon to taking rides with Uber.

Types of fintechs

Deloitte defined that the fintech landscape in the UK encompasses 23 specialisms across eight domains, including payments, banking, lending, RegTech, InsurTech, WealthTech, quote aggregation and accounting, auditing and cashflow management. With over 20 years of experience in the industry, Caxton is a provider of Software as a Financial Service (SaaFS). We offer business accounts, embedded payments, expense management, international payments, currency risk management and payroll.

Open Banking and PSD2:

Open Banking, facilitated by the Second Payment Services Directive (PSD2) introduced by the European Parliament in 2015, mandated banks to share consumer data with third parties. This directive relies on application programming interfaces (APIs) to enable secure data exchange. As they are handling sensitive data, these third parties must become Payment Service Providers (PSPs) by undergoing an authorisation process from a regulatory body such as the Financial Conduct Authority in the UK. Depending on the nature of their services, they either become Account Information Service Providers (AISPs), which can only gain access to financial data, or Payment Initiation Service Providers (PISPs) which can also initiate payment processes if authorised by the user.

The Caxton API Suite is central to how we develop solutions for our customers’ payment needs.

Business Scalability and Competition:

In the current economic climate marked by slow growth, inflation, and uncertainty, deploying technology at scale is crucial for business success. The recent pandemic-induced digitalization of traditional businesses has created a burgeoning market for embedded finance. This shift has given rise to Digital Native Brands (DNBs), whose business models centre around technology and embedded finance.

The emergence of digital natives as a substantial consumer group underscores the importance of a seamless user experience. Businesses looking to attract and retain customers must adapt to these changing expectations. Integration of embedded finance, facilitated by partnerships with FinTechs, offers a pathway for businesses to enhance scalability and meet evolving consumer demands.

The integration of embedded finance involves connecting applications through APIs, ensuring a smooth user experience for customers. While the current focus is on banking and digital platforms for start-ups and SMEs, ongoing technological advancements, evolving market conditions, and changing customer preferences will likely lead to the emergence of more accessible financial services and improved user experiences in the future.

Caxton API-Based Solutions:

To optimize development and integration costs, Caxton organises APIs into product categories aligned with specific customer needs. These include payments, accounts, foreign exchange, auditing, and expense cards.

Find out more about how Embedded Payments can help your business, or see for yourself how Caxton has helped Prosper², a clinical research provider, and more.