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Part 1: Embedded Finance

The silent game changer in apps and platforms

Reading time: approx. 4 minutes

Embedded finance - the seamless integration of financial services directly into apps and platforms. But what's really behind it? What technology makes this possible and how does it differ from traditional banking solutions? In this article, I go one step further and shed light on what makes embedded finance so special and how it is already being used by major players and exciting niche companies.

More than just payments

When we think of embedded finance, the first thing that often comes to mind is payment solutions - such as paying with Apple Pay or Google Pay in various apps. But embedded finance goes far beyond that. It also includes loans, insurance, investments and even bank accounts that are directly embedded in non-financial platforms. The trick here is that these services are often presented to the end user as part of the main offering without them realizing that a financial service provider is behind them.

How does embedded finance work technically?

At the heart of embedded finance are APIs (Application Programming Interfaces), which enable third-party providers - i.e. non-banks - to integrate financial services directly into their systems. In the past, companies would have had to enter into separate partnerships with banks or even apply for a banking license themselves in order to be able to offer financial products. Today, API technology allows financial services from specialized providers to be integrated into any platform "in real time".

Simply put, APIs ensure that the complexity behind financial services remains invisible. Instead of having to call a bank or payment provider, everything is handled in the background. This saves time and makes it super convenient to use.

A comparison:

In the traditional model, you used an external payment service provider such as PayPal or a credit card payment for an online purchase, for example. Now the payment runs directly in the background via the platform - often without any additional steps. It works in a similar way for loans or insurance: Instead of applying for a loan via a separate bank, the platform offers you financing options directly, such as Klarna does.

Well-known names that already use Embedded Finance

• Shopify Capital: An example of embedded loans. Shopify offers its merchants direct financing solutions to cover their business expenses without having to go to a bank.
• Uber Money: Uber offers drivers integrated accounts and debit cards that allow them to get their money faster and manage their finances directly in the app.
• Airbnb: Airbnb enables its hosts to automatically take out insurance and damage cover for their properties, all within the platform.

These examples show that embedded finance is no longer just a nice extra function, but has become essential for the business models of these companies. They enable a consistent user experience and ensure that customer loyalty grows because everything remains in one ecosystem.

Exciting niche examples

In addition to the well-known giants, there are also smaller, specialized providers that use embedded finance in innovative ways.

• Railsr (formerly Railsbank): Railsr offers an API-based platform that helps companies to embed financial services such as bank accounts, loans or payments directly into their apps themselves. They are primarily aimed at start-ups and medium-sized companies that do not have the resources to develop their own banking solution.
• Tymit: This fintech makes it possible to make payments directly to online stores in installments - all without the typical credit card fees. Tymit offers a "buy now, pay later" service directly at checkout, which online retailers can easily integrate.
• Cover Genius: A company that offers embedded insurance for platforms. Whether for e-commerce or travel portals, Cover Genius enables companies to integrate insurance packages directly into their services.
• Another exciting niche example of embedded finance is neona Swiss neobank, which is working together with the Hypothekarbank Lenzburg operates in collaboration with Hypothekarbank Lenzburg. Neon offers an app-based account solution that relies heavily on embedded finance. The special feature: Neon itself is not a bank, but uses the the banking infrastructure of Hypothekarbank Lenzburg in the background. Thanks to this partnership, neon can offer its customers digital banking services such as account management, transfers and card solutions without needing its own banking license. The integration runs via the APIs of Hypothekarbank Lenzburg, which provides the complete regulatory and financial framework. Neon acts as an intermediary and takes care of the front end - i.e. the app and direct customer interaction.

These niche providers show how versatile embedded finance is and how it also enables smaller players to integrate financial services into their platforms without a great deal of effort.

What distinguishes embedded finance from the traditional model?

In the traditional model, you as a customer often had to actively take an intermediate step in order to use financial services - be it a separate registration with a bank, requesting a loan or buying insurance. The traditional banks act as independent entities that you have to consciously go to.

With embedded finance, this intermediate step disappears almost completely. It is a contextual finance model where financial services are provided exactly where they are needed. Whether it's instant financing for your online purchase or insurance for the goods you've just ordered, it's all embedded in the process, often without you having to think about it.

Another differentiator is the agility. Embedded finance is often used by fintechs or new providers that can react much faster and more flexibly to the market. Traditional banks have major infrastructure and regulatory requirements, which often slows down innovation.

Embedded finance is changing the way financial services are offered and used. With APIs and the ability to seamlessly integrate complex banking and financial products into any platform, companies can offer their customers a whole new level of convenience. Whether you realize it or not, embedded finance has long since arrived in your everyday life - from big names like Uber to specialized fintechs that are making the ecosystem even smarter.

Outlook:

In the next part of the series we take a look at how embedded finance came about and why tech giants are suddenly entering the financial sector. What have banks missed in this development, and how have fintechs and tech companies been able to fill the gap so quickly? We take a look at the historical development and the role of traditional banks compared to new market players.

Stay tuned - it's going to be exciting!

How do you like the start of the series? Let me know and I'll be happy to receive your feedback!

Happy investing! 😊

GG

$UBER (-1,3%)
$AAPL (+0,65%)
$SHOP (+2,94%)
$ABNB (-6,51%)

PayPal $PYPL (+3%) / Shopify $SHOP (+2,94%)

The payment service provider PayPal is expanding its cooperation with the shopping platform provider Shopify in the USA. The integration of PayPal Wallet transactions into Shopify Payments via PayPal Complete Payments will create a standardized payment platform for Shopify merchants, the companies announced. The improvement should lead to more efficient processing of payment transactions, the companies said.

+++ My AI portfolio +++

At the beginning of the year, ChatGPT put together a portfolio for me consisting of these stocks:

Nvidia $NVDA (-0,03%) +157%

Alphabet $GOOGL (-0,6%) +17%

Amazon $AMZN (-0,02%) +15%

Shopify $SHOP (+2,94%) -3%

Tesla $TSLA (+9,97%) -12%

The entire portfolio now stands at €134,875.87 and has thus generated €34,875 or 34.86%, as well as a dividend of €40.

Now I have given ChatGPT the shares and returns of my companies and asked whether I should sell/reallocate something for the maximum return.

After a long discussion, ChatGPT primarily decided in favor of this:

Sell Nvidia position at half and reallocate into:

20% Tesla

40% ASML as a new purchase

and 40% Palantir as a new purchase

This will now be completed and it will be exciting to see how the second half of the year turns out :)

Like the post and follow me to make sure you don't miss anything

Hello everyone 🙋🏻‍♂️

Since I have been more of a silent reader and admittedly have not been investing in equities for very long (since April 24), I would like to take this opportunity to briefly introduce myself and my portfolio.

About me:

I am 25 years old, live and work in Germany and share a household with my girlfriend. I've been looking into investing for a while, but didn't dare to take the plunge for a long time until the aforementioned deadline due to negative reports from friends and horror stories on various websites.

Now I'm here and I'm extremely happy to have taken the plunge after all.

My decision was confirmed by the fact that I recently broke through my all-time performance loss limit. I stuck with it and was not impressed by the correction. On the contrary, I saw it more as an opportunity to buy more.

My intention:

Initially, I would rather focus on growth. My investment horizon extends into my retirement age. I may add more dividend stocks to my portfolio at a later date to generate a little income.

About my portfolio:

After some initial mistakes, I quickly settled on the following ETFs:

$VWCE (+0,48%) (70%)

$EIMI (-1,88%) (20%)

$WSML (+0,39%) (to 10%)

My aim was to cover the majority of the market with large, mid and small caps in order to achieve greater diversification.

These ETFs should also become the main component of my portfolio in the medium term.

I also wanted to include a few strong individual stocks. Here $AMZN (-0,02%)
$AMD (-0,12%)
$AVGO (+1,15%) were chosen as blue chips. These are to be increased through individual purchases at a suitable price.

With $VOW3 (-2,26%) the original idea was to increase dividends and diversify my portfolio.

I think the share price will recover in the long term. Unfortunately, my entry point was a little too early. I would like to reduce my buy-in somewhat in the near future by buying individual shares.

$SHOP (+2,94%) I see the share as a growth stock and should continue to hold it.

The two copper shares are my youthful sins, so to speak. I actually wanted to sell them, but the value of the shares is so low that I would even pay the order fee if I sold them.

That's why I'm keeping them in my portfolio as a souvenir for the time being.

$NKE (+0,58%) is still a strong company for me and will rise again in my opinion.

The company was chosen to expand a tech-heavy portfolio into other sectors. Keyword: diversification.

$AVAX (+4,51%) was basically an initial gimmick. I would actually like to either remove crypto completely from my portfolio or switch to $BTC (+0,19%) and then add to it with a savings plan.

In the near future, I would like to diversify further with strong stocks from Europe and Asia so as not to overweight North America.

If you have any suggestions for improvement, criticism or further questions, please feel free to post them in the comments!

Until then!

Scaramouch

Things that I think will happen 👇🏼

1. $PLTR (+5,8%) 👨‍💻 -- Your AIP will eventually become the foundational platform for businesses.

2. $TSLA (+9,97%) 🛺 -- They are in the process of making their FSD software as ubiquitous in electric vehicles as $SHOP (+2,94%) already the case with SMEs in the e-commerce sector.

3. $RKLB (+1,69%) 👽 -- Becoming a full-fledged space company, positioned as a major player in the new space economy -- focusing on satellite launches, space logistics and possibly interplanetary missions.

4. $TTD (+3,69%) 🕵️‍♂️ -- They will redefine digital advertising and become as important to online marketing as search engines are to Internet discovery.

5. $TMDX (+1,8%) 🫀 -- Your Organ Care System (OCS) aims to revolutionize organ transplants and is expected to have as much of an impact in this field as minimally invasive surgery. $ISRG (+2,71%) minimally invasive surgery.

6. $SNOW (-1,55%) ❄️ -- They are becoming the central hub for companies to store, process and analyze huge data sets.

7. $MDB (-1,61%) 🥭 -- They could become the backbone of modern application development.