Embedded Finance Glossary: Breaking Down The Basics

Whether you’re new to learning about embedded finance or have been busy considering it for your product roadmap, we’re breaking down the basics of this buzzword to uncover what it is, how it works, and the essential elements involved.

Glossary of Embedded Finance Terms

ACH (Automated Clearing House)

A network used to process financial transactions. It allows individuals and businesses to transfer money electronically, and is commonly used for direct deposits and bill payments. While it has been a popular way to move money, ACH has a few drawbacks, like cutoff windows and potential fees. 

Acquiring Bank (or Acquirer)

A bank or financial institution that processes credit/debit card payments on behalf of a merchant (the party embedding finance).

API (Application Programming Interface)

A set of tools and protocols that allow different software systems to communicate. APIs are the foundation of embedded finance, enabling the connection between financial services and non-financial platforms.

Banking-as-a-Service (BaaS)

A model where licensed banks provide financial services via APIs to non-bank platforms. This allows a non-bank platform or company to embed and launch financial services without having to build it all from scratch.

When evaluating BaaS providers, it helps to look for one that provides program management, meaning they tackle everything from the technical infrastructure to ongoing support. 

Digital Wallet

A software-based system that stores users' payment information and allows them to make digital transactions (e.g., Apple Pay, Google Wallet, or a custom in-app wallet).

Embedded Finance

The integration of financial services—such as payments, lending, banking, or insurance—directly into a non-financial product or platform (e.g., offering loans within a retail app).

Examples:

• Embedded Lending: Offering loans or credit products within a platform—e.g., buy-now-pay-later (BNPL) at e-commerce checkout.
• Embedded Insurance: Integrating insurance offerings within a platform—for example, offering travel insurance when booking a flight.
• Embedded Investing: Integrates investment services into existing platforms. For example: a travel rewards program that rounds up purchases to automatically invest the spare change. 
• Embedded Banking: Providing users with banking-like features (e.g., checking accounts, debit cards, P2P transfers) within a non-bank platform.
• Embedded Payments: The integration of payment processing into a non-financial product or app—for example, paying a driver inside a ride-hailing app without redirecting.

Fintech

Short for financial technology—companies or platforms that use tech to provide or facilitate financial services.

Float

The money held in a system before it's officially settled or withdrawn—important in managing cash flow for embedded finance.

Issuing Bank (or Issuer)

A financial institution that provides financial products like cards or accounts behind the scenes for embedded finance platforms.

Interchange Fee

A fee paid by the merchant's bank (Acquirer) to the cardholder's bank (Issuer) when a transaction is made. Interchange sharing is often part of embedded finance monetization, and one way for companies to unlock new revenue streams.

Know Your Business (KYB)

A regulatory process used in embedded finance to verify the legitimacy of businesses before offering financial services—crucial for B2B embedded finance solutions. 

Know Your Customer (KYC)

Similar to KYB, but for individuals, KYC is a regulatory process used to verify the identity of customers before offering financial services, making it critical for compliance and fraud prevention.

Ledger-as-a-Service

A backend service that tracks balances, debits, credits, and transactions—important for embedded wallets or issuing products.

Orchestration Layer

A software layer that coordinates between multiple service providers (e.g., KYC, payments, card issuing) to create a seamless embedded finance experience.

Payment Gateway

A service that authorizes and processes credit card or online payments for embedded checkout experiences.

Paytech

Refers to the technologies, platforms, and infrastructure that enable digital payments. In the context of embedded finance, paytech enables non-financial companies to integrate payment services directly into their products, without needing to build their own financial infrastructure. Roughly 25% of all fintech companies are paytech companies, according to the latest data. 

Payouts-as-a-Service

Automated systems that allow platforms to disburse funds to users (e.g., gig workers, vendors) through various channels—ACH, RTP, cards, etc.

Program Manager

A company that operates and manages a financial product or services on behalf of a brand, usually overseeing operations, compliance, and tech integration.

Real-Time Payments (RTP)

A newer payment infrastructure that allows for the immediate transfer and settlement of funds between banks 24/7. Real-time payments can allow today’s workforce to be paid immediately upon job or shift completion. 

Sponsor Bank 

The licensed financial institution that holds the regulatory responsibility for and provides access to the necessary banking infrastructure.

Tokenization

The process of replacing sensitive data (like card numbers) with unique identifiers or "tokens" for improved security in embedded payments.

Treasury Management

Managing the movement, storage, and investment of funds within a company or platform—often handled via APIs in embedded banking.

Underwriting

The process of evaluating risk and approving or declining financial products such as loans or insurance.

White-Labeling

Offering financial products (e.g., wallets, cards, or loans) under your brand, while the infrastructure is provided by a third party. (Learn about Branch’s white label offering). 

Ready to learn more about embedded finance? Check out this interview with Branch’s Chief Payments Officer, Ahmed Siddiqi!

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