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Corporate Finance

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• First Online: 22 November 2023
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• António Pedro Soares Pinto 7 &
• Pedro Manuel Nogueira Reis 7  

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Business corporate finance ; Finance corporate

Zingales ( 2000 ) defines corporate finance as the study of the ways in which companies finance themselves. The adjective corporate serves to define the difference from other areas of financing, such as real estate financing or personal/individual financing. Hence, corporate finance encapsulates financing a business – not just an asset or an individual but rather the unique combination of assets and individuals that make up companies. The meaning of the verb “to finance” is “to raise or provide funds or capital for.” According to the aforementioned author, corporate finance covers three fundamental areas: capital structure, corporate governance, and evaluation.

In turn, Aswath ( 2001 ) incorporates into corporate finance: resource allocation (investment decisions), investment financing (decisions on capital structure), and whether the resources generated should be reinvested or distributed (dividends). In a more recent...

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School of Management, Polytechnic Institute of Viseu, Viseu, Portugal

António Pedro Soares Pinto & Pedro Manuel Nogueira Reis

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Guildhall Faculty of Business and Law London Metropolitan University, London Metropolitan University, London, UK

Samuel O. Idowu

BFH - Bern, Bern, Switzerland

René Schmidpeter

College of Business, Loyola University New Orleans, New Orleans, LA, USA

Nicholas Capaldi

International Training Centre of the IL, International Labor Organization, Turin, Italy

Liangrong Zu

Department of Economics, Society and Politics, University of Urbino Carlo Bo, Urbino, Italy

Mara Del Baldo

Instituto Politécnico da Guarda, Guarda, Portugal

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Pinto, A.P.S., Reis, P.M.N. (2023). Corporate Finance. In: Idowu, S.O., Schmidpeter, R., Capaldi, N., Zu, L., Del Baldo, M., Abreu, R. (eds) Encyclopedia of Sustainable Management. Springer, Cham. https://doi.org/10.1007/978-3-031-25984-5_943

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What Is Corporate Finance?

Understanding corporate finance, working in corporate finance, the bottom line.

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Corporate Finance Definition and Activities

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

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Corporate finance is a subfield of finance that deals with how corporations address funding sources, capital structuring, accounting, and investment decisions.

Corporate finance is also often concerned with maximizing shareholder value through long- and short-term financial planning and implementing various strategies. Corporate finance activities range from capital investment to tax considerations.

Key Takeaways

• Corporate finance is concerned with how businesses fund their operations to maximize profits and minimize costs.
• It deals with the day-to-day demands on business cash flows and long-term financing goals (e.g., issuing bonds).
• Corporate finance also involves monitoring cash flows, accounting, preparing financial statements, and taxation.
• Determining whether or not to issue a dividend is another corporate finance activity.
• Corporate finance jobs can pay attractive salaries.

Investopedia / Julie Bang

Corporate finance has three main areas: capital budgeting, capital financing, and working capital management. Capital budgeting is the process of prioritizing funds toward the most profitable projects. Capital financing is determining how a company's investments and endeavors will be financed. Working capital management is concerned with cash flow for day-to-day operations and maintaining liquidity.

While not necessarily an area of corporate finance, dividend distributions to shareholders are also a main concern because, in a publicly-owned company, shareholders are usually owners and expect returns for their investments.

Corporate Finance Activities

Corporate finance tasks include capital investing, financing, and liquidity management.

Capital Investments

Corporate finance tasks include making capital investments and deploying a company's long-term capital. The capital investment decision process is primarily concerned with capital budgeting .

Through capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget.

Making capital investments is perhaps the most important corporate finance task and can have serious business implications. Poor capital budgeting (e.g., excessive investing or under-funded investments) can compromise a company's financial position, either because of increased financing costs or inadequate operating capacity.

Corporate financing includes the activities involved with a corporation's financing, investment, and capital budgeting decisions.

Capital Financing

Corporate finance also involves sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through investment banks . A company may also choose to sell stocks to equity investors, especially when it needs large amounts of capital for business expansions.

Capital financing is a balancing act involving decisions about the necessary amounts of debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, though, capital financing must provide the capital needed to implement capital investments.

Short-Term Liquidity

The goal of capital management is to ensure that there is enough liquidity in the short-term to carry out continuing operations. Short-term financial management concerns current assets and current liabilities, working capital, and operating cash flows.

A company must be able to meet all its current obligations when they are due. This involves having enough current liquid assets to avoid disrupting a company's operations. Short-term financial management may also involve getting additional credit lines or issuing commercial paper as liquidity backup.

Positions in the area of corporate finance attract many job seekers. In fact, there's typically great competition for many of these types of jobs. Some of the many corporate finance job titles include:

• Chief financial officer
• Financial planning and analysis manager
• Cost analyst
• Financial analyst
• Corporate accountant

Corporate finance salaries can vary among companies, but according to the top job site Indeed , the national average annual salaries for the positions noted above are:

• Chief financial officer: $133,898
• Financial planning and analysis manager: $113,770
• Cost analyst: $83,304
• Financial analyst: $71,556
• Treasurer: $80,428
• Corporate accountant: $66,515

What Does Corporate Finance Do?

Corporate finance departments in companies focus on solid decision-making for profitable financial results. Thus, corporate finance involves activities that relate to the budgeting of capital, the debt and equity used to finance operations, management of working capital, and shareholder dividends.

What Is Corporate Finance vs. Finance?

Corporate finance is one of the subfields of the overall finance category. The others include public (or government) finance and personal finance.

What Are the 3 Main Areas of Corporate Finance?

The main areas of corporate finance are capital budgeting (e.g., for investing in company projects), capital financing (deciding how to fund projects/operations), and working capital management (managing assets and liabilities to operate efficiently).

Corporate finance is a subset of the field of finance. It concerns proper budgeting, raising capital to meet company needs and objectives with debt and/or equity, and the efficient management of a company's current assets and liabilities. The various jobs in corporate finance can pay well.

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Corporate Finance

The Corporate Finance Program explores the determinants and consequences of the financing decisions made by firms and households. It also encompasses corporate governance, household finance, and the links between the real and financial sectors of the economy.

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Antoinette Schoar is the Michael M. Koerner (1949) Professor of Finance and Entrepreneurship at the MIT Sloan School of Management. Her research includes entrepreneurship and small business finance, household finance, and intermediation in retail financial markets. She has been an NBER affiliate since 2001.

Amir Sufi is the Bruce Lindsay Professor of Economics and Public Policy at the University of Chicago Booth School of Business. His research focuses on finance, macroeconomics, and the links between the two. He has been an NBER affiliate since 2009.

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What is Corporate Finance?

The three important activities that govern corporate finance, investments and capital budgeting, capital financing, dividends and return of capital.

• How Important is a Company’s Capital Structure in Corporate Finance?

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Corporate finance overview.

An overview of the corporate finance industry

Corporate finance deals with the capital structure of a corporation, including its funding and the actions that management takes to increase the value of the company. Corporate finance also includes the tools and analysis utilized to prioritize and distribute financial resources.

The ultimate purpose of corporate finance is to maximize the value of a business through planning and implementation of resources while balancing risk and profitability.

Investing and capital budgeting includes planning where to place the company’s long-term capital assets in order to generate the highest risk-adjusted returns. This mainly consists of deciding whether or not to pursue an investment opportunity, and is accomplished through extensive financial analysis.

By using financial accounting tools, a company identifies capital expenditures , estimates cash flows from proposed capital projects, compares planned investments with projected income, and decides which projects to include in the capital budget.

Financial modeling is used to estimate the economic impact of an investment opportunity and compare alternative projects. An analyst will often use the internal rate of return ( IRR ) in conjunction with net present value ( NPV ) to compare projects and pick the optimal one.

This core activity includes decisions on how to optimally finance the capital investments (discussed above) through the business’ equity , debt , or a mix of both. Long-term funding for major capital expenditures or investments may be obtained from selling company stocks or issuing debt securities in the market through investment banks.

Balancing the two sources of funding (equity and debt) should be closely managed because having too much debt may increase the risk of default in repayment, while depending too heavily on equity may dilute earnings and value for original investors.

Ultimately, it’s the job of corporate finance professionals to optimize the company’s capital structure by lowering its weighted average cost of capital ( WACC ) as much as possible.

This activity requires corporate managers to decide whether to retain a business’s excess earnings for future investments and operational requirements or to distribute the earnings to shareholders in the form of dividends or share buybacks.

Retained earnings that are not distributed back to shareholders may be used to fund a business’ expansion. This can often be the best source of funds, as it does not incur additional debts nor dilute the value of equity by issuing more shares.

At the end of the day, if corporate managers believe they can earn a rate of return on a capital investment that’s greater than the company’s cost of capital, they should pursue it. Otherwise, they should return excess capital to shareholders via dividends or share buybacks .

How Important is a Company’s Capital Structure in Corporate Finance?

A company’s capital structure is crucial to maximizing the value of the business. Its structure can be a combination of long-term and short-term debt and/or common and preferred equity. The ratio between a firm’s liability and its equity is often the basis for determining how well balanced or risky the company’s capital financing is.

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Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

A well rounded financial analyst possesses all of the above skills!

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst  FMVA® Designation . CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more  questions and answers  for you to discover:

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Research Topics & Ideas: Finance

120+ Finance Research Topic Ideas To Fast-Track Your Project

If you’re just starting out exploring potential research topics for your finance-related dissertation, thesis or research project, you’ve come to the right place. In this post, we’ll help kickstart your research topic ideation process by providing a hearty list of finance-centric research topics and ideas.

PS – This is just the start…

We know it’s exciting to run through a list of research topics, but please keep in mind that this list is just a starting point . To develop a suitable education-related research topic, you’ll need to identify a clear and convincing research gap , and a viable plan of action to fill that gap.

If this sounds foreign to you, check out our free research topic webinar that explores how to find and refine a high-quality research topic, from scratch. Alternatively, if you’d like hands-on help, consider our 1-on-1 coaching service .

Overview: Finance Research Topics

• Corporate finance topics
• Investment banking topics
• Private equity & VC
• Asset management
• Hedge funds
• Financial planning & advisory
• Quantitative finance
• Treasury management
• Financial technology (FinTech)
• Commercial banking
• International finance

Corporate Finance

These research topic ideas explore a breadth of issues ranging from the examination of capital structure to the exploration of financial strategies in mergers and acquisitions.

• Evaluating the impact of capital structure on firm performance across different industries
• Assessing the effectiveness of financial management practices in emerging markets
• A comparative analysis of the cost of capital and financial structure in multinational corporations across different regulatory environments
• Examining how integrating sustainability and CSR initiatives affect a corporation’s financial performance and brand reputation
• Analysing how rigorous financial analysis informs strategic decisions and contributes to corporate growth
• Examining the relationship between corporate governance structures and financial performance
• A comparative analysis of financing strategies among mergers and acquisitions
• Evaluating the importance of financial transparency and its impact on investor relations and trust
• Investigating the role of financial flexibility in strategic investment decisions during economic downturns
• Investigating how different dividend policies affect shareholder value and the firm’s financial performance

Investment Banking

The list below presents a series of research topics exploring the multifaceted dimensions of investment banking, with a particular focus on its evolution following the 2008 financial crisis.

• Analysing the evolution and impact of regulatory frameworks in investment banking post-2008 financial crisis
• Investigating the challenges and opportunities associated with cross-border M&As facilitated by investment banks.
• Evaluating the role of investment banks in facilitating mergers and acquisitions in emerging markets
• Analysing the transformation brought about by digital technologies in the delivery of investment banking services and its effects on efficiency and client satisfaction.
• Evaluating the role of investment banks in promoting sustainable finance and the integration of Environmental, Social, and Governance (ESG) criteria in investment decisions.
• Assessing the impact of technology on the efficiency and effectiveness of investment banking services
• Examining the effectiveness of investment banks in pricing and marketing IPOs, and the subsequent performance of these IPOs in the stock market.
• A comparative analysis of different risk management strategies employed by investment banks
• Examining the relationship between investment banking fees and corporate performance
• A comparative analysis of competitive strategies employed by leading investment banks and their impact on market share and profitability

Private Equity & Venture Capital (VC)

These research topic ideas are centred on venture capital and private equity investments, with a focus on their impact on technological startups, emerging technologies, and broader economic ecosystems.

• Investigating the determinants of successful venture capital investments in tech startups
• Analysing the trends and outcomes of venture capital funding in emerging technologies such as artificial intelligence, blockchain, or clean energy
• Assessing the performance and return on investment of different exit strategies employed by venture capital firms
• Assessing the impact of private equity investments on the financial performance of SMEs
• Analysing the role of venture capital in fostering innovation and entrepreneurship
• Evaluating the exit strategies of private equity firms: A comparative analysis
• Exploring the ethical considerations in private equity and venture capital financing
• Investigating how private equity ownership influences operational efficiency and overall business performance
• Evaluating the effectiveness of corporate governance structures in companies backed by private equity investments
• Examining how the regulatory environment in different regions affects the operations, investments and performance of private equity and venture capital firms

Asset Management

This list includes a range of research topic ideas focused on asset management, probing into the effectiveness of various strategies, the integration of technology, and the alignment with ethical principles among other key dimensions.

• Analysing the effectiveness of different asset allocation strategies in diverse economic environments
• Analysing the methodologies and effectiveness of performance attribution in asset management firms
• Assessing the impact of environmental, social, and governance (ESG) criteria on fund performance
• Examining the role of robo-advisors in modern asset management
• Evaluating how advancements in technology are reshaping portfolio management strategies within asset management firms
• Evaluating the performance persistence of mutual funds and hedge funds
• Investigating the long-term performance of portfolios managed with ethical or socially responsible investing principles
• Investigating the behavioural biases in individual and institutional investment decisions
• Examining the asset allocation strategies employed by pension funds and their impact on long-term fund performance
• Assessing the operational efficiency of asset management firms and its correlation with fund performance

Hedge Funds

Here we explore research topics related to hedge fund operations and strategies, including their implications on corporate governance, financial market stability, and regulatory compliance among other critical facets.

• Assessing the impact of hedge fund activism on corporate governance and financial performance
• Analysing the effectiveness and implications of market-neutral strategies employed by hedge funds
• Investigating how different fee structures impact the performance and investor attraction to hedge funds
• Evaluating the contribution of hedge funds to financial market liquidity and the implications for market stability
• Analysing the risk-return profile of hedge fund strategies during financial crises
• Evaluating the influence of regulatory changes on hedge fund operations and performance
• Examining the level of transparency and disclosure practices in the hedge fund industry and its impact on investor trust and regulatory compliance
• Assessing the contribution of hedge funds to systemic risk in financial markets, and the effectiveness of regulatory measures in mitigating such risks
• Examining the role of hedge funds in financial market stability
• Investigating the determinants of hedge fund success: A comparative analysis

Financial Planning and Advisory

This list explores various research topic ideas related to financial planning, focusing on the effects of financial literacy, the adoption of digital tools, taxation policies, and the role of financial advisors.

• Evaluating the impact of financial literacy on individual financial planning effectiveness
• Analysing how different taxation policies influence financial planning strategies among individuals and businesses
• Evaluating the effectiveness and user adoption of digital tools in modern financial planning practices
• Investigating the adequacy of long-term financial planning strategies in ensuring retirement security
• Assessing the role of financial education in shaping financial planning behaviour among different demographic groups
• Examining the impact of psychological biases on financial planning and decision-making, and strategies to mitigate these biases
• Assessing the behavioural factors influencing financial planning decisions
• Examining the role of financial advisors in managing retirement savings
• A comparative analysis of traditional versus robo-advisory in financial planning
• Investigating the ethics of financial advisory practices

The following list delves into research topics within the insurance sector, touching on the technological transformations, regulatory shifts, and evolving consumer behaviours among other pivotal aspects.

• Analysing the impact of technology adoption on insurance pricing and risk management
• Analysing the influence of Insurtech innovations on the competitive dynamics and consumer choices in insurance markets
• Investigating the factors affecting consumer behaviour in insurance product selection and the role of digital channels in influencing decisions
• Assessing the effect of regulatory changes on insurance product offerings
• Examining the determinants of insurance penetration in emerging markets
• Evaluating the operational efficiency of claims management processes in insurance companies and its impact on customer satisfaction
• Examining the evolution and effectiveness of risk assessment models used in insurance underwriting and their impact on pricing and coverage
• Evaluating the role of insurance in financial stability and economic development
• Investigating the impact of climate change on insurance models and products
• Exploring the challenges and opportunities in underwriting cyber insurance in the face of evolving cyber threats and regulations

Quantitative Finance

These topic ideas span the development of asset pricing models, evaluation of machine learning algorithms, and the exploration of ethical implications among other pivotal areas.

• Developing and testing new quantitative models for asset pricing
• Analysing the effectiveness and limitations of machine learning algorithms in predicting financial market movements
• Assessing the effectiveness of various risk management techniques in quantitative finance
• Evaluating the advancements in portfolio optimisation techniques and their impact on risk-adjusted returns
• Evaluating the impact of high-frequency trading on market efficiency and stability
• Investigating the influence of algorithmic trading strategies on market efficiency and liquidity
• Examining the risk parity approach in asset allocation and its effectiveness in different market conditions
• Examining the application of machine learning and artificial intelligence in quantitative financial analysis
• Investigating the ethical implications of quantitative financial innovations
• Assessing the profitability and market impact of statistical arbitrage strategies considering different market microstructures

Treasury Management

The following topic ideas explore treasury management, focusing on modernisation through technological advancements, the impact on firm liquidity, and the intertwined relationship with corporate governance among other crucial areas.

• Analysing the impact of treasury management practices on firm liquidity and profitability
• Analysing the role of automation in enhancing operational efficiency and strategic decision-making in treasury management
• Evaluating the effectiveness of various cash management strategies in multinational corporations
• Investigating the potential of blockchain technology in streamlining treasury operations and enhancing transparency
• Examining the role of treasury management in mitigating financial risks
• Evaluating the accuracy and effectiveness of various cash flow forecasting techniques employed in treasury management
• Assessing the impact of technological advancements on treasury management operations
• Examining the effectiveness of different foreign exchange risk management strategies employed by treasury managers in multinational corporations
• Assessing the impact of regulatory compliance requirements on the operational and strategic aspects of treasury management
• Investigating the relationship between treasury management and corporate governance

Financial Technology (FinTech)

The following research topic ideas explore the transformative potential of blockchain, the rise of open banking, and the burgeoning landscape of peer-to-peer lending among other focal areas.

• Evaluating the impact of blockchain technology on financial services
• Investigating the implications of open banking on consumer data privacy and financial services competition
• Assessing the role of FinTech in financial inclusion in emerging markets
• Analysing the role of peer-to-peer lending platforms in promoting financial inclusion and their impact on traditional banking systems
• Examining the cybersecurity challenges faced by FinTech firms and the regulatory measures to ensure data protection and financial stability
• Examining the regulatory challenges and opportunities in the FinTech ecosystem
• Assessing the impact of artificial intelligence on the delivery of financial services, customer experience, and operational efficiency within FinTech firms
• Analysing the adoption and impact of cryptocurrencies on traditional financial systems
• Investigating the determinants of success for FinTech startups

Commercial Banking

These topic ideas span commercial banking, encompassing digital transformation, support for small and medium-sized enterprises (SMEs), and the evolving regulatory and competitive landscape among other key themes.

• Assessing the impact of digital transformation on commercial banking services and competitiveness
• Analysing the impact of digital transformation on customer experience and operational efficiency in commercial banking
• Evaluating the role of commercial banks in supporting small and medium-sized enterprises (SMEs)
• Investigating the effectiveness of credit risk management practices and their impact on bank profitability and financial stability
• Examining the relationship between commercial banking practices and financial stability
• Evaluating the implications of open banking frameworks on the competitive landscape and service innovation in commercial banking
• Assessing how regulatory changes affect lending practices and risk appetite of commercial banks
• Examining how commercial banks are adapting their strategies in response to competition from FinTech firms and changing consumer preferences
• Analysing the impact of regulatory compliance on commercial banking operations
• Investigating the determinants of customer satisfaction and loyalty in commercial banking

International Finance

The folowing research topic ideas are centred around international finance and global economic dynamics, delving into aspects like exchange rate fluctuations, international financial regulations, and the role of international financial institutions among other pivotal areas.

• Analysing the determinants of exchange rate fluctuations and their impact on international trade
• Analysing the influence of global trade agreements on international financial flows and foreign direct investments
• Evaluating the effectiveness of international portfolio diversification strategies in mitigating risks and enhancing returns
• Evaluating the role of international financial institutions in global financial stability
• Investigating the role and implications of offshore financial centres on international financial stability and regulatory harmonisation
• Examining the impact of global financial crises on emerging market economies
• Examining the challenges and regulatory frameworks associated with cross-border banking operations
• Assessing the effectiveness of international financial regulations
• Investigating the challenges and opportunities of cross-border mergers and acquisitions

Choosing A Research Topic

These finance-related research topic ideas are starting points to guide your thinking. They are intentionally very broad and open-ended. By engaging with the currently literature in your field of interest, you’ll be able to narrow down your focus to a specific research gap .

When choosing a topic , you’ll need to take into account its originality, relevance, feasibility, and the resources you have at your disposal. Make sure to align your interest and expertise in the subject with your university program’s specific requirements. Always consult your academic advisor to ensure that your chosen topic not only meets the academic criteria but also provides a valuable contribution to the field. 

If you need a helping hand, feel free to check out our private coaching service here.

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Research Program in Development Economics

Corporate finance.

Introduction to research in empirical corporate finance/applied microeconomics. The course covers theorical and empirical papers on various topics in corporate finance and related fields, with a focus on assessing the empirical execution and empirical methods. The objective of the course is to prepare graduate students to be able to implement sophisticated empirical methods and write state-of-the-art research papers on topics using methods from applied microeconomics. The course is most useful for PhD students in their second year of course work.

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What is embedded finance? 4 ways it will change fintech

Embedded finance enables every company to be a fintech company—and is creating a massive economic opportunity.

September 12, 2023

Tom is a fintech industry writer who creates whitepapers and articles for Plaid. His work has been featured in publications like Forbes, Fortune, and Inc. He's passionate about the freedom that the union between financial services and technology can create.

Embedded finance is drastically changing when, where, and how people interact with financial services—and creates substantial opportunities for both financial and non-financial companies to serve a wider market. In fact, 88% percent of companies that implement embedded finance report increased customer engagement, and 85% say it helps them acquire new customers.

In this article, we’ll explore what embedded finance is, the different types of embedded finance, and outlooks for growth and future trends in the embedded finance industry.

What is embedded finance?

Embedded finance is the integration of financial services into non-financial offerings. Examples of embedded finance might include an e-commerce merchant providing insurance, a coffee shop app that offers 1-click payments, or a department store’s branded credit card.

Effective embedded finance solutions meet the customer where they are with a financial option they need, whether that be a loan, payment program, insurance plan, or easy way to make a payment. 

Some embedded financial services have been around for a while, like airline credit cards, car rental insurance, and payment plans for high-priced items. Now embedded finance is taking hold online, as e-commerce retailers are offering banking services directly on their websites without re-directing customers to a bank. This phenomenon is enabled by third-party ‘banking-as-a-service’ companies that use API integrations to embed financial services into the user experience of non-financial companies.

Embedded finance can improve the customer experience and unlock a huge market opportunity for businesses, and is projected to rise dramatically in the coming years. It’s estimated that embedded financial services will produce $384.8B in revenue by 2029—a nearly 17x increase over the $22.5B in revenue generated in 2020.

By opening up new markets and improving customer experiences, embedded finance presents a significant opportunity to both financial service providers and non-financial companies in multiple industries. 

Examples of embedded finance

Embedded finance brings financial services to the exact moment it's needed, instead of being an entirely separate part of a consumer’s life. As a result, there are many different types of embedded finance products and services. The most common examples of embedded finance include fintech, banking, payments, credit cards, lending, investing, and insurance. 

1. Embedded banking

The terms ‘embedded banking’ or ‘banking as a service’ are sometimes used as a synonym for ‘embedded finance’. That’s because most embedded financial solutions, such as lending and payments, are typically offered by banks. In this case, we’ll consider ‘embedded banking’ as only bank accounts and their associated debit cards, and leave other areas like payments and loans as separate types of embedded finance.

With embedded banking, non-financial companies offer their users a branded checking account to hold funds and make payments. Embedded banking typically makes the most sense for sellers or service providers using a company’s platform to conduct business. It likely offers faster access to funds and perks that only platform users can access.

For example, the ride-sharing app Lyft offers a checking account and associated debit card exclusively to its drivers. Using this account, drivers can get paid immediately after every ride rather than have to wait weeks to get a lump sum payment. They can then spend those funds from their Lyft debit card and get cash back and rewards not offered anywhere else.

Another example is Shopify Balance , which allows Shopify store owners to ‘skip the bank’ by getting paid faster and eliminating the need to open a separate business bank account. It also offers a debit card with exclusive rewards for purchases made towards growing a Shopify business.

In both examples, embedded banking is designed to increase platform loyalty through a convenient user experience and special rewards. When a Lyft driver has a Lyft checking account that gets them paid faster, it’s less likely they’ll also drive for Uber.

2. Embedded payments

Taking out a credit card and entering the number is a friction point that can cause consumers to abandon a digital purchase. Embedded payments make this process easier by connecting and saving a payment method for later use at the click of a button. The Starbucks app , for example, saves credit or debit card information for 1-click payments while customers earn points for using the app.

Embedded payments go beyond credit cards. Embedded payments can also give consumers the option to pay directly from their bank accounts while saving merchants on fees.

SmartPay Rewards , a mobile app for gas stations and convenience stores, offers customers discounts and rewards in exchange for using its embedded bank account payments tool. Using ACH for payments saves merchants on fees because ACH fees are usually less than credit cards. Discounts and rewards increase brand loyalty and keep customers coming back.

3. Branded payment cards

Branded credit cards predate fintech, as shoppers have long been able to get branded cards from their favorite department stores. However, fintech has expanded companies' ability to offer branded credit cards and increased the use cases where it makes sense.

One area where branded payment cards are making an impact is in the B2B space. For ages, companies have either had their employees use personal cards for business expenses or provided them with a company credit card from their bank. There are several disadvantages to both options, such as employees fronting business expenses from their personal accounts or being given a corporate card that could easily be used to purchase non-business items.

Now, with fintech platforms such as Ramp and Divvy , businesses can more easily get their own business credit cards and offer them to all employees. These platforms typically make the sign-up process faster and easier, offer greater access to business credit than traditional banks, and allow companies to create as many branded business credit cards as they want, with both virtual and physical cards available.

Any business that offers embedded banking should also be able to offer a branded debit card, whether that be for consumers, employees, or even vendors and contractors. The Lyft debit card (mentioned in section one), is a perfect example as it’s linked to the embedded bank accounts that Lyft exclusively offers to its drivers.

4. Embedded lending

Embedded lending is a type of embedded finance that allows users to access more favorable loan options at the point of sale. Before embedded finance, a consumer had to use their credit card or take out a traditional loan from a financial institution—both of which can carry high interest rates. Embedded lending increases consumer access to lending and helps companies increase sales.  

“Buy now, pay later” (BNPL) is one of the most visible forms of embedded lending seen by online shoppers. It appears during the online checkout process, at the moment consumers are contemplating their available funds, and offers to split the payment up over time. These offerings typically provide monthly or weekly payment installments over a predetermined period with no interest. Popular companies offering buy now, pay later solutions include Klarna , Affirm , and Afterpay . 

Embedded lending allows companies of any size to easily offer their customers more payment options. This is great for consumers, who often prefer to split payments up over time, and for companies looking to increase sales and customer engagement. 

5. Embedded investing 

Embedded investing allows non-investment service companies to offer investment options that enhance customer experience and open additional avenues of revenue for companies. Traditionally, investing required consumers to open a new account with a legacy financial institution, like Fidelity or Goldman Sachs. 

With the rise of embedded investing, consumers can now buy cryptocurrency from other platforms they already use, including Venmo and Paypal . While this is a newer use case for embedded financial services, it's ripe for growth as consumers come to expect the sites they use to offer additional services. In the future, this might include being able to discuss stocks in a chat room and then easily buy shares or allowing users to buy stocks in their checking account app. 

6. Embedded insurance

Embedded insurance at the in-store checkout is nothing new, but fintech has facilitated its spread to digital marketplaces. Embedded insurance allows users to purchase insurance on online purchases at the point of sale. It's offered when and where people need it, with no need for a separate engagement with an insurance company or agent—and sometimes with multiple competitive options.

Companies have various ways to embed digital insurance options, most via partnerships with fintech companies. These fintech companies build insurance options into the checkout flow, enabling consumers to choose insurance as an ‘add-on’ to their purchase.

There are three common types of embedded insurance:

Singular policy: Companies (for example Boost and Bsurance ) underwrite the insurance policies themselves and then integrate them into purchase flows.

Multiple policies: An ‘agency’ approach where companies integrate multiple insurance options into the checkout flow. Examples include Matic and Branch .

Extended warranties: Companies like Clyde and Extend offer extended warranties in ecommerce checkout flows, typically under a single policy option.

7. Embedded fintech 

While most embedded finance refers to embedding financial services into non-financial business processes, embedded fintech integrates fintech solutions into a financial institution's website, app, or other business processes. For example, a bank might also offer to help consumers get rid of unused subscription services or invest in cryptocurrency right in their banking app—rather than downloading a new app or signing up for a new service. 

Embedded fintech provides a way for financial institutions to offer a wider range of services, engage their customers, and deliver more value. Historically, if a bank wanted to offer a new product, say a new type of investment or a different type of loan, they would need to spend months, if not years, developing, building, and launching a new product. With the rise of embedded fintech, they can embed these offerings in their current products. This lowers the economic risks and allows traditionally slow-moving banking companies to become more nimble and adjust to changing customer needs.

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Embedded Finance Startups 

As the popularity of embedded finance has grown, startups have begun to offer consumers and companies many options. These startups offer a range of services including banking, investments, and insurance. Some examples include the following:

Walnut is modernizing the insurance industry by making it easier for fintech companies to embed insurance options in the purchase process. For example, a mortgage company might use Walnut to provide home buyers with a homeowners insurance quote during the mortgage approval process. If the customer accepts the quote, Walnut, a licensed insurance broker, facilitates the purchase. This improves the customer experience by streamlining the insurance purchasing process. 

Unit is an embedded finance startup offering companies an easy way to store, move, and lend money. Using Unit, businesses can build custom offerings that allow their customers to request cash advances, get a branded credit card, or track expenses. By handling the backend building side of embedded finance, Unit helps more businesses leverage the power of embedded financial services. 

Checkout.com 

Checkout.com is a payment gateway that makes it easier for businesses to accept payments online. Instead of dealing with the complexities (and regulations) related to online payments themselves, Checkout.com allows online companies to easily accept payments, prevent fraud, and keep payment secure. The company supports many different payment options, including credit, debit, and digital wallets, and also handles currency exchange, allowing businesses to transfer money from customers all over the world. 

→ Using Plaid IDV and Transfer , embedded finance startups can safely and securely gain access to the financial and identification data they need to onboard new customers and fund accounts.

Embedded finance is a growing, multi-trillion-dollar market

Embedded finance presents a huge opportunity not just for fintech companies and businesses, but also for consumers. It gives consumers options to increase convenience and savings, like zero-interest point-of-sale loans, or rewards for using a brand’s e-commerce app.

Data shows that consumers are willing to adopt embedded financial services if it benefits them. 46% of millennials say they would be interested in opening a checking account with Amazon, and more than 30% would be willing to do the same with companies like Starbucks, Uber, Facebook, or Google.

Convenience is one of the main reasons consumers are willing to adopt embedded finance. Shopify Pay, which allows users to save their payment information for later use, is a prime example. By making the checkout process four times faster, Shopify Pay increases checkout-to-order rates 1.7 times —showing that added convenience plays a significant role in preventing consumers from abandoning their carts.

Fintechs that offer embedded finance products are also gaining significant ground. In 2021, venture capital investments in embedded finance were triple those of 2020 (see above). In 2022, the overall embedded finance market was valued at $65.46B , and is expected to see a compounded annual growth rate of 32.2% from 2023 to 2030.

In a market expected to grow 10 times in value from 2020-2025, numerous players are looking to capitalize on the opportunity. Timing, execution, and market understanding will determine who gains the most, as businesses, fintechs, and financial institutions will surely compete to take advantage of this growing opportunity.

It’s estimated that embedded financial services will produce $230B in revenues in 2025—a 10-fold increase over the $22.5B in revenues in 2020.

How to offer embedded finance products and services

When a non-financial company wants to offer a new financial product or service, they have three options: build, partner, or buy. Before the onset of fintech and embedded finance providers, build and buy were the only options, and they are much more expensive and time-consuming than partnering.

The embedded finance revolution is all about partnerships. Embedded finance providers such as Unit and Checkout.com do the legwork of building partnerships with banks and creating APIs to help companies quickly add on services like banking and payment cards. Then, they partner with non-financial companies (their customers) to get them up and running with these embedded finance products and services in weeks or months, rather than the years it would take to build. They’re also a much cheaper option than buying an entire financial services company.

Plaid also plays a role in this partnership ecosystem. Third-party embedded finance providers like Unit use Plaid to safely and securely gain access to the financial data they need to create and fund new accounts, plus gain deeper insights into things like balances and transactions. It’s as if Plaid turns on the stream of user-permissioned financial data to these companies, then they transform it into embedded finance products and services.

Using Plaid Transfer , companies can seamlessly offer embedded payments by authorizing customers, analyzing risk, and moving money with a single API. 

When a non-financial company decides it’s time to add checking accounts, lending, insurance, or another financial service, partnering with an embedded finance provider is going to be the easier option most of the time.

What is the future of embedded finance? Four ways it will change fintech

According to Plaid and Accenture’s research report , there are four central ways that embedded finance could alter the way both financial and non-financial companies conduct business.

1. Rearranged relationships between financial providers and consumers. 

With more companies acting as financial companies, financial providers will need to become more accustomed to sharing customers with non-financial companies for services only they used to provide. This will increase competition for traditional finance companies and may result in better products and better customer service. 

2. New revenue streams. 

By embedding financial services into established buyer journeys, many new revenue streams have already been established. Additional revenue streams are likely to continue popping up as companies find new and creative ways to add value through embedded finance. This may include newer types of embedded finance, like embedded investing. 

3. New types of competition.

As embedded financial services become widespread—and more non-financial companies start wading into these new waters—financial services companies will need to rethink business models as they compete for new frontiers. This includes the rise of niche neobanks, like tribal neobanks , and neobanking for employees, which allows businesses to offer banking to their employees to increase retention. 

4. A new era of partnerships. 

Financial providers and brands will forge lasting (and highly beneficial) partnerships. These partnerships will provide the experience and skill sets that brands need to offer embedded finance without hiring whole teams of financial experts and software developers.

The opportunity for financial services to expand into previously non-financial areas is unprecedented—and still in the very early stages. This financial transformation will continue to gain strength across nearly every sector as more companies adopt embedded finance and as consumers become more comfortable with these services.

For companies wishing to join the embedded finance revolution, the time to start building is now.

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