How Embedded Finance Impacts Canadian Credit Cards

Why apply for a credit card, get hit with a hard credit check, and pay an annual fee when you can still buy now and pay later with embedded finance tools?

In many cases, embedded finance is more convenient and accessible, but, in the long run, credit cards help you establish your financial profile.

So why not use them both?

In this blog post, we’ll break down what embedded finance is, how it compares to Canadian credit cards, and how both tools can complement each other.

To pinpoint how embedded finance impacts Canadian credit cards, keep reading.

What is Embedded Finance?

Embedded Finance allows spenders to tap into financial services through their favourite non-financial retailers.

For instance, when checking out via a virtual vendor, you might come across a Buy Now, Pay Later (BNPL) feature that breaks your grand total into installments paid over a select period of time. To cover the cost, withdraw funds directly from your debit card, digital wallet, or bank account. 

You can find embedded finance integrated within mobile apps and e-commerce websites.

There are plenty of examples of embedded finance tools and brands in Canada, including:

• KOHO – provides prepaid cards and integrated financial tools, uses third parties like Propel Holdings Inc. as an embedded lending partner via its Canadian brand called Fora Credit
• Neo Financial – an embedded finance model that issues cards and offers financing
• Shopify – offers Shop Pay Instalments, Shopify Capital, and embedded payments
• Afterpay – classic embedded finance tool for BNPL
• Klarna – classic embedded finance tool for BNPL

Embedded finance is also used for lending, investing, banking, insurance and more.

Ultimately, embedded finance is about convenience and bringing the “bank” directly to buyers – wherever they may be.

How is Embedded Finance Impacting Canadian Credit Cards?

The biggest way embedded finance is affecting Canadian credit card use is by mimicking your credit card’s BNPL function and making it even more accessible.

Access Credit on Common Platforms

Credit cards also allow you to purchase a product and pay it off as you can – preferably before your balance due date.

That said, many credit cards also require applications, hard credit checks, specified annual income values, and annual fees.

With embedded finance tools, you can bypass these obstacles and access short-term financing. Some platforms do require a soft credit check, however.

Bank With Your Favourite Brand

Embedded finance is also praised for its seamless integration by your favourite brands. Say goodbye to jumping to third-party platforms to make a purchase, your top retailer might loan you the money directly through their app or website.

Ditch the Plastic at Checkout

For those with no credit history, poor credit, or those who are cautious about revolving credit in the first place, embedded finance could be a temporary solution.

With embedded finance, you can ditch the traditional credit card and still buy now and pay later.

Basically, embedded finance is about moving credit beyond the confines of a plastic card.

Embedded Finance vs Canadian Credit Cards

Payments Canada reports that as of 2023, credit card payments represent 33% of total payment volume and remain one of the top payment methods for both online and point-of-sale transactions.

That said, embedded finance usage has increased and is expected to excel in the years to come.

To give you a side-by-side comparison between embedded finance and Canadian credit cards, we put together the following table:

Ultimately, embedded finance tools are best for convenience and accessibility, but credit cards are better for long-term wealth and building credit.

While embedded finance might seem like a quick fix for newcomers and students who lack a credit history, there are plenty of starter credit cards that are accessible and help you establish credit in Canada. 

How Can Embedded Finance Tools and Canadian Credit Cards Work Together?

Embedded finance tools and Canadian credit cards aren’t mutually exclusive. These two financial products work together in a few different ways, including:

• By bonding. You can link your credit card to some embedded finance tools and use them to buy now, pay later.
• By maximizing rewards. You can earn rewards through an embedded finance tool and your credit card when the two are linked (for example, you can earn Shop Cash on purchases made on Shopify and earn cashback on your saved credit card that helps facilitate the transaction) 
• By merging. Some embedded finance companies, like Neo Financial, issue their own branded credit cards.

The Verdict

So, how exactly does embedded finance impact Canadian credit cards? 

Embedded finance doesn’t replace credit cards. Instead, it enhances and expands BNPL opportunities beyond the card you keep in your back pocket.

Sure, embedded finance tools are more immediately accessible and convenient, but credit cards help you build a financial foundation that lasts.

In conclusion, the best way to optimize embedded finance features is to integrate them with credit card use.

Snag the best credit card for all your embedded and extended financial needs by browsing FinlyWealth’s credit card finder tool.

Frequently Asked Questions (FAQ)

What is embedded finance, and how does it affect spending in Canada?

Embedded finance lets spenders access financial services – such as loans and instalment plans – through non-financial platforms. With embedded finance, Canadians can select a Buy Now, Pay Later option at checkout without using a traditional credit card. Overall, embedded finance simplifies purchases and can be helpful to those who have yet to establish a Canadian credit history.

Is embedded finance a good alternative to newcomer or student credit cards in Canada?

Embedded finance is a good temporary option for students or new Canadians who haven’t qualified for a credit card yet.

However, embedded finance tools typically don’t help you build credit. Establishing a Canadian credit history is essential for your financial future. With this in mind, newcomers and students should apply for starter credit cards to help build their credit health. If a starter card is currently unattainable, secured credit cards are also an option.

Can I use embedded finance tools and credit cards together?

Of course! Plenty of embedded finance platforms let you link your credit card to cover purchases. As a result, cardholders can benefit from Buy Now, Pay Later plans while simultaneously collecting credit card rewards. For instance, Shopify’s Shop Pay lets buyers earn credit card rewards and Shop Cash at the same time.

What are the key differences between embedded finance and Canadian credit cards?

There are a couple of differences between embedded finance and Canadian credit Cards, notably:

• Embedded finance is generally integrated directly into shopping platforms for simple, short-term financing.
• Alternatively, credit cards require an application and approval from their associated issuers and often offer more robust perks that help Canadians build credit and long-term wealth.

Together, credit cards and embedded finance can help maximize rewards, convenience, and credit-building potential.