The domain of financial transactions and banking is in flux and is constantly evolving. FinTech is enabling the industry to realise its true potential as more and more people now opt for convenience and a process that is seamless. It is still a tedious task to register to banking apps because a lot of the financial institutions don’t offer many services that provide maximum utility. Having said that, every financial institution and bank is now on the road to having FinTech capabilities through digital banking, embedded finance facilities, and a lot more to ensure clients get an array of services under the same roof.
To get into the intricacies of embedded finance, it is imperative to understand what it is first. The concept is fairly simple, we’ve all dreamt of non-financial organisations i.e., an e-commerce marketplace to provide not only payment solution options but other financial tools and services that make the buying and shopping process simple and comprehensive i.e. installment payments for a mobile phone, buy now pay later option or a digital wallet enabling you to make cashless payments, insurance payments and a whole lot more. Embedded finance is the integration of financial services or tools, traditionally obtained through a bank, within the products or services of a non-financial organization.
The significance and importance of Embedded Finance is now being realised and adopted. It is gaining prominence as FinTech startups are surging with businesses focusing on financial ease and payment solutions. Embedded finance should be looked at through a technical lens and can benefit all businesses and not only banks. It is a digital product combining the core or underlying financial offering and API to make it available to those who are your customers and potential business partners. Any business can broaden the horizon of its core offering with the help of embedded finance, even if they aren’t a financial institution or bank. Having the ability to offer numerous payment methods, insurance, interest-free loans for products, etc. can not only help make a sale but increase return customers and help market the business as well with multi-faceted offerings.
It will be a common sight in the coming years considering how embedded finance is being openly adopted by all, that when you buy a product or a service online, you will be offered a host of options to help you make the purchase improving the client’s experience. These services can be in the form of a loan covering the cost of the product or service, insurance of the product or service, and integrating blockchain to secure the entire process. Moreover, it is expected to become the norm for not only B2B but also B2C companies particularly those that have financial services in their offerings. Open banking and embedded finance tools make it easier than ever to incorporate financial services into an application if you already have brand equity with consumers.
One of the greatest advantages of Embedded Finance is that it works through a lens of customer-centric offerings which are changing the business and the financial paradigm. Given the marketplace is evolving with everything going digital like E-Commerce, and Neo Banks, the customer touch points are now changing because when previously a customer had to go through a slew of steps to e.g. purchase a car, separately get insurance, separately get a loan from the bank and make the subsequent payments, this can now be done under a single platform.
The most significant advantage embedded finance brings to consumers is the elimination of many pain points. Unnecessary steps in the purchasing journey are removed and friction is eliminated when buying products, resulting in increased convenience for consumers. Thanks to bow now, pay later (BNPL) and point-of-service loans, all it takes is a few clicks and an affordable payment plan is created that enable the purchase to be made. It’s no secret that the more seamless the customer journey, the more likely customers are to spend more money.
Retailers are also taking advantage of Embedded Finance to not only augment their income streams but to diversify their revenue which in turn increases brand loyalty and creates brand equity. Given that customers can now avail or can get these financial services from businesses directly, instead of having to go to third-party providers, this is changing the way customers interact and make purchases. Getting data and having a vast repository of all the information received from customers is also very useful and pragmatic. Advanced customer insights can be gained to help businesses see buying trends, and customer preferences as this can help them tailor customer experience with products and services that better suit their needs.
From payments and lending to insurance and wealth management; there is seemingly no end to the areas where brands can add embedded finance. With the size of embedded finance in payments alone expected to total more than $140 billion by 2025, an increase from $16 billion in 2020, it’s clear that consumers and businesses alike are growing increasingly aware of the benefits from these solutions.
With the dynamics of the tech industry, banking, and E-commerce changing rapidly, traditional card and cash payments are now being replaced by digital cashless offerings that bring with it convenience, ease, and a minimalistic user experience. Embedded finance is the way of the future, innovating payment offerings, especially for small businesses by enabling them to compete with their competition who have significantly larger tech platforms to help them innovate and grow.
Why embedded finance is the next big thing
What is embedded finance and why you should care?