The Future of Embedded Finance Study

SMEs will likely build custom product bundles through multiple providers to create financial tools which work best for their needs. The ride-hailing and delivery companies see a similar opportunity to the mobile money providers in that they recognize that there is a big unmet need for financial services across large segments of the populations in the countries where they operate. They tend to see things a little bit differently in that they are often using financial services specifically to drive the core business. So, they tend to be a bit more focused in the specific financial products and services that they embed and how they embed them into their platforms. In the last few years, embedded finance—a non-financial company offering financial services direct to consumers—has achieved buzzword status. And with good reason, embedded finance promises stronger customer loyalty, new revenue streams and insight into customers’ payment behavior.

Another extension of Embedded Finance is Embedded Investing, or providing robo-advisory, brokerage and wealth management services to consumers. Acorns, for example, delivers micro investing, full automation and adjustments according to your goals and wishes via automatically investing your spare change. PayPal now offers crypto purchases through their platform, which also changes the way brokerage services are offered and consumed.

Helping smaller banks grow

To ensure the potential benefits are realized, the right regulations will be crucial. Efforts to close the digital divide will also be key to ensure more women, people in rural areas, and other groups can access and use the phones, data plans, and other things required for digital finance. The potential is there to write the next chapter of the financial inclusion story, one marked by not just the broadening but the deepening of financial inclusion. We were very interested to use our fresh data to explore any gender differences in the potential of these embedded finance models to expand financial inclusion. However, when consumers shop online, they are no longer faced with just one payment option. Payments technology is now embedded into the checkout experience, with consumers often having the option to pay now or later, using their preferred payment tool.

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 cart. Branded credit cards predate fintech, as shoppers have been able to get credit cards for their purchases for their favorite brands for quite some time.

How embedded finance could take crypto into the mainstream

Despite the challenges mentioned so far and the risks, embedded finance is set to continue – though it will look different across regions depending on who is driving it… mobile money providers, e-commerce companies, super apps like Grab, and others. We believe that anyone with basic internet should be able to open up an app to get the financial services they need all while sitting at home. And so, we hope to apply our expertise in digital and data and financial services to build a next generation bank that can provide simple, transparent and affordable services of Southeast Asians. And we’re extremely excited to start this from Singapore, Malaysia in the coming years. I like to think of this next step in the same way as when we started out helping users access everyday services on our platform. And we want to make sure that we can improve our user’s financial wellbeing and make it simple and open for all.

• 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.
• Embedded finance can be a key monetisation lever for companies as it essentially makes them into fintech companies.
• The most common embedded finance offerings include banking, lending, insurance, payments, and branded credit cards.
• As embedded technology grows increasingly ubiquitous in front of and behind the user interface, its impact on banks, non-financial enterprises, and the consumers and businesses they serve, would be far-reaching.
• These insights may then be used as evidence that a bank acted in accordance with regulatory requirements.

As technological advancements continue to disrupt the traditional ways of banking, we’ll see a whole new spectrum of faster, more secure banking solutions from not only traditional banks, but also Big Tech companies. Not willing to be left behind, banks are also busy updating their ecosystems to stay on trend. Bank conglomerates including JP Morgan Chase, Barclays, HSBC, and Wells Fargo are exploring the use of blockchain technology for payment processing.

Partner & CustomerInformation

They tend to have the technology to do things that financial service providers traditionally have not been able to do. What they don’t tend to have is a banking license and a balance sheet, or a large customer base that they can easily reach with those products. Evolving from the buy now, pay later systems, integrated lending takes loans one step further. These kinds of financial tools can be embedded by businesses that are looking to finance larger or more significant purchases. Therefore they may need further information about the customer, such as data on their creditworthiness, to ensure they lend responsibly. By integrating lending tools with the technology provided by experienced software developers, businesses can safely and quickly allow customers to access credit while mitigating risk, all in one place.

The second set of companies tends to be very large digital consumer companies, often platforms in the e-commerce ride hailing and so forth space. Since they very much have a large customer base, they have a cheap digital channel to the consumer, and they have a large physical distribution network through which they can reach the consumers. In the business-to-consumer market, embedded finance is now the status quo, with a number of embedded finance players helping brands deliver complementary products within the same user experience. Brands like Apple, Square, and Uber offer services either built in-house or serviced by a third party that enable customers to make purchases and store funds seamlessly. 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 allow SMEs to have a smooth, transparent experience with integrated financial services to encourage a unique banking relationship. We’re now entering an era where trust has shifted, and according to one survey, more than 60 percent of consumers would use a financial service from an e-commerce provider. Despite the increased competition, there’s an opportunity for banks here as well. In conjunction with PSD2 and open banking, BaaS models have allowed banks to become primary players in embedded finance.

Currencycloud’s services allowed them to bring technology and connectivity to e-commerce marketplaces via card issuing and a payment gateway to SMBs. Armed with these added capabilities, TDB was able to transform the lives of customers by opening a new revenue stream, helping SMBs to modernize and provide access to digital payments to help develop the nation. When open banking first proliferated in the Asia Pacific and around the world, it created an environment where open APIs and fintech innovation could converge. This quickly broadened the use of APIs to embed financial services into non-financial platforms, thus giving birth to embedded finance as we know it today, an integral part of modern digital services.

How does embedded finance impact vertical software platforms?

Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you. From functional waters and natural energizers to mocktails and cannabis creations, the beverages https://globalcloudteam.com/ market is booming. She spends her days learning about and promoting PatSnap customers by highlighting their groundbreaking innovations. Kate holds a Bachelor’s degree in Medical Sciences and Psychology from Western University. In her spare time, she enjoys painting and being outside with her Siberian Husky.

On the one hand, consumers can now pay by digital wallets or other in-app gateways with just a simple click. In some instances, they don’t even need to attend the payment process, but are automatically charged afterwards via Buy Now Pay Later . On the other hand, businesses can generate revenue opportunities and brand loyalty – something we’ve seen in industries providing ride-sharing, food delivery and wider ecommerce. A seasoned banking and financial services executive with over 20 years of international deal-making and leadership experience in investment banking, markets and start-ups. He has originated and executed cross-border M&A, corporate restructurings, derivatives and structured financings, in both advisory and principal capacities, in the U.S.A, Europe and Asia, across developed and developing markets.

For those platforms with scale and a proven core product, embedded payments fill the demand for a seamless customer experience and revenue growth potential without a costly build. SaaS and software companies are acutely aware of the challenges involved in building technology, so the potential to improve business operations and grow revenue without development costs is a significant opportunity. For example, taking payments in-platform in a SaaS company can increase revenue by 2-5x through a single payments API that offers a range of customisation options.

Embedded finance: the next-generation opportunity

In a B2B scenario, a payment request would be triggered automatically when goods are delivered by a lorry and the receipt is signed digitally by a warehouse clerk. Currently, there is a clear lack of awareness and understanding on the embedded finance model and how it is fundamentally different from the existing model of distributing and consuming financial services. The route to path-breaking innovations can often be disruptive to those already in the market and the scale of opportunity is unclear to the new entrants.

Embedded Finance and Technological Advancements

Further, micro, small and medium enterprises will be able to grow their business profitably with ease of access to capital and have the ability to manage their cash flow during uncertain economic times. Embedded finance currently focuses on the digitisation of models that are already prevalent in the real world. For instance, Buy Now Pay Later is the digital version of the instalment loan product offered to customers when they make a big purchase at a retailer. Data and frictionless business processes are the key to delivering next-generation innovations.

One possibility is that BaaS and API banking will become as common as online and mobile banking – a channel that all banks will need to build and maintain. In that instance, it will be hard for banks to distinguish themselves with BaaS, so they will need to differentiate themselves based on their product offerings, rates, reach, and other competitive dimensions. Against the current volatile financial backdrop, embedded finance could be the hub for more innovative disruptors. Both financial institutions and companies from all sectors still have time to seize a piece of this dynamic industry.

In this section, we’ll explore both of these trends in detail — starting with number one. As the chart illustrates below, the largest market sector in the financial services/technology industry is mobile payment solutions. 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. Embedded finance changes when, where, and how people interact with financial services—and creates substantial opportunities for both financial and non-financial companies. 88% percent of companies that implement embedded finance report increased engagement, and 85% say that it helps them acquire new customers.

The technological companies which are operating in the different sectors are already well-positioned in the market. They can offer financial services to SMEs that bring added value to their everyday operations. The rising demand for embedded finance has seen banking as a service being offered by financial institutions in the form of bundle offerings. These are often white-labelled or co-branded services so that non-banks can use them to serve their customers. This article explores the basics of embedded finance and how it is impacting the future of the financial service industry as we know it.

And in doing so, it’s calling into question the position commercial banks have historically held. In some senses, this is a threat, but it’s also an opportunity for those willing to embrace change and adapt accordingly. In a post-COVID-19 world, consumers expect digital services to be available wherever and whenever they need them. In terms of banking, the focus has shifted from the branch and perhaps even the banking app toward the service itself, and technology is making it possible to move those services ever closer to consumers.

Distributors try to create a so called “frictionless” customer journey to avoid the risk of abandonment. When purchasing your shopping cart, we expect multiple payment options, and the execution of them should feel effortless; your card details are automatically entered, or you choose to pay later with the click of a button. The fastest growth in global embedded payments in the coming years will be in the Asia Pacific region. So, there’s potential set of risks that can carry embedded payment in 2028 over into the financial sector, that’s not necessarily well understood or very visible to the financial regulator. And it’s that because platforms that have, that have originated in sectors that are not the financial sector would include e-commerce sites, social media platforms and ride hailing companies. Cash flow and workflow issues continue to be a main area of concern for small businesses, most of whom do not retain in-house accountants to handle their finances.

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. He’s passionate about the freedom that the union between financial services and technology can create. Industry experts are predicting for embedded finance to become an absolute like cloud computing over the next couple of years. Publicly listed finance and insurance incumbents as well as legacy banks can be in a strong position to internalise or partner with the specific technological know-how required to offer embedded services.

With no connective tissue between these crucial features that a business requires to stay afloat, business owners spend much of their valuable time in the back office instead of identifying new ways to grow their revenue. The barriers to entry are low, which is why tech companies are opting to add financial services to their offerings. Firstly, respond to changing consumer behaviour; and secondly, change consumer behaviour. Utilising data to drive contextual and hyper-personalised banking will benefit the end user immensely. Firstly, contextualisation will allow end users to quickly and efficiently search for the best financial product or service to meet their needs.

To determine necessary optimizations for a simplified, seamless UX, tech companies capture and analyze data in real time, which allows them to tailor recommendations to individuals and create a custom experience. Although data capture is nothing new to Big Tech’s operations, it is new to more traditional financial institutions. Fortunately, blockchain may be the solution these organizations need to stay ahead. As traditional banks catch up, there’s renewed focus on also integrating AI and machine learning to enhance the customer experience. Embedded finance will become integrated into the financial services ecosystem and over time will be beneficial for all those involved.