Economic activity around the world is slowing down. As we experience the highest inflation seen in several decades, it is easy to conclude that staying ahead of the curve is becoming increasingly difficult. However, as a recent report by the National Bureau of Economic Research, NBER rightly highlighted, deploying technology at scale, especially in times of uncertainty, can do wonders for organizations.
Among the various radical innovations the global finance industry is currently experiencing, one technology your business can leverage to get ahead of the competition is embedded finance. In today’s article, we will share with you a brief introduction of embedded finance and how you can take advantage of this rapidly evolving technology to ensure your business thrives amidst the ongoing times.
What Is Embedded Finance?
Embedded finance can be simply understood as an offering which uses connective technologies to integrate a financial product into a traditional non-financial environment. Embedded finance as a concept is not novel – think back on the bespoke credit cards offered by supermarkets or insurance offered by travel aggregators. However, since its first inception, embedded finance has significantly evolved into its current avatar – embedded finance 2.0.
Embedded finance 2.0 is a major leap over its predecessor as it empowers businesses to offer a native experience at the digital platforms most frequented by consumers. With this new generation, customers, both B2C and B2B, can take advantage of a seamless financial experience within the applications and platforms they adore – think paying for a business purchase in easy EMIs without needing to get a business loan or instantly collecting payment for your services without needing to wait for the industry standard of 60-120 days settlement cycle.
A recent report, the Next-Gen Commercial Banking Tracker, by FISPAN and PYMNTS highlighted how embedded finance is all set to reach a USD 7 trillion valuation in the next 10 years. The report highlighted how embedded finance applications such as seamless payments and lending have transitioned from a nice-to-have to a dealbreaker feature for consumers across the globe. Furthermore, businesses that are not yet offering this seamless experience are anxious to get on board as they wake to the new reality of losing customers and being ousted from this rapidly evolving digital playing field.
How Embedded Finance Came to Be?
To truly appreciate the prowess of embedded finance, it is important to take note of the developments that support this technology.
The start of embedded finance can be largely accredited to the concept of Open Banking, which today provides the legal and technical infrastructure embedded finance stands upon. Although open banking has been in the works for the better half of a decade, it was only in 2015 that the public first came to realize its benefits. The European Parliament and its counterparts in different nations published the PSD2 directive in 2015 when the UK, in particular, surpassed its tipping point of having more electronic payments than cash.
Simply put, the PSD2 directive mandated banks and other financial institutions to share customer data with authorized third parties the moment consumers requested it. Previous to this, banks and other financial institutions, such as insurance and lending companies, were the sole custodians of consumer data and essentially archived them behind a wall of bureaucracy. With the introduction of the Open Banking, first in the UK and then in other parts of the world such as Singapore, India and the US, customers could seamlessly share their financial data between authorized third parties and take advantage of its wonders.
One of the most significant advancements of this move was realized by third parties who could now utilize this data to offer more innovative and customized financial products to consumers. Essentially, PSD2 and the open banking revolution made way for consumers to reap the benefits of a seamless financial experience over traditional financial products and make way for embedded finance as we know it today.
How Can Your Business Leverage Embedded Finance?
Now that you have a better understanding of what embedded finance is and how it came to be, let’s explore how your business can start leveraging embedded finance today.
One major developmental outcome of the open banking revolution has been in application programming interfaces or APIs. Today fintech’s around the world have pioneered the use of APIs to seamlessly let financial and non-financial institutions share information with each other without the hassle of tiresome integrations. APIs, a simply software which facilitates the convenient exchange of data and communication between two or more parties, are now readily available for businesses across all domains.
To understand this better, let’s take the help of an example. Let’s assume that as the founder of a B2B eCommerce marketplace, you want to offer your business customers a one-click financing experience at checkout, which is commonplace among most B2C consumers today.
Now traditionally, you would need to invest plentiful resources both in dollars and manhours to develop this technology, test it in staging and real-life scenarios and finally deploy it for your consumers. However, even after you spend 6 months in rigorous testing, chances are the experience might not be at par with your customer’s expectations.
This is where the power of APIs and embedded finance steps in.
By identifying appropriate APIs for your need and the fintechs who develop them, all you need to do is invest minimal technical resources at your end and integrate prebuilt APIs on your existing platform. Thus, in essence, with the right APIs, you no longer need to develop the technology in-house by investing countless manhours and thousands of dollars and instead can simply integrate your platform with an existing solution.
The best part, most fintechs design a bespoke solution for your platform, meaning your customers can experience a seamless journey from start to end, powered by robustly engineered UI and UX. This not only enables you to dramatically cut down your development cost and time but also enables you to offer a truly seamless embedded finance experience to your customers minus the hassle.
Conclusion – Get Started With Embedded Finance
The future of finance is embedded. A recent study by Accenture among 2500 SMEs across the world showcased how more than 47% are willing to pay for an embedded finance experience as most have come to realize how it positively impacts their bottom line. As a B2B enterprise, if you are looking to delight and retain your customers for the long term and offer them the same experience commonplace among B2C consumers, now is the time to integrate and orchestrate a seamless native platform financial experience.
CrediLinq.Ai is a pioneer in the embedded finance space. Supported by a globally distributed team of professionals, we are revolutionizing embedded finance for Asia and beyond. Get in touch with us today to learn more about how we can empower you to stay ahead of the curve.
