Over the last couple of years, embedded finance has grown to such popularity that today, it has become a standard function for both businesses and customers across the world.
While the technology is yet to fully mature and realize its complete potential, businesses and consumers who currently have access to it can’t do with it. Take, for example, your experience of shopping at Amazon. You choose the products, pay for them without leaving the platform, and they are delivered to your doorstep the next day without you needing to shift between multiple applications. More so, if the purchase is large, you can easily choose one-click financing at checkout and split the payments into easy EMIs over the next couple of months.
However, this is just the tip of embedded finance’s true potential.
Thus, in today’s blog post, we will take a closer look at how this technology is maturing and the potential it holds for the future.
The Start of a Connected Future
A recent study by Juniper Research estimated that the global embedded finance market will surpass a net valuation of USD 138 billion by the end of 2026. The study further highlighted that more than 50% of this 215% boost in market valuation will be contributed by embedded lending alone, along with others like embedded payments, insurance, banking and investments.
Over the last couple of years, all embedded finance technologies have witnessed a significant amount of growth, albeit with some hiccups along the way.
For instance, although embedded insurance has started to take off, the industry is yet to implement more versatile risk management strategies. Today, pioneers of this offering insure anything from concert and movie tickets to travel plans and hotel reservations. However, while the product offering is present, consumers often report an unpleasant experience, thus highlighting an area which needs improvement.
Similarly, although embedded investments have started gaining some popularity, it is yet to experience the mass appeal of its counterparts like embedded payments. Although the technology arrives with the promise of simple integration with employee portals, payment providers, messaging platforms and even smart voice assistants, these are yet to materialize into a seamless connected experience.
However, despite the above, one thing about embedded finance is clear – the demand for a seamlessly connected financial experience is there, and now innovators just need to meet the same.
An Upcoming Opportunity
While the aforementioned embedded finance offerings might take a few more years to mature, there is another quickly evolving opportunity.
Cross-border payments and forex exchange has always been a challenge for businesses who operate globally. For instance, a majority of global businesses report poor margins when buying globally and significant FX loss when settling invoices in foreign currencies.
Although the intersection of finance and technology has significantly revolutionized the crossborder payment landscape over the last couple of years, there is still a need among businesses to bridge the aforementioned challenges.
The Opportunity for Embedded Cross-Border Payments
Embedding cross-border purchase and payment options within the current workflow of global businesses will bridge a great deal of challenges for both the businesses and their employees.
Solve Payment Friction
As of date, both businesses and customers need to rely on a variety of applications if they want to transact internationally. Right from an application which lets them transact in multiple currencies to another which records them in their accounts, the dependencies are extensive. Integrating this complete workflow within one solution will greatly reduce the payment friction among businesses and thus assist them in transacting more efficiently.
Match Customer Expectations
At its core, this solution is similar to embedded payments, and thus it wouldn’t be difficult for both businesses and consumers to get used to this solution. As they are familiar with a similar offering, they will simply need to learn this new feature and get started with it.
Fostering a Huge Data Pool
The most crucial asset for any modern business is its data pool and embedding cross-border payments will help businesses further this to a significant extent. For instance, once businesses have enough data on foreign transactions, they can start leveraging artificial intelligence and machine learning to derive actionable insights and arrive at decisions faster, thus helping the company become more efficient in the long run.
Improving Profit Margins
Lastly, an embedded cross-border payment solution will significantly help businesses improve profit margins and reduce unwanted FX losses. The reason behind this is simple – empowered with a frictionless solution, businesses and customers can time their transactions better, thus optimizing them for the most profit.
Use Cases of Embedded Foreign Exchange
If implemented correctly, the use cases of embedded foreign exchange are manyfold. Some of the most significant use cases are as shared below.
For Exporters
With an embedded currency exchange solution, sellers who transact internationally can seamlessly optimize their pricing by leveraging an automated foreign currency management plan. Additionally, they can further embed this within their invoicing and accounting process, further opening doors for invoice discounting and early receipt.
For Importers
A common challenge among importers globally is that most products are priced in USD in the global market, whereas most importers often buy with their local currency. With an embedded currency management solution, businesses can efficiently optimize their USD purchases and manage their foreign currency reserves for greater profit margins. Along with this, an embedded solution will help importers in efficient accounting and invoicing of international transactions, making way for early receipt and invoice discounting.
For Cloud Accounting
Lastly, embedded currency management can significantly improve cloud accounting solutions for businesses. For example, by leveraging secure APIs, the accounting software can leverage real-time data and thus arrive at more accurate currency decisions and payment plans. This would enable the customer’s cloud accounting software to manage FX risk locally and thus instantly achieve full transparency at the point of invoice appeal and purchase.
Once cloud accounting solutions can start leveraging the aforementioned APIs, the traditional model of first engaging with FX providers and then arriving at payment decisions would be flipped to a scenario where businesses are able to arrive at purchase decisions with greater accuracy and speed. This would not only instil greater confidence during international transactions but also positively benefit the business’s bottom line.
Conclusion
Although cross-border payments and currency management is the next logical step for embedded finance, the technology is yet to mature to meet the current demands of the industry. However, within the next couple of years, it can be confidently predicted that the most aggressive cross-border payment solutions will start offering this feature, and the most progressive SMEs will start using this. Until then, we must patiently wait and watch this space for new developments.
While embedded currency exchange is yet to materialize, you can start offering your business customers an embedded financial experience today, by partnering with CrediLinq.Ai. Get in touch with us to know more about how embedded finance can delight your customers and improve your platform’s stickiness.
