Embedded finance, a relatively new concept in the world of financial services, has seen tremendous growth over the past few years. It is an approach that embeds financial services into products and processes outside of traditional banking channels.
Embedded finance enables companies to offer customers more convenient access to their finances and better manage their money without having to leave their current platform or app. As such, it has become increasingly popular among businesses as they look for ways to provide more value-added services to their customers within existing ecosystems. This rising popularity can be attributed to its ability to simplify customer interactions with digital platforms while also providing increased security and convenience for users.
Although the growth story of embedded finance has been impressive so far, there is still a long way to go. As such, experts around the world agree that with the current developments, 2023 will be the year when embedded finance truly becomes mainstream and in today’s blog post, we will discuss exactly that.
What Is Embedded Finance?
Embedded finance is the integration of financial services into existing digital platforms. An extension of open banking principles, it uses APIs to integrate with other applications and allow users to access financial services in their native platform. This end-to-end integration not only empowers customers with an easier and more secure way of interacting with their finances but do so more conveniently from within the interfaces they most frequent, without having to rely on third parties.
For instance, one of the most common applications of embedded finance is in banking services. Previous to the onset of embedded finance, customers would need to rely on specific banking apps to avail financial services; however, with the current rise of embedded finance, customers can seamlessly access their accounts and perform transactions directly from within other digital platforms such as social media or messaging apps.
Similarly, due to the integration of embedded finance in travel websites, if any customer wants to avail insurance on a particular product or service, all they need to do is simply tick a box during their checkout. This seamless process has not only made the process easier for the end customer but also contributed to increased sales for the insurance provider and travel aggregator.
3 Reasons Why Embedded Finance Will Continue to Rise in Popularity
Changing Business Value Chains
In the last couple of years, the value chains of most businesses have undergone a dramatic transformation. This is largely due to advancements in technology and consumer preferences that are driving changes in how companies operate. As customers demand more convenience, businesses are turning to embedded finance solutions as a way to meet these demands.
For instance, a significant focus across most businesses is to streamline their operations, increase their efficiency and nurture a new revenue stream. And all this can be achieved by leveraging embedded finance.
For example, if an eCommerce company leverages embedded finance, they can conveniently integrate several financial services within their platform. Right from an integrated payment experience where the consumer doesn’t need to exit the app to make a payment to embedded lending wherein a consumer can simply finance their purchase and split the payment into multiple instalments; leveraging embedded finance will enable the company to not only efficiently streamline its operations but also nurture a new revenue stream.
Changing Customer Sentiments
In the last few years, customer sentiments have drastically changed in terms of convenience and security. Consumers now demand more convenience and safety in their purchase decisions. For instance, today’s consumers demand to securely complete a purchase from within a single interface.
This has led to an increased focus on embedded finance solutions that enable the integration of financial services into digital platforms quickly and securely. With embedded finance, consumers can seamlessly navigate payment experiences without ever leaving the platform. This is an important factor for companies to consider when building their customer-centric solutions, as this will not only enable them to retain consumers for the long run but also delight them at every interaction.
Industries Are Ripe for Disruption
The digital transformation of certain industries, such as insurance and payroll, has been due for some time. Embedded finance has the potential to revolutionize the way in which insurance and payroll are offered to consumers. By integrating financial services into existing applications, companies can not only make these services more accessible and convenient but also provide a personalized experience for users.
For example, by integrating payroll into the HR suite, employers can not only automate the entire process of payroll calculation and payment but also let employees avail services such as salary advances. Such integration will not only allow them to become lenders to their employees and thus nurture a new revenue stream but also extend the overall retention of employees in the long run.
Similarly, a company could integrate insurance services into their payroll system or app, allowing employees to quickly and easily purchase coverage for themselves and their families without having to navigate the complex world of insurance products.
The TakeawayÂ
Embedded finance as an offering is nothing new. Although the technology has matured significantly in the last couple of years and started disrupting a number of industries, there is still ample scope for it to become a mainstream offering.
Looking to offer your business customers an embedded finance experience? Get in touch with us today to learn more about how we can help you delight your customers and generate a new revenue stream.
