Embedded finance is one of the biggest trends today, indicating a seamless integration of the non-financial and financial services spectrum. It will help in streamlining financial systems and procedures for consumers while enabling superior user experiences simultaneously.
For example, embedded finance may help customers make their purchases and receive credit at one point rather than visiting a banking branch for applying for the credit in question and then make the purchase.
Customer-facing platforms digitally tap into these technologies for integrating financial solutions into their own spectrum of services. What is embedded finance?
Consider a scenario where an e-commerce platform integrates a checkout option for financing purchases or any e-wallet helps people to directly exchange money.
It can even be any other product platform offering insurance services for buyers. There are basically limitless possibilities ahead for embedded finance technology.
These are no stumbling block at least for now. The entity which is regulated, i.e. the fintech player or banking institution, will be taking care of these aspects, including licenses, compliance, safety of consumer operations, deposits, and so on.
When financial services are embedded into various transactional platforms, it translates into a win-win for consumers. Embedding adheres to regular operational protocols for working with the help of APIs.
Upon a clear blueprint from product managers, developers solely have to deliver code as per the vision of the UX designer.
This trend will certainly become one of the biggest across the global economy and financial services sector over the next years, particularly for its potential to maximize revenues from every individual customer.
Here are some operational mechanisms for embedded finance that are worth noting:
These enable consumers to make their payments with a one-touch mechanism, and also minus any need to shift between apps, enabling faster settlement and checkouts.
These can temporarily replace debit/credit cards for regular transactions between vendors and users. It enables fund transfers to these cards digitally for purchases, restricted to the value of the funds transferred and this can be activated. These are more secure for consumers and include expense cards, smart cards, corporate cards, and other digital/virtual cards.
Several platforms can allow consumers to get credit instantly while buying any item, thereby doing away with the need for huge paperwork, applications, separate procedures, and so on.
Platforms may offer a one-stop solution for investing in various avenues and managing the same easily. Multiple financial instruments may be accessed without leaving the one-stop platform in question.
Embedded insurance solutions refer to better integration across platforms, enabling companies to approach and get insurance customers through multifarious trusted platforms.
This refers to the integration of financial solutions with any other brand app or platform via APIs. This may include contactless payment, bank transfers, lending, and more.
Naturally, embedded finance has its fair share of advantages including enhancing the average order value, customer count, lifetime value of a customer, and customer retention figures for digital and other brand platforms, while helping them earn some alternative income via revenue-sharing as well.
These platforms will also get a chance to gather invaluable customer information for insights on buying patterns.
Financial institutions benefit from tapping the distribution abilities of these platforms/apps, while gaining access to vital data on borrowers, useful for enabling customized financial offerings for them.
They also benefit from a higher pool of customers while improving lifecycle management of credit and underwriting in turn. This will ultimately enhance their revenues/profit margins as well.
Consumers benefit from more convenience, easier access to almost all major financial solutions, and customized financial offerings, along with better user experience across multiple trusted platforms. Embedded finance thus translates into a viable and beneficial solution for all stakeholders in the process, i.e. the financial institution, the platform, and the end-consumer. It could well become one of the defining trends of not just 2023, but for the coming decade too!