The Rise of Embedded Finance

The world of fintech is constantly evolving. Today, embedded finance is emerging as one of the most lucrative opportunities in the financial services space. According to UK venture investment firm Anthemis, the global embedded finance market will be worth a staggering USD 7 trillion by 2030. 

So what is embedded finance? Simply put, it is the seamless integration of financial services within a non-financial app/website/platform. This means that every tech company now has the potential to become a fintech player in the future. This trend of non-financial companies leveraging embedded finance to provide extra services related to their primary product is growing exponentially. 

As customers demand more personalized and user-friendly services, embedded finance is set to become ubiquitous. The most striking example of embedded finance that has permeated our day-to-day lives is connected to app-based taxi services. A few taxi companies are now offering insurance to all customers for every journey undertaken. This ensures access to cover in case an accident takes place during a trip. Even B2B e-commerce platforms have started offering financial services to its merchants.  

How can a non-financial company be part of the fintech ecosystem? With the power of APIs, financial services or products can be constantly added throughout the customer’s journey. This is done by leveraging banking on their tech stack/ or app/platform and then merely dragging and dropping to build a system. 

A great example is google maps, as they have embedded a payment option within their existing services. All of us have google maps on our phones. Now, customers are able to book a parking space through google maps, merely by paying for that particular space, within the app itself.  

What are some of the benefits of embedded finances both to end users and businesses?  For starters, it streamlines the shopping experience for consumers with financing schemes or buy now pay later (BNPL) options. The whole purpose of embedded finance is to cut out a step in the customer's buying process and create an interface that makes purchasing easy. It has been found that if there are payment options or BNPL schemes that are integrated into a customer’s checkout process, there is a strong likelihood of them making the purchase instead of abandoning their shopping carts mid-way. Ultimately the customer is looking for faster transactions and increased convenience which embedded finance provides.

Businesses and companies also enjoy growth as they are able to generate additional revenue channels every time a customer uses this feature. The user-friendly interface enhances the customer’s overall experience and hence increases the product’s stickiness, whilst driving loyalty and repeat purchases. Another benefit is that brands now own more data, which in turn enables them to better serve their customers.  This results in an increase in the conversion rate for either the store or the site. 

So what does the future hold for embedded finance in India? I predict that there will be a spurt in no code/low code platforms that support embedded finance for seamless integration with non-fintech products. This means that developers need to make minimal changes to the code, to offer a fintech product as part of its services.

As we have witnessed, some of the biggest tech players have already made their foray into the financial world, with many more to follow. It goes without saying that embedded finance is all set to reshape the fintech world.