Imagine you want to buy a limited edition headphones, but they’re a bit expensive. For a moment, you change your mind but then a message pops up. It says you don’t have to pay for everything right now. You can get those headphones on EMI without even having to pay any interest for 3 months. In fact, it’s all possible in a minute. Too good to be true, isn’t it? Well, it’d be difficult to imagine something like this three years ago. But today, it’s not! Buying your favorite things on credit is a piece of cake, thanks to Buy Now, Pay Later. If you use any of e-commerce, grocery or food delivery apps, you must’ve noticed the frequency at which these apps nudge you to opt for a pay later option. But, Buy Now, Pay Later is just one piece of the puzzle. The significant advancement in Fintech – new technologies that automates financial services – have simplified finance for everyone. One of the most notable and disruptive examples of digitization in the fintech sector is Embedded Finance.
Embedded finance has allowed every traditional business to leverage advanced financial integration and take financial services on a whole new level. With Embedded Finance, any non-banking financial company, like an e-commerce store, can seamlessly offer ease of payments like EMI without interest to improve consumer experience. In the US, for instance, Google Maps allows its users to find and book parking spots through its app. The most recent example of Embedded Finance is Youtube’s pilot feature that allows users to shop for products while watching any live stream. The list goes on.
The size of the pie
The era of Embedded Finance is rapidly tightening its grasp over the fintech industry, presenting an estimated $7 trillion market opportunity globally by 2030 – which is almost twice the combined value of the world’s 30 biggest banks right now. According to Juniper Research, the market value of Embedded Finance will exceed $138 billion in 2026 from just $43 billion in 2021.
In India, we’ve seen embedded finance play a crucial role in driving adoption of digital payments. UPI, the undisputed digital payment champions, achieved a milestone in October last year when it recorded 4.21 billion transactions worth $110 billion. The spike was a result of increasing Peer-to-merchant transactions , suggesting a larger role UPI could play in driving financial inclusion by bringing thousands of people from tier 3 cities & beyond into the digital economy.
UPI has seamlessly integrated several forms of advanced payment modes such as Pay to Contact, Scan & Pay among others. It has set an example of how fintech innovations aren’t limited to urban cities. Moreover, entrepreneurs want to democratise every financial solution and make it available anytime and anywhere.
More than just a trend
It’s clear that Embedded Finance isn’t just a temporary trend aiding companies. Instead, it has emerged as an enabler that allows any business to put tech-driven financial services at the core of their strategy. Today, more and more companies across industries are mulling over launching embedded financial services to augment their business. The availability of Embedded Finance has allowed these companies to tap into a larger base of hassle free API solutions and offer access to financial products or services whenever a customer needs it.
Embedded Finance has created an ecosystem where every business can offer innovative financial solutions from purchase on credit, insurance, billing and payments seamlessly under one platform without requiring much human interference.
One of the key advantages of offering embedded finance is it removes all the consumer pain points. Potential customers won’t need to look for credit anywhere else, and are more likely to make a purchase. Businesses can also benefit from the data analytics and gain a better understanding of their consumers’ spending habits and needs.
The dynamics of the fintech revolution are transforming so rapidly that a new trend is emerging where every company wants to be (and will be) a fintech company.
Every company will be a fintech, eventually
Venture capitalists like Angela Strange at Andreessen Horowitz Matt Harris at Bain Capital Ventures have encouraged every business to integrate financial services and up their monetization game. Today, companies across industries and at all levels – be it insurance, grocery, logistics, manufacturing, e-commerce – want to launch their customized embedded financial services. Infact, some businesses have begun taking a giant leap to capitalize on its monetization opportunities to add a new business vertical. Indian Postal Services, for instance, is undergoing a massive transformation to offer a myriad of financial services. With 70% of its revenue coming from financial services, 150-year-old Indian Postal Services is banking on fintech to serve its user base.
The increasing appeal to become a fintech company has resulted in rising demand for Banking-as-a-service (BaaS) platforms like Decentro. BaaS platforms have a robut catalogue of APIs that pave the way for faster go-to-market strategies. These platforms also enable businesses to integrate customized banking APIs and further help them launch their product within a few days. BaaS will play a crucial part in helping businesses, even those that have nothing to do with financial services, capitalize on the opportunity to become a fintech.
The Fintech disruption we saw last year was just the tip of the iceberg. As we advance, banking and financial services will disappear into other digital apps. Embedded finance will enable traditional business to undergo radical change without spending much on IT maintenance and allow new companies to launch products faster and more cheaply. The day is not far when everyone globally will have access to affordable financial services.
Originally Posted: https://timesofindia.indiatimes.com/blogs/voices/riding-the-embedded-finance-wave-in-post-covid-era/