First, to clear up any misconceptions, let us explain that “embedded finance” is the process of embedding financial services into non-financial platforms, making it easier for consumers to obtain financial products through regular digital interactions such as loans, insurance, and payments.
As consumer preferences shift towards easy, seamless experiences, and technology improves (especially via APIs), this integration is becoming more and more common.
Embedded finance is rapidly transforming the banking and finance industry by integrating financial processes directly into the digital platforms of non-financial businesses.
Therefore, making financial transactions simple and integrated not only improves the experience for consumers, but also creates new revenue streams for the companies that incorporate these financial services.
Embedded financing has the added benefit of building stronger relationships with customers by providing financial services when and where they need them, eliminating the need for separate banking transactions.
As expected, this trend is driven by smartphone penetration and developments in fintech, accelerating the digitalization of commerce and customer comfort with the use of digital services for financial transactions.
Global embedded finance market growth forecast. Source: grandviewresearch.com.
All things considered, embedded finance will continue to expand, potentially changing the way financial services are delivered and ushering in a new era of financial engagement in the digital consumer journey.
In fact, this connectivity has the potential to completely transform one-stop financial shopping by providing customers with a seamless and user-friendly experience.
It is easy to see that embedded finance offers a variety of benefits across various industries related to business and customer interactions, greatly improving the convenience of one-stop financial purchasing.
Embedded Finance market share across various industries. Source: grandviewresearch.com.
For example, Embedded Finance allows consumers to get the financial tools they need without having to switch between multiple platforms and services – instead, they can access the resources they need within the platform they already use.
This integration also makes transactions seamless and hassle-free, providing a seamless and consistent user experience.
Whether it’s obtaining a loan, purchasing insurance or making a payment, processes are streamlined, reducing the steps and effort required for customers, thereby increasing user satisfaction.
According to a McKinsey report, roughly one-third of all transactions worldwide and half of all transactions in the United States are conducted with an online credit card, indicating the growing importance of online purchases in the global economy.
Global payments revenue (%), 2021. Source: 2022 McKinsey Global Payments Report.
The shift to digital trading is becoming more pronounced in the United States, with more small and medium-sized businesses adopting software solutions to streamline their operations.
That being said, embedded payment systems aren’t just for big businesses – small and medium-sized businesses can benefit and use them too.
For example, POS systems allow you to accept payments on the spot at a local brick-and-mortar store, improving cash flow, reducing the time it takes to issue traditional invoices, and streamlining financial reconciliation procedures.
Disadvantages of Embedded Finance
Embedded finance seems like a perfect solution, especially for a one-stop shop, but it’s not just fun.
It should not be forgotten that when financial services are integrated onto non-financial platforms, complex regulatory constraints are introduced.
For example, financial regulations can be difficult and time-consuming to understand, and any company wanting to enter embedded finance must comply with these regulations, which can slow the introduction of new services and often require significant resources to comply with.
Additionally, the required technical processes can put a strain on current systems, so companies need to ensure their infrastructure can manage the integration without sacrificing usability or speed.
Now, another aspect to consider regarding safety is that when financial services are integrated into larger platforms, it becomes even more important to handle sensitive data securely.
Data breaches can erode consumer trust and cause serious financial and reputational damage, so strong encryption and data security protocols must be in place to prevent them.
A brighter future
Either way, Embedded Finance certainly opens the door to a new era of one-stop financial shopping, providing customers with a smoother, integrated and user-friendly experience.
In summary, by integrating financial services into non-financial platforms, companies can strengthen customer relationships, generate new revenue streams, and improve user experience.
Although embedded finance presents certain challenges, it can transform one-stop financial shopping by providing simplified financial services where and when consumers need them, making it more efficient and accessible to more consumers.
