Embedded finance is a burgeoning trend in Southeast Asia that is rapidly changing the banking and financial services industry. Its growth is driven by the region’s need for financial inclusion, considering that around 290 million people in the area are unbanked. The rise of embedded finance has the potential to help improve financial inclusion for those who were previously excluded from the formal financial system, by offering convenience and efficiency to consumers.
The potential for financial inclusion through embedded finance
The unbanked population in Southeast Asia is staggering, yet it represents a significant growth opportunity for financial services providers. Embedded finance has the potential to offer financial services to the marginalized, especially those in rural areas who have little or no access to traditional banking. The embedded finance model offers convenience, low overhead costs, and scalability through digital channels, providing an effective means of reaching the underserved population.
Moreover, the rising number of smartphone users, growing Internet penetration, and increasing use of digital payment methods provide the necessary infrastructure and ecosystem for those who were previously excluded from accessing financial services. As a result, embedded finance models can help increase financial inclusion in the region, bringing millions of people from the fringes of the formal economy into the mainstream.
Competition for traditional banks from digital banks and fintechs
As the benefits of embedded finance solutions become more widely recognized, traditional banks are facing increasing competition from digital banks and fintech companies that are rapidly leveraging embedded finance to offer financial services through non-financial channels. Digital banks exist purely in the digital realm, providing mobile banking services and often partnering with third-party providers to expand their offerings. Fintech companies, on the other hand, provide targeted financial services, either on their own or in collaboration with other financial institutions.
Examples of digital banks utilizing embedded finance
Digital banks have become increasingly common in Southeast Asia with many leveraging embedded finance to offer financial services through third-party providers. Cake by VPBank is a digital bank in Vietnam that offers its customers the ability to link their Cake account to other digital wallets and e-commerce platforms, as well as ride-hailing service, Be. This allows users to seamlessly access a range of financial and non-financial services. Another example is TMRW, a digital bank by UOB, which offers its customers the ability to use its mobile app to manage their finances, make payments, and access various financial products.
Partnership between UNOBank and Trusting Social
UNOBank in the Philippines offers a range of digital banking and lending services to customers through its partnership with AI-led fintech Trusting Social. Trusting Social leverages access to telco data to provide credit assessments for consumers who would otherwise struggle to access formal credit. UNOBank’s digital banking offerings, coupled with Trusting Social’s unique credit assessment model, are helping to improve financial inclusion in the country.
The Rise of Embedded Finance in Underserved Communities
Embedded finance has revolutionized the banking industry by providing financial services to underserved communities through non-traditional channels such as mobile devices and e-commerce platforms. This has helped bridge the gap between financial institutions and the unbanked population by providing financial services in a cost-effective and easily accessible manner. As a result, banks can now reach a wider audience and provide financial services to those who were previously excluded from the formal financial system.
The revolution of the banking and financial services industry
Embedded finance has effectively driven financial inclusion for consumers who have been excluded from the formal economy, creating unprecedented levels of convenience and personalized services. The technology offers a game-changing opportunity for banks, fintechs, and other financial service providers to scale and optimize their services and products. As financial and non-financial organizations continue to adopt next-generation technology, the adoption of embedded finance will continue to grow in Southeast Asia, driving unprecedented levels of disruption in the industry.
Embedded finance is revolutionizing the banking and financial services industry, offering potential for financial inclusion to millions of unbanked consumers in Southeast Asia. The rise of digital banks and fintech companies using embedded finance is providing competition to traditional banks, and it is a trend that is set to continue for years to come. As a result, the potential for further disruption in the industry is boundless, making embedded finance a critical driver of change for financial service providers across Southeast Asia.