The financial services industry is undergoing a major transformation due to the advent of embedded finance. With innovative technology, companies are integrating financial services into non-financial products, revolutionizing the way people access and interact with financial services. In this article, we’ll discuss what embedded finance is, how technological advancements enable it, and the benefits it offers.
What is embedded finance?
Embedded finance is the integration of financial services into non-financial products or services. This means that customers can access financial services without having to leave their platform or application. For example, a ride-hailing app that offers a payment feature or a retail store that offers financing options to customers.
Accessibility of Financial Services
Embedded finance makes financial services accessible to a wider audience, especially those who may not have had easy access to them before. For example, people living in rural areas or individuals who face physical mobility challenges can now easily access financial services. This ensures that everyone has an equal opportunity to build their financial well-being.
Technological advancements enabling embedded finance
Several technological advancements have enabled embedded finance. The following are some of the key advancements that have made it possible to integrate financial services into non-financial products.
APIs for seamless communication
An API (Application Programming Interface) allows different systems to communicate seamlessly with each other. APIs enable systems to share information and data with each other in real-time. This enables quick and secure transmission of information between systems, which is essential for the smooth functioning of embedded finance.
Digital Identities for Identity Verification
Digital identities make it easier to verify the identity of customers. They are unique, identifiable, and verifiable online identifiers that provide security and privacy. Digital identities have helped to reduce fraud by verifying the identity of customers when they access financial services.
Benefits of Embedded Finance
Embedded finance provides several benefits to both consumers and companies. Here are a few of the key benefits that make embedded finance so attractive:
Seamless and frictionless customer experience
Embedded finance provides a seamless and frictionless customer experience. Customers can access financial services without having to leave their platform or application. This means they can manage their finances more efficiently and they don’t need to worry about navigating multiple platforms to access different services.
The creation of a comprehensive service
Embedded finance empowers companies to provide a more comprehensive service to their customers, fostering customer loyalty and retention. By offering a wide range of financial services, companies are able to create a one-stop-shop for their customers and provide a complete solution for their financial needs.
Creating new revenue streams
Embedding financial services can open new revenue streams for fintech companies. By integrating financial services into non-financial products or services, companies can create new monetization opportunities from their existing offerings, which helps increase revenue and strengthen the business.
Collaboration between Fintech companies and other industries
Embedded finance fosters collaboration between fintech companies and other industries, including healthcare, education, and transportation. This can lead to innovative solutions and more comprehensive offerings, creating a more customer-centric approach.
Embedded finance is already in practice in many industries. For example, digital banks and fintech companies like Chime and SoFi offer financial services without the need for physical branches. Square, the payment platform, offers embedded finance solutions to businesses. Even Amazon offers its own credit card and other financial services to customers.
Embedded finance is transforming the financial services industry by integrating financial services into non-financial products and services, making it easier for people to manage their finances more efficiently. With its benefits, including seamless customer experiences, comprehensive services, and new revenue streams, embedded finance is here to stay. Technological advancements continue to drive innovation and expand its reach, leading to a more inclusive financial landscape.