Embedded finance has rapidly become one of the most talked-about areas of fintech innovation in recent years. Defined as the integration of financial services into non-financial products and services such as retail, mobility, or healthcare, embedded finance is fast becoming a growth opportunity for businesses of all sizes, particularly small and medium-sized enterprises (SMEs).
The Growth Potential of the Embedded Finance Market
According to a report by McKinsey, the embedded finance market is on track to grow from $43bn in 2020 to $230bn in 2025. This represents an impressive CAGR of over 40%. One of the key drivers of growth is the explosive growth of digital platforms. Digital platforms such as Amazon, Uber, and Grab are increasingly incorporating financial services into their existing products.
Benefits of Embedded Finance for Companies
1. Increased revenue: By offering financial services, companies can increase their revenue streams and create new sources of income.
2. Improved customer loyalty: Customers are more likely to stick with a company that offers a robust suite of financial services rather than having to look for those services elsewhere.
3. Streamlined customer experience: Embedded finance allows customers to seamlessly access financial services within the company’s platform, thereby improving the overall customer experience.
4. Enhanced data analytics: Companies can leverage data from financial services to gain insights into customer behavior and preferences, which can then inform their business decisions.
5. Increased operational efficiency: By keeping financial services in-house, companies can reduce the need for third-party vendors and simplify their operations.
Embedded finance allows companies to capitalize on their existing customer relationships to offer complementary or niche financial products and services. This can be an effective way to diversify revenue streams, increase customer loyalty, and ultimately boost profitability. For example, a retailer can offer a store-branded credit card that comes with exclusive discounts to its customers.
Balancing Scale and Customer Experience
One of the hardest balances for embedded finance providers to strike is between scaling their offering while at the same time maintaining the highest possible standard of customer experience. As embedded finance becomes more popular, competition will increase, and companies that offer better customer experience (CX) are more likely to emerge as winners. To achieve scale with their embedded finance product, companies need to set ambitious yet achievable growth targets. Growth targets should be clearly defined, measurable, and reviewed regularly to ensure they align with the overall business objectives. Companies that focus on data-driven decision-making are better equipped to achieve ambitious growth targets.
Capitalizing on super-apps for SMEs
Another area that SMEs must capitalize on is super-apps. Super-apps are digital platforms that offer multiple services through a single app. In many emerging markets, super-apps such as Grab, Gojek, and WeChat are already well-established. SMEs can partner with super-apps to offer financial products and services to their customers. Starting with basic cloud accounting and payment solutions, SMEs can now access a range of digital tools, such as AI-driven chatbots, that can help them automate routine tasks, track inventory, and streamline their operations.
The Future of Embedded Finance: The Next Wave Taking Shape
The next wave of embedded finance is already taking shape. According to experts, it will be characterized by more sophisticated offerings as well as the introduction of new players. Companies that take advantage of these trends are likely to emerge as winners, while those that fail to adapt risk being left behind. While banks have traditionally been the main providers of financial services, startups and technology providers are increasingly disrupting the industry with innovative products and services. This represents an opportunity for SMEs to access a wider range of financing options.
Why Embedded Finance is the Future of Finance
Embedded finance is the future of finance and a growth opportunity for SMEs. Companies that incorporate financial services into their existing products are more likely to diversify their revenue streams, increase customer loyalty, and ultimately boost profitability. As technology continues to advance, the possibilities for embedded finance are endless, and companies that embrace this trend are likely to emerge as winners.