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Embedded Finance- The driver of next fintech wave

- Kiran CS, Lead, Innovations, NPCI

With the fintech industry continuously evolving, Embedded Finance is one development that is trending nowadays. So, what is Embedded Finance? Embedded Finance is the integration of financial services in non-financial applications & platforms. This has led to technology companies playing an important role in the financial lives of consumers & businesses.

In the future, every company is to become a fintech company as a significant portion of its revenue will be derived from financial services. This is beneficial for both the company as well as its users as the user will be able to buy extra products & services related to the main purchase from the same company & needn’t have to approach different companies.

Some of the examples of Embedded Finance include,

• Ridesharing companies are offering various financial products like wallets & debit cards to both their customers & drivers
• Large consumer technology companies are offering financial products & services like P2P payments to their end users
• E-commerce companies are offering financial services like lending to their merchants

With the power of APIs, financial products & services can be added to the journey of a customer of a non-financial company. While Embedded Finance is set to benefit the users & businesses in multiple ways, the main purpose of Embedded Finance is to streamline the user experience by creating an interface that makes purchasing easier.

The user-friendly interface leads to customer stickiness driving repeat purchases. With more data now about the users, the companies can better serve them by providing customised products leading to better conversion rates for the online store/site.

The beneficiaries of Embedded Finance include,

• Consumers – Consumers have benefitted from technology platforms for payments & timely access to credit at No Cost EMI from ‘Buy Now, Pay Later’ providers
• SMEs – Alternative data from e-commerce platforms combined with upcoming innovations in open banking will help small businesses & lenders
• Government – Embedded Finance is bridging the wide credit & insurance gaps that exist today leading to a cashless India
• Enablers – Frameworks are being built to help companies build their insurance, lending or payments business
• Platforms – With the rise of Embedded Finance enablers, platforms are able to monetise from an early stage
• Technology driven finance companies – With the rapid technology adoption by the young Indian population, Embedded Finance is opening up markets for traditional banks & finance companies that were previously difficult to service

However, all the concerned stakeholders need to get ahead of the rising cyber security risks to ensure that customer & regulatory trust is maintained. Also, financial education needs to keep pace with the fast-changing digital world.

Ultimately, Embedded Finance opens up the opportunity for many companies to evolve beyond their niche offerings & become multi-market players. In the near future, there will be a lot of no code/low code platforms that developers of the non-financial company can avail to integrate with their non-financial products.

To conclude, the evolution & adoption of Embedded Finance will lead to increase in competitiveness across the market as some of the big technology players have made their foray into the financial world.