Embedded finance has caused a sensation in the fintech market today. It is concerned with assisting banking institutions in enhancing their services and products through the use of cutting-edge financial technology. Embedded finance allows the end-user, whether a person or a business, to access a desired financial service from inside their preferred app or platform. Its major benefit is that it simplifies financial procedures.
Embedded finance is helping the government realise and support its ambition of paperless and cashless India by filling credit and insurance shortages digitally.
Before the advent of embedded finance, there used to be a disconnect between a customer and a service provider or vendor. As a result, the customer frequently turned to a lender or a bank to close the difference. Embedded finance eliminates the requirement of a third-party bank or lender.
Sadly, the financial services industry did not update its core business model for many years, and the COVID-19 pandemic made the demand stronger than ever. Although banks and insurance companies have spent huge sums of money to digitise their existing processes, it is time that they fully invest in creating digital business models in response to the economic crisis. The embedded finance framework blends the power of advanced technology infrastructure with financial institution resources to deliver best-in-class capabilities to customers using digital platforms.
The wheels are already set in motion
The COVID-19 pandemic has had a significant impact on existing banking models as well as consumer demand. For financial services, the technology to enable these needs is continuously changing and evolving.
Non-financial firms have increased their efforts and refined their processes to provide consumers with products and services that address specific requirements. With the support of banking-as-a-service (BaaS), both
fintech companies and non-financial institutions now have the opportunity to offer highly targeted interconnections.
Overall, embedded finance is making a difference in areas such as payments, lending, insurance, and banking, and even improving governance and realising the Digital India dream.
Payments: Embedded payments make consumers’ purchases quite pain-free. The customer with an app having an in-built payment system simply presses
a few buttons instead of having to reach into their wallet for money or credit card, and they are all set to go.
Lending: In the past, one had to apply for a loan from a bank or get a credit card for borrowing money. Now, integrated financing allows anybody to apply and get a loan immediately after purchase.
Customers are typically prepared to spend extra when they are provided with a procedure that is easy to utilise and saves them time and energy.
Insurance: Embedded insurance systems eliminate the need for an insurance agent or broker during the purchase of a policy.
Banking: Embedded banking is a marketplace that helps fintech companies incorporate banking and payment services into their software and user interfaces.
Government: Embedded finance is helping the government realise and support its ambition of a paperless and cashless India by filling credit and insurance shortages digitally.
Embedded finance allows the end user, whether a person or a business, to access a desired financial service from inside their preferred app or platform.
Consumers prefer quality over affordability
A quick look at the use cases and the approach by the sectors indicate that embedded finance leads to increased practicality and convenience for users. It provides for a more user-friendly interface enabling faster transactions. In fact, customers would want to continue using your goods if you have a user-friendly interface that improves the whole consumer experience. Integrating embedded financial services also allows organisations to explore new revenue sources. In addition, it helps improve customer stickiness and increases the conversion rate.
Customers are typically prepared to spend extra when they are provided with a procedure that is easy to utilise and saves them time and energy. Many clients place a higher value on usability and convenience than on financial expenses, making them more ready to accept financial risks. One may embrace embedded finance to benefit their organisation in a variety of ways, from payment processing to payroll, insurance services, and compliance management.
Needless to say, embedded finance plays an essential role in developing the future of financial services and, ultimately, has the ability to significantly alter the market in nearly every aspect. It allows many firms to move beyond their specialty products and become multi-market salespeople or suppliers by offering an easy and convenient supporting role.
Phani is a serial entrepreneur, angel investor, Founder Chairman, Zaggle and Founder, ZikZuk