Embedded Finance for Financial Inclusion
Fintech has become increasingly popular globally. The pandemic has propelled the expansion of this massive industry in the past few years. Among the many services and streams under the fintech umbrella, embedded finance remains one of our favorites owing to its applicability and practical usage.
What is Embedded Finance?
Embedded finance, or EmFi, involves the integration of financial services and non-financial platforms through APIs (Application Programming Interfaces), implying that non-financial firms and service platforms can offer financial services by including embedded finance into their system. Embedded finance has grown exponentially since the pandemic because of the increasing demand for digital financial services and the easy supply continually injected into the fintech industry.
With embedded finance, any non-financial application, firm, or platform can become a fintech. Companies like Uber, which started as a taxi-hailing service app, have come a long way to become super apps that involve financial services. Such is the power of embedded finance.
The four major areas under this subsection of fintech are e-payments, instant credits and digital loans, embedded insurance, and investment options.
In the Asia Pacific alone, the embedded finance industry is estimated to grow at an average pace of about 25% by 2029. Such massive growth estimates convey a humungous potential in the industry.
EmFi Impact on Banking Services
EmFi enables non-financial platforms to become fintechs and offer financial services. Such advancements in the financial industry have had a big impact on banks and financial services. Some of the key impacted areas in banking services are:
Thrust in Digitalized Services
With the sudden rise in technology’s adoption, there has been an immense demand for digitized financial services. Banks and financial institutions that initially found themselves immersed in heavy competition from fintech are now treading towards a more collaborative structure, where the financial entities are assuming the roles of providers and enablers in integrating financial and non-financial channels.
Less Paperwork
With EmFi, there has been a substantial reduction in the involvement of paperwork and plastic. Users are now demanding more cashless and cardless platforms that enable a seamless user experience without going through external channels like cash and cards.
BNPL
Buy Now, Pay Later has been a market disruptor because of its sudden popularity. BNPL offers instant credit to purchasers where a third party makes payment to the merchant on behalf of the customer and allows the customer a moratorium period before repaying their small loan. The BNPL industry has given the credit card industry serious competition, compelling it to remodel and restrategize its plans.
Better Reach
EmFi is more accessible, making it easier for more participants to join the wagon. As more customers engage with EmFi, more transactions occur, clearing the way for a greater variety of services like e-loans and embedded insurances, more intensive APIs, and more possibilities.
Banking for Businesses
With EmFi, there is an opportunity for business-oriented financial services to get a makeover. Small and medium enterprises (SMEs) can benefit considerably from digital services, like easy loans, better cash flow systems, etc., offered through digital channels.
What is Financial Inclusion?
A mass minority in the world remains unbanked or underbanked even today. There are several reasons for the large percentage of the unbanked and underbanked sector, like low credit scores, bad past experiences with banks, poverty, low level of trust in banks, lack of accessibility, etc. Financial inclusion begins when opportunities are extended to such individuals to establish relationships with banks and financial institutions.
The unbanked sector percentage in the Middle East and Africa is almost 50% of the population; in the Asia Pacific, the sector stands at about 24% of the entire population. Such figures indicate a grievous issue in the system where uncountable individuals remain financially excluded.
EmFi Impact on Financial Inclusion
Embedded finance has massively altered the layout of the financial system globally. As more non-financial participants join the revolutions, innumerable opportunities come to the surface which otherwise would stay dormant.
More Participation
With EmFi, there is more participation vis-à-vis providers and users. Embedded finance chooses a different trajectory that majorly bypasses the nuances involved in traditional banking. Less paperwork and better control are big incentives for the unbanked and underbanked sectors to explore EmFi and join the system.
Convenience Banking
EmFi also advocates convenience as digitalization enables seamless services without the restriction of time and place. Such comfort and convenience also act as big motivational factors for individuals who lack the resources to go through traditional banking channels.
Better Accessibility
The spread of the internet is unimaginable, paving the way for better reach and accessibility. For individuals residing in areas with low involvement of banks and financial institutions, EmFi comes as a savior.
Varied Services
Ever since the dawn of the internet, the demand for different services and products has become unstoppable. With the growing demand for EmFi, the industry has been compelled to provide a wide variety of services to meet people’s demands. Non-financial firms and platforms are aspiring to offer multilayered banking services. Such diverse services have also spurred the unbanked and underbanked sectors to join the financial reign.
Banking for SMEs
Apart from individuals, EmFi is also inching towards creating opportunities for SMEs where businesses can take advantage of better cash flow solutions, easy digital loans and repayment structures, and other banking services.
Closing Thoughts
Embedded Finance is a futuristic concept involving advanced technological developments. Other than creating opportunities for businesses to explore additional revenue streams, EmFi also brings immense convenience and inclusivity to the unbanked and underbanked sectors. The EmFi industry is rapidly gaining momentum because of its reach and practicality. Numerous reports show a steep growth trajectory of the industry, implying a lucrative and prosperous future.
