• Nirav Patel, CEO at Andaria


• 11.10.2023 07:00 am
#embeddedfinance

In an era defined by technological innovation and evolving customer expectations, the financial landscape is undergoing a profound transformation. Embedded finance, once confined to white-label services such as rental car insurance and store cards, has emerged as a linchpin for innovation and future growth in the financial industry.

However, its transformative potential extends far beyond traditional financial businesses. Non-financial institutions (NFIs) are now presented with a unique opportunity to harness the power of embedded finance, not only as a means of unlocking new revenue streams but also as a pivotal tool to enhance customer satisfaction.

Embedded finance represents the integration of financial services, such as savings, cards and Know Your Customer (KYC) into the ecosystem of a non-financial company. This paradigm shift is driven by the relentless pursuit of customer-centricity and convenience. As NFIs increasingly embed financial services within their offerings, they not only meet customer demands but also position themselves as versatile value-added companies.

The market for embedded finance applications is projected to grow exponentially, with estimates suggesting a fivefold increase by 2032. This seismic shift signifies a profound change in how businesses interact with their customers, transcending industry boundaries and creating a playground for innovation.

Unlocking new revenue streams for NFIs

One of the most compelling advantages of embedded finance for NFIs is the potential to unlock new revenue streams. By seamlessly integrating financial services into their operations, NFIs can augment their customer value proposition and generate additional revenue. Let's explore this concept through real-world examples:

●      Retail and loyalty programs: Retailers, for instance, can incorporate payment and credit services directly into their ecosystem. By doing so, they not only enhance customer engagement but also benefit from lower transaction fees and interest charges.

●      Travel and airline services: Companies in the travel industry can leverage embedded finance to provide travellers with insurance and financing options at the point of booking. 

●      E-commerce marketplaces: E-commerce giants like Shopify enable merchants to integrate payment processing directly into their online stores, which simplifies the buying process for customers. Embedded finance streamlines the customer experience by offering financial services within the applications or platforms they already use, eliminating the need to switch between multiple apps or websites.

Scalability and growth opportunities with embedded finance

Embedded finance is inherently scalable, making it an ideal fit for businesses with expansion ambitions. NFIs can start with basic financial services and progressively add more offerings as they grow. This scalability ensures that businesses can adapt to evolving customer demands and market dynamics. 

Many NFIs are adopting digital wallets to facilitate payments and transfers. As their customer base grows, they can seamlessly introduce additional features like reward points or exclusive gifts, transforming their digital wallets into means of customer retention. Embedded finance often leverages data analytics to provide highly personalised financial recommendations and services. Customers receive offerings that are tailored to their specific financial needs and behaviours, enhancing their overall satisfaction.

Embedded finance can extend financial services to individuals who may have been underserved or excluded from traditional banking systems. This includes those with limited access to banking facilities or a lack of credit history. By bringing financial services to digital platforms, embedded finance can democratise access to banking, promoting financial inclusion and economic empowerment.

The future of embedded finance

As we look ahead, the future of embedded finance in the financial services industry appears promising. NFIs can leverage data-driven insights to tailor financial services offerings, creating highly personalised experiences for customers. This level of customisation can drive customer loyalty and increase lifetime value.

With the growth of embedded finance, regulatory scrutiny is expected to intensify. NFIs must stay vigilant and proactive in complying with evolving regulations to build trust and avoid legal challenges. However, we’re expecting to see collaborations between NFIs and fintech companies to increase, allowing both parties to leverage their respective strengths. These partnerships can accelerate innovation and expand the range of financial services available to customers.

Embedded finance represents a transformative force that NFIs cannot afford to overlook. The ability to unlock new revenue streams, achieve scalability, and adapt to evolving customer expectations positions embedded finance as a strategic imperative for NFIs. As the financial services industry continues to evolve, non-financial institutions must seize this moment to reshape their relationship with customers and secure a prosperous future in the world of embedded finance.