• Tachat Igityan, CFO and Founder at destream


• 26.07.2024 06:45 am
#EmbeddedFinance #CustomerJourney

Embedded finance revolutionizes the way financial services are integrated into our daily lives. By seamlessly incorporating payment options and products like loans and insurance into non-financial platforms, embedded finance (or EF, for short) can vastly increase customer engagement for businesses. Customers themselves, meanwhile, get access to financial solutions whenever and wherever they need them, greatly enhancing convenience and satisfaction. 

According to a new study by Juniper Research, the market of EF is expected to cross $228 billion by 2028. Figures like that can make one wonder: why is it that embedded finance is so highly coveted? And what does it do to transform the financial experience for people?

So, let’s try to figure it out, shall we?

Implementing Embedded Finance: What Advantages Does It Bring?

The primary advantage of embedded finance comes down to its ability to streamline financial transactions, making them a lot more convenient for businesses and consumers in various areas. 

For instance, in e-commerce, embedded payment options allow customers to complete purchases instantly and without leaving the retailer's site. The lack of need for third-party services and gateways reduces friction in processing payments and increases conversion rates. For merchants, this means faster access to their revenue.  

Other industries are also well-positioned to benefit from EF. For example, integrating financial solutions directly into healthcare services can make medical treatments more accessible and affordable. Having installment plans or medical loans included within healthcare providers' systems can enable patients to spread the cost of expensive procedures over time, reducing the financial burden. 

In the travel industry, embedding payment plans and insurance options directly within booking platforms can simplify the purchasing process. This stands to enhance the customer experience and sense of security, encouraging more bookings and fostering customer loyalty.

Another example is the real estate sector, where EF can vastly improve the mortgage application process by offering instant loan approvals and personalized financing options. This integration serves to accelerate transactions and reduce paperwork, making the home-buying process a lot more efficient and accessible for many people.

Ultimately, no matter the industry, embedded finance allows businesses to provide tailored financial solutions when and how their clients need them. By doing so, companies can differentiate themselves, earn loyalty points from their target audience and stand out in competitive markets. This is the fundamental reason why I believe EF is highly sought after on the global scale.

Does the Advent of Embedded Finance Mean That Traditional Banking Is Done For?

In this day and age, consumers and businesses alike expect financial services to be seamlessly integrated into their day-to-day lives. This means that banks, many of which still rely on legacy systems, are stuck playing catch-up with these expectations.

According to a survey by Ernst & Young, over 70% of respondents believe that more than half of financial services globally will be offered via non-financial platforms in the coming future. The ability of such platforms to essentially assume the role of banks means that the actual banks are at risk of becoming obsolete. They face a choice of either accepting this transformation or being left behind.

With this in mind, embedded finance has a role to play in reshaping the landscape of traditional banking because it prompts banks to rethink their business models and evolve service offerings. How much and how quickly they will be able to adapt to this new paradigm will play a key part in their survival.

Embedded Finance In 2024 and Beyond: Main Drivers to Keep in Mind

Having established the main reasons why EF has a bright future ahead of it, let’s now take a look at some of the key trends that I believe we can expect from this sector in the days to come. 

One major point to bring attention to is the rapid growth of API-driven ecosystems. APIs (Application Programming Interfaces) act as bridges between different software systems, enabling the seamless integration of financial services into non-financial platforms. They are the cornerstone of embedded finance, and their continued innovation and advancement mean more use cases for EF across industries.

Another prospective avenue of development is the democratization of embedded financial services due to the growing adoption of smartphones in emerging markets. For example, data from GSMA Intelligence suggests that by the end of 2025, smartphone penetration in sub-Saharan Africa is expected to reach 65%. At the same time, Statista predicts that the number of smartphone users globally will reach 6.4 billion by 2029. 

This makes for very fertile ground for the spread of EF services and I expect that, going forward, many companies will focus their efforts on developing solutions specifically designed for mobile devices.

Lastly, the advancement of blockchain and AI technologies is also poised to significantly drive this sector forward by enhancing security, efficiency, and personalization. Blockchain offers a decentralized and transparent ledger system, ensuring secure and tamper-proof transactions, which is crucial when you want to build trust in integrated financial services.  Meanwhile, artificial intelligence can analyze vast volumes of data to provide more personalized solutions and financial advice, as well as real-time fraud detection, taking customer convenience and safety to a new level and fostering greater adoption.

Final Thoughts

Embedded finance is set to transform the financial services landscape by making financial products more accessible and easily integrated into our daily lives. Its ability to streamline transactions and provide personalized solutions holds great promise across various industries and I believe that it will be the key to reshaping the future of finance.