The new frontier of fintech… Embedded Finance

August 18, 2021

The era of banks acting as intermediaries in financial transactions between customer and company is about to end. Nowadays, you don’t really need a financial institution’s intervention before you make a purchase. Want to pay for your Uber ride? Do it in the app. What about that special delivery of fidget spinners? You can pay right in the app. That is the beauty of embedded finance.

Slowly but surely, traditional banks are phasing out, they’re no longer the face we see when we make financial transactions. Instead, we deal directly with regular non-banking companies, websites, and their apps. This is called embedded banking, which is just another name for embedded finance. 

http://chrisgraymusic.com/wp-json/wp/v2/product/460 What is embedded finance? 

Embedded finance is the integration of financial services with a non-financial service or technology.  It is when traditionally non-financial service providers like ride-sharing apps, combine their existing services with financial ones like payments, insurance, and so on.

For instance, a car company can offer you a range of insurance options once you decide to make a purchase, or offer you the choice of paying in instalments. These are services which are typically rendered by the bank or an insurance company.

Although it started out slow, embedded finance is taking the world by storm and the COVID19 pandemic has added more wind to its sail.  According to Insider Intelligence, the U.S. embedded finance space will generate over $240 billion come 2025. This is in high contrast to its generated revenue in 2020, which was just shy of $22.5 billion—an increase of 922%.

And that’s just America. 

Globally, embedded finance companies would reach a market cap of $7.2 trillion by 2030.

There are different forms of embedded finance. The most common use case is payments. You encounter this version whenever you pay for something without whipping out cash or bank card. The process is made stress-free and as painless as possible. Other forms of embedded finance include insurance—we’ve given an example earlier—lending which lets you apply for a loan at the point of purchase, and investments. The latter forms are not as prevalent as payments, but they’re becoming popular each day. 

Since the popularizationbof embedded finance, many companies/industries have benefitted from streamlining their customer’s financial experience. However, we shall look at a notable few.

 Uber is a prime example. Uber customers pay their fare directly from the Uber app. Each driver also has a digital account which is credited with the appropriate amount at the end of a ride, without requiring the driver to divulge their bank details to their customers. Uber has other instances of embedded finance in the form of fuel refunds and discounts, amongst others. As at 2020, Uber now handles more than 70% of driver payouts using Instant Pay.

The online retail scene offers so many examples of embedded finance.  From payments to lending and credit facilities at the point-of-sale. For instance, there’s Amazon’s e-wallet option which lets customers checkout their purchases within their Amazon account.  Amazon also has branded credit cards. 

All these convenient features improve user experience and help foster customer loyalty.

The “Buy Now, Pay Later” (BNPL) option is another rising use case of embedded finance—especially in retail. In BNPL, the purchase cost is converted into a loan from the retailer itself, and the customer is given a timeframe within which they can pay off the loan. The money is usually paid off in monthly instalments with a little interest. Companies like Amazon offer the BNPL payment option, and Apple seems to be exploring a BNPL path. Some other companies like Klarna and Afterpay offer loan services to consumers at the point of purchase. 

The hospitality and transportation industries are a part of the embedded finance movement.   Some companies in these sectors now offer you insurance policies once you purchase their product or service. Tesla has embedded this insurtech into its purchase process, thus making insurance coverage an almost instant affair. 

Embedded finance is disruptive and profitable, but it’s also expensive. To provide these financial services, Big Tech companies often have dedicated resources and manpower whose focus is creating a stellar financial product. This is well and good.

However, some businesses do not have the resources to create their custom financial product. In this case, fintech companies who specialize in providing these financial products can offer their services. These services are usually in the form of APIs which can be easily merged with the business’ payments process.

Clients of Paymob enjoy this seamless and affordable integration. Medium and small scale enterprises can utilize our user-friendly payments software to streamline their payments process for their customers. With our SoftPOS option, you can turn your average Android phone to a point-of-sale machine and receive payments wherever and whenever.

On the flip side, you can register as a trusted Paymob partner and provide the SoftPOS payment option to businesses in need.

Either way you get a chance to be a part of the blossoming embedded finance market which has challenged banks and surprised the finance world.