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4 Minutes

How Embedded Finance is Defining the future of banking & Finserv

Incumbent banks have largely prevailed against digital entrants targeting the SME segment, and we understand why - the opportunity that’s arising here is…well let me explain ya! New initiatives are happening on a daily basis and Embedded Finance solutions are a major new competitive threat as well as a significant growth opportunity for any company that can embrace it in its strategy.

28/2/2022

46% of Bank Executives polled said they are unsure about how to embrace Open Banking, Orchestrate The Ecosystem or become a truly data-driven organization.” as per the World Banking Report of 2021

Not exclusively to the SME segment but in general also, Embedded Finance is used by some of the world’s most powerful digital platforms to realise growth. They are on track to deliver seamless, frictionless banking services and take ownership of the banking relationship.

So this is essentially the next step in ownership of customer relationships through financial tools and in this video we’ll give you all the ins and outs.

Embedded Finance in a nutshell

So what is Embedded finance exactly?

“Embedded Finance is the use of financial tools or services — such as lending or payment processing — by a non-financial provider”


It’s about placing banking services in the day-to-day flow of customers’ lives and work. This creates contextual opportunities to provide the banking services, consumers as well as businesses, need whenever they need them.

Thanks to Open Banking technology & PSD2 embedded finance is where it is today. This, as well as the increased availability of APIs by financial service providers who are regulated by default. 

Their regulated status alongside secure APIs means that non-finance companies can connect to their network and that, suddenly, the world has things like embedded payments available in many interactions.

How it’s defining the future of financial services

With embedded finance, SMEs receive financial services when they’re wanted. Not only is this easier and more efficient for the SMEs, but a platform’s embedded finance offering may also come with value-added services such as financial management and analytics tools.

The recent EY study states that 63% of people would ‘highly value’ Open Banking and Embedded Finance solutions to create personalised experiences due to its ease of use.

This explains why embedded finance could capture up to 26% of the global SME banking market by 2025, representing nearly $124 billion in value 

Conclusion

Consumer friction will continue to decrease in the payments space, while consumer financial options increase. Essentially all catering towards new levels of customer relationships as well as ownership of that relation - providing more businesses with tools & levels to do so.

And, although it seems that the incumbents can’t keep up, they probably will through leverage partnerships, investments or even the acquisition of challengers to keep up with the pace and allow themselves to service all niches.

As a free consultation to our audience, we would advise to not sleep on embedded finance as we expect it will be the new standard before you know it. We already know that, for instance, eCommerce platforms and payment service providers, who are the key beneficiaries of embedded finance providers, may not know that this option exists at all.

What do you think the biggest challenges are for embedded finance in the coming 12 months to come? Let us know your thoughts down the comments below.

Now if you know any person or company that might benefit from implementing this, tag them in the video to let them know about this rising opportunity.


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