In recent years, you may find many non-financial companies offering customers the options to access financial products and services. This could look like airline-exclusive credit and debit cards, linking bank accounts to access digital payment apps, buy now pay later (BNPL) options while shopping via e-commerce and more. This synergy is what's called embedded finance-- and here's what you need to know about the next big thing in fintech.
As mentioned earlier, embedded finance is basically a form of financial solution created from the union of a non-financial service provider and finance companies (fintechs included). The aim is to seamlessly integrate financial processes inside these non-financial platforms, all so that customers don't have to separately access their banking apps and services while transacting digitally. In real life, the common forms of embedded finance can be found in even the simplest activities, like when you order a ride or food delivery from apps from companies like Uber, Gojek and so forth.
The three most common types of embedded finance include embedded lending, embedded insurance, and embedded payment. Embedded lending alternates the credit cards for the customers to make 'pay later' transactions. Embedded insurance may appear when consumers shop on a digital marketplace and is offered when and where people need it. Embedded payment minimizes the use of debit or credit cards, making the payment process much easier as no physical card is required.
Although this financial service has been around for a few years, the rise of embedded finance has been attributed to the COVID-19 pandemic. The outbreak has pushed for the worldwide population in utilizing more contactless digital payments, as opposed to making transactions just via traditional banking services. Many e-commerce and other fintech companies all over the world are quick to jump in this trend, with some trying to provide as many payment services as they can in a single platform.
According to a report by Dealroom and ABN AMRO Ventures, the total value of the world's embedded finance market is projected to reach US$7.2 trillion by 2030. The report also stated that embedded finance brings the potential to unlock new opportunities, possibly surpassing the current value of all top 30 banks and insurers globally at $US$7.1 trillion.
What are the use cases of embedded finance in fintech?
Aside from helping non-bank companies to seamlessly embed financial services, embedded finance also enables them to provide additional products and/or services that are related to their primary product. Eventually, it will open up new opportunities for businesses to create new revenue streams in the future, just like some of these cases of embedded finance within the fintech industry.
Singapore-based Grab initially started only as a taxi-booking app in 2012, but they now offer a large variety of embedded services via their super-app, including payments, loans, credit, investments and more. Today, this startup has reached more than 200 million users across eight countries in Southeast Asia and has became the region's first decacorn. With over 70% unbanked population in the region, the integration of embedded finance allows Grab to reach more people that had no access to traditional financial services.
Another use case is how Southeast Asian insurance technology (insurtech) companies are forging partnerships with e-commerce platforms to expand their reach. Qoala, an Indonesian insurtech firm offering micro-policies, has also participated in this wave by strategically partnering up with prominent startups like Shopee, Traveloka, Tokopedia, GrabKios and more. As a result, up until 2021, 30 million Qoala policies were successfully sold via intermediaries across four countries. In the same year, Tommy Martin, the Co-Founder & COO of Qoala, stated that their premium has grown five times compared to their 2020 numbers. He aspired that the numbers will grow at the same levels in 2022.
What role does APIs play in embedded finance?
Behind the embedded finance offerings of non-bank fintechs like Grab, Qoala and Uber lies a middle-man: the Banking as a Service or BaaS providers. They utilize API integration to connect the non-bank company with a financial institution's database, which they can use to build and offer embedded finance services to their customers. This will eliminate the hassle of having to invest a significant amount of time and resources in forging partnerships with financial institutions, enabling more companies to provide this service with ease.
As the largest finance API platform in South East Asia, Ayoconnect is ready to provide your business with a better way to build a seamless payment system that includes embedded finance as a base. Your customers will have the option to pay bills from various payment points, including e-commerce, digital wallet, merchant network, supermarkets, and mobile banking systems. You can also create an auto-billing for your customers' regular bills or subscriptions, ensuring that payment will be received on-time.
Ready to #MoveForward with us? Contact us for a demo here!
Subscribe to our Newsletter
Signup for our weekly newsletter to get the latest news, updates, and amazing offers delivered directly in your inbox.