Embedded Finance Is Instrumental In Organizations Delivering Higher Value To Customers

In simple terms, embedded finance is the amalgamation of providing financial services along with a product or service that an organization is already providing to its customers

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When is the last time you visited your bank branch physically for any of your banking needs? Perplexing as it may sound, the answer to this question is equally baffling. Majority of us would not remember having gone to the bank for actual banking functions, other than withdrawing cash occasionally from a neighborhood ATM. This faceless banking, which was the first step towards bringing financial services closer to the customer, through all forms, has now evolved into a more common practice of offering customers access to financial services through any business service that organizations are into.

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A result of marrying technology with finance, this new-age phenomenon is commonly called ‘embedded finance’ (EF). In simple terms, EF is the amalgamation of providing financial services along with a product or service that an organization is already providing to its customers.

Let us make it simple. Think of the new-age aggregator business models like Uber which is primarily into businesses like cab hailing[D1] . But these have also successfully integrated payments as a part of their offering through their apps. Pick up any telecom service provider and one can find various financial services being offered through their apps including payment of utility bills and even shopping through online stores embedded into the main app.

EF is aiding in a more seamless offering of financial services through the principal business model of organizations and though it may sound like encroaching upon or meddling with the services that traditionally are supposed to be provided by banks and other financial services providers, the concept is about integrating and collaborating rather than competing.

Fintechs play a very integral role in EF, enabling organizations to combine synergies and create holistic service provisioning digitally. In fact, fintechs act as the critical amalgam that brings together and binds diverse business models (financial services + other businesses) into an all-inclusive offering for customers. EF also offers fintechs the opportunity for their next growth phase with services such as payments, digital wallets, lending and insurance being ‘natively’ offered by non-financial-services firms in every industry, instead of the traditional model where financial services have been offered as a distinctly separate but bundled service, typically offered by a financial company.

Embedded finance distinguishes itself in many ways. Apart from improving customer experience by offering services (financial + others) centrally to creating additional revenue streams for businesses, it is also enabling the de-risking of business models. In countries such as India and Singapore, the concept of neo banking has picked up pace with traditional banking companies willing to share customer data to harness the synergies between finance and tech through fintechs.

What makes EF so important today? Firstly, the convenience which comes from simplification of processes through the application of technology. Frictionless and seamless transaction processing through duly secured networks and machines is another factor that puts EF at the forefront. But the most important factor that is helping the adoption of EF is the user-friendly interface through which organizations can engage with their customers. 

Embedded finance is not really the greed to get into unrelated businesses for organizations. It is more about evolving customer behavior with an increasing number of them looking for hassle free one-point solutions for all their needs. New-age technology has made it possible and is creating a win-win situation at both ends of the spectrum. EF has been found to be instrumental in helping organizations deliver higher value to their customers while strengthening their operational and financial capabilities. The future belongs to organizations which can quickly adopt and adapt to the changing business landscape.