We are used to thinking of financial services as the domain of banks and specialized firms. But what if we imagine a different setup? Embedded finance is the concept that financial services can be provided by traditionally non-financial software and applications.
For example, Uber allows customers to pay for their rides within the application, instead of having to physically take out their card or pay with cash. Some e-commerce vendors are offering Buy Now Pay Later options, which function as automatic loans from the store rather than a third-party provider.
The idea is that extra products or services related to the primary product can be bundled together. This removes reliance on third parties for financial transactions. Finance is no longer a separate, mystical domain. Instead, financial services become simply another part of the product offerings.
There is a wide variety of applications for embedded finance. These include:
- E-commerce merchants offering loans and payment processing
- Ridesharing companies offering digital wallets and debit cards
- Fintechs providing loans and cards
- Tech companies offering digital wallets and P2P payments, and cards
- Car dealerships directly providing embedded insurance options.
Benefits of embedded finance include improvements for both businesses and customers. Businesses can open up new revenue streams and broaden their offerings. Modern financial technology is also low-cost and efficient, allowing for profitable margins. Embedded finance is also better for user convenience, since applications can create a more unified customer journey and use big data to provide personalized products.
Overall, it seems that embedded finance is the future. Traditional financial institutions, such as banks and insurance companies, will need to evolve or die in face of robust competition.