Summary: Embedded finance lets you integrate different payment infrastructures into your native application or website for faster payment processing. Let’s find some other examples of embedded finance in the article below!
Embedded finance is surely the next big thing in the world of finance. It has transformed the way financial services are provided and distributed. With embedded finance, you can integrate services like loans, insurance, investment instruments, etc., into your existing product suite.
It makes financial services more accessible to your customers, meaning that they can access them from your website or app without any need to switch to a different financial app or website. Keep on reading to learn more about embedded finance and how you can use it for your industry.
Embedded finance can be defined as the integration of different financial services such as loans, debit cards, insurance, payment processing, and investment options into non-financial products. It enables organizations to use the financial services delivered by third parties via APIs or integration into their site.
These services can come up in many forms such as peer to peer lending, product insurance, in-app payments, and so on. Therefore, providing these services into the products consumers are using eliminates any need to seek different service providers.
Many financial products are provided by licensed financial institutions. Generally, it requires the non-financial service organization to collaborate with any bank, insurance company, or any licensed financial institution. Many of them choose to do it with a banking-as-a-service platform.
Once the official partnership is done, the embedded financial products are delivered and managed through APIs by non-financial service providers. These products are offered under the brand name of your non-financial organization and not the service provider. In this way, customers avail themselves of financial services like loans and insurance directly from the business website or application.
Embedded finance comes in several types. Here are some popular types of embedded finance services provided to customers.
Buy Now Pay Later (BNPL) is a type of payment option enabling users to purchase any product and service and pay via installations.
It is generally offered by third parties that collaborate with retailers and e-commerce platforms to deliver various financial options to customers. This enables organizations to provide users with more affordable options to purchase products.
Embedded insurance is a kind of insurance which is integrated into the purchasing procedure of a non-insurance goods or service. It implies that the insurance coverage is included when you buy a non-financial product such as car, mobile phone, etc.
This insurance type helps in improving the customer royalty as customers get the insurance coverage directly with the product purchase.
Embedded Investing is defined as financial investment options integrated into the non-investment goods and services. It means that the customers get the opportunity to invest in various assets and securities through a single application like the e-commerce app, devices shopping app, etc.
For example, when you earn cashback, you can use it to invest in various financial assets from the app itself. This enables businesses to earn additional money from their app through investments in securities and assets.
It refers to the integration of various payment processing apps into business apps via APIs. This enables businesses to accept payments for the services provided directly from their own app. Embedded payments streamline the payment procedure for customers and enable businesses to improve the overall user experience.
Embedded finance comes with a plenty of benefits for businesses, financial institutions, and consumers, some of them include:
There are several examples of embedded finance that you can see in everyday life. Some of them include:
Embedded finance is used in different types of industries for multiple purposes. Here are some use cases on how embedded finance is leveraged across various industries.
Ordering groceries, makeup products, food, or any other item and paying for them directly through apps is a popular example of embedded finance in retail. When you buy products, you can pay for them via various payment options such as UPI, credit or debit card, EMI, etc.
In healthcare, embedded finance helps in streamlining payment procedures for patients by providing multiple payment options. The healthcare facility can integrate payment apps onto their website to make it easier for patients to avail medical treatment quickly by making payment on time.
Embedded finance has made it easier for educational institutions to lend loans to students at a lower interest rate by partnering with financial institutions. Based on the loan repaying capacity, institutes can provide loans to students at the lowest interest rate.
In the real estate industry, embedded finance has made it easier for real estate agents to manage loan lending, insurance, mortgage, etc., directly from their application. Hence, making it possible for customers to easily buy and sell property from the application hassle-free.
With the coming of embedded finance, it has become easier for businesses to offer different financial services to customers from their existing website.
Embedded finance is disrupting fintech as it has made it easier for non-financial entities to integrate financial services into their existing website, such as payment processing, insurance, loan lending, etc. By leveraging this, organizations can provide various financial services to customers without obtaining licenses, complying with regulations, or creating additional infrastructure for the same.
Another way in which embedded finance is disrupting fintech is by providing an integrated way for managing finances. Previously, customers needed multiple platforms to invest and manage their money which was time consuming.
However, businesses can offer investment options directly from their application or website without any need of managing multiple providers via APIs.
Despite the growing popularity of embedded finance among businesses, there are a few challenges with this.
Embedded finance has already set foot in different industries like insurance, healthcare, retail, etc., to improve the customer experience. The major user cases include customer payments and loans. As per the report published by KPMG, the Indian embedded finance market can reach almost $1 trillion by the end of 2024
A similar report by Deloitte stated that the embedded finance in India might touch $1.2 trillion in annual revenue by the end of 2025. The expected revenue will be driven by the increase in demand for financial products and growing use of APIs by businesses to integrate financial services.
Conclusion
Embedded finance implies the integration of financial products into everyday non-financial products. From making payments to direct peer-to-peer lending, businesses have been able to make financial services accessible to customers via embedded finance. It has the potential to disrupt conventional traditional banking by making financial services easily accessible for customers and businesses.
FAQs
Embedded investing is a perfect example of embedded finance. With it, you can invest in various financial assets through a single platform. Some other examples include embedded payments, insurance, Buy Now Pay Later option, etc.
The best example of embedded finance is the availability of multiple payment options to purchase a product from a website. Therefore, customers can directly pay from a website while buying a product or service without any need to use any additional app.
There are multiple examples of embedded finance that you can find in India. For example, a company can provide the EMI option to customers when they buy any product from their site. Similarly, an organization providing insurance with the product directly from their website is an example of embedded finance.
Embedded finance is the latest trend in the fintech sector where financial products are integrated into various non-financial products or services. This enables organizations to provide financial services to their customers directly.
The main purpose of embedded finance is to provide different financial services to customers by integrating them with non-financial products like e-commerce software, cosmetic purchasing apps, etc.
The demand for embedded finance is expected to grow in the coming years. This is because more and more companies are providing financial services directly from their platform. Moreover, customers also feel it is convenient to buy products directly from a site, avail loan, get insurance on products, etc.
Some examples of embedded finance products include buy now, pay later (BNPL) services, banking services, payment processing service, insurance products, etc.
BaaS is a type of service model wherein banks deliver the banking infrastructure and services to various third-party organizations. Whereas embedded finance is the integration of financial products into the existing non-financial business product.
The players in embedded finance are financial service providers, infrastructure providers, platforms, marketplaces, etc.
Embedded finance is the next evolution in fintech because your customers can get access to various financial services within your application itself. Additionally, companies can create additional sources of earnings by providing loans and insurance services to their customers.
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