Emerging embedded finance companies use the growing market and navigate market restrictions by differentiating their offerings.
FREMONT, CA: Research shows that the embedded finance markets will double in three to five years. New entrants seek to enter by establishing their services by streamlining their technology, expertise, and relationships. New players can prosper in the embedded finance market by customizing their business strategies, establishing a developer experience, building capabilities to support distributors, and developing support and risk services.
The future of embedded finance products and services will expand to accommodate a growing customer base and product-servicing processes. Companies are converting traditional offerings and services through digitized and real-time risk analytics. New entrants face risks in an emerging market and can hamper growth. Production and servicing require additional supervision and regulatory precautions to meet compliance.
New players can overcome market and regulatory constraints by differentiating their products. The future of embedded finance will account for up to 50 percent of banking revenue generation.
The sources of differentiation for new embedded finance players are:
Product breadth: May distributors are expanding into embedded finance for their business. Businesses are approaching embedded finance by first offering payment acceptance or deposits. They expand their offerings by extending their product portfolio to accommodate customers’ growing financial needs. Distributors are also partnering with a technology company offering a wider range of digital solutions. Other distributors prefer to work with multiple technology providers to prevent dependence on one provider.
Product depth: Some technology and balance sheet providers specialize in their expertise and service in specific categories, such as issuing to claim outsize market share in these niches. They are more appropriate for use cases like just-in-time fund deposits for cards and crypto-linked payment authorization. They createspecific financial products for end customers. The future demand for integrated financial products across product categories will encourage competition with other providers.
Program management support:New distributors encounter regulatory and reputational risks in financial products and lending. Many digital embedded finance providers offer expertise in sales, servicing, and risk management. They also provide new players with financial embedding services.
