Embedded Finance's Impact on Financial Services Dynamics

Embedded Finance comes with various benefits, such as services integrated with insurance, and facilitates investment and trading.

FREMONT, CA: With the advent of open banking in Asia Pacific and around the world, open APIs and fintech innovation were able to converge. APIs were quickly used to embed financial services into non-financial platforms, giving rise to embedded finance as people know it today.

With embedded technology becoming more ubiquitous, its impact on banks, non-financial enterprises, consumers, and the businesses they serve will be significant. Here are ways embedded finance is changing financial services to give consumers an idea of how extensive this impact can be.

Anytime, anywhere financial services: Today, embedded finance is most evident across consumer use cases, with embedded payment being the most common, such as e-wallets of delivery platforms; embedded lending, where deferred payments can be approved by a non-banking business that offers credit and debit options; and fixed investment, such as small insurance riders to create differentiation of products among competitors.

Embedded finance products were previously only available to large companies. Through FinTech, small businesses are now able to transform into digital B2B commerce to facilitate better cross-border payments. A B2B company can offer equal payment terms to all its customers, regardless of their location. Furthermore, FinTech solutions help payment providers understand the regulatory requirements of different countries and the reason for potential conflicts that may arise. A wider range of embedded finance options is available in digital commerce with buy now pay later (BNPL).

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Financial services will rapidly grow as more companies integrate embedded finance into their payment processes. Having access to financial services at any time and from anywhere would be possible in the future.

Providing financial services to the unbanked and underbanked: According to the World Economic Forum, over six out of ten Southeast Asians remain unbanked or underbanked. Southeast Asian economies are driven largely by micro, small and medium-sized enterprises (MSMEs), and these businesses and their customers require entrance to capital and other financial services to survive post-pandemic. 

Embedded finance provides faster, cheaper, better alternatives to overcome some barriers to financial inclusion for the unbanked and underbanked demographics. With just a smartphone and an Internet connection, those who do not have access to a bank account and financial services can digitally store money, make cross-border payments, and even invest even without a bank account.

Growing smaller banks: Even though embedded finance has been hailed as a great benefit to consumers, traditional banks can also greatly benefit from it.

Through FinTech offerings like Currencycloud, local banks, community banks, and credit unions across APAC can quickly expand their portfolios of banking services with new potential in automation and cross-border accounts. Reducing costs and processing time and expanding their geographic reach for their customers and themselves are two of the most impactful enablements.

Better control of funds with more investment options: By allocating more investment choices across more sales channels, embedded finance empowers consumers and businesses to better manage their financial investments.