What is embedded fintech?
Evolution is necessary, and so it is in the fintech financial services. Many non-banking providers plan to enter into banking services to improvise on user experience, ultimately diving into a new venture. Such collaborations of financial services with non-banking verticals are termed as embedded banking. It works in the direction of offering business services to customers with seamless integration and providing financial services.
A perfect example of this is a ride-sharing company like Uber or e-commerce shopping sites like Amazon that offer to complete payments without third-party intervention through wallets. It has turned out to be amongst the new fintech future trends. The emergence of new technologies, distribution, business models, and evolving customer expectations has led to a fundamental rethinking foundation, creating a new way for Fintech financial technology.
The need for embedded banking
1. Convenient banking services
In the times of the digital era, convenience is a must. Customers are already habitual of native payment methods while using simple apps. Thus, brands can simplify customers’ processes by adding additional banking capabilities, such as cards, lending, or accounts. To avoid dealing with separate banking providers, customers can access tailored banking services to simplify their journey.
Innovative companies from a wide range of industry verticals, such as specialized SaaS, marketplaces, e-commerce, mobility, or telcos, will most likely pop up with more embedded banking proposals. Not only large tech firms, such as Amazon or Uber, but also local Software-as-a-Service firms, for example, can obtain enormous business opportunities by seamlessly adding banking features. They now have the chance to do so with the help of a new Bank-as-a-Service financial services provider.
2. Big data to gain more importance
For example, find an auto insurer that analyses a potential customer’s insurance ratings. They could sell insurance to those who use big data obtained from data farmers or other sources to purchase new cars from their lot.
Big data can prove helpful in providing personalized products to specific consumers.
3. Demand for artificial intelligence will increase
Artificial Intelligence (AI) will become essential in many terms as companies aim to provide the optimal embedded finance services and products to their customers. AI can gather the right kind of data and is also critical for analyzing which embedded finance offerings will prove the most successful one for a particular enterprise.
4. Fintech to push business model innovation
The supplementary revenue source is another persuasive explanation for embedded banking. The venture capital firm a16z estimates that relative to a standalone software subscription, software companies will raise revenue per user by up to 5x by integrating banking into their current offerings. Thus, adding a fintech layer will bring major new revenue lines, such as interchange revenue capture or revenue sharing agreements.
Recent proposals that were traditionally difficult to monetize, such as the consumer segment, were too limited. The desire to pay was not there, which can be generated using fintech features as main monetization drivers. As a result, brands will exploit established customer relationships, distribution strength, or brand value to open up new embedded banking revenue lines.
5. Enhancing customer experience
At its first, embedded finance will enable companies to provide a more diverse spread of customer experiences and offerings than ever before. Businesses have already known that offering customers more options and services will result in more business and increased profit.
Many more companies will soon start to incorporate all of the building blocks of a unified customer journey into their purchasing funnels or tracks. It would ultimately lead to the elimination of third-party platforms and help build a direct connection between the customer and the company.
Ultimately, embedded finance has the potential to change the market dramatically in almost every way. It opens up the doors for many businesses to grow beyond their niche offerings to become multi-market retailers or suppliers, just like Amazon and other powerhouse businesses such as Microsoft.
Besides, the evolution and acceptance of embedded finance require businesses to grow and embark on their own embedded finance companies. Fintech and other sectors could be on the horizon of a new age of rapid growth and competition.
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