Embedded finance is one of the most talked-about buzzwords in the fintech world. Financial services have been integrated into a wide range of technologies sold by non-financial services organisations in recent years. And, if you want to stay ahead of the curve and exceed your competition, you should consider EF solutions as well.
For years, Pirimid Fintech has provided world-class outsourcing and fintech software development services. Our knowledgeable team will assist you in developing and implementing personalised financing solutions that are tailored to your company’s specific requirements. Continue reading if you aren’t ready to make a decision yet but want to learn more about embedded finance.
What is Embedded Financing?
The seamless integration of financial services into a traditionally non-financial service is known as embedded finance, sometimes known as embedded banking. Embedded Finance Infrastructure allows customer-facing digital platforms (known as “anchor platforms”) to “embed” financial services into their infrastructure.
Until recently, if a company wanted to provide financial services, it had to develop its FinTech division. This required enormous investment took years to create and took even longer to turn a profit. Embedded Finance Infrastructure lowers the barrier for digital platforms to offer financial services to their clients natively (by 10x).
Embedded Finance allows customers to have ‘native’ FinTech experiences within non-FinTech digital channels that are closest to them. Embedded Finance companies are increasingly cooperating with businesses to provide financial services. Here are a few examples of embedded finance in action:
Embedded Payments is the process of integrating payment infrastructure into an app or platform to provide a seamless payment flow. The first financial service to be integrated into non-financial product experiences was payments. They’ve evolved into an important aspect of any E-Commerce app or SaaS platform’s value proposition, with end-users use this function regularly.
The term “embedded credit” refers to credit products that are integrated into non-financial digital platforms. Customers can use the platform to apply for, obtain, and repay loans. A buyer buying kitchen equipment on Amazon, for example, can turn their purchase into an EMI at checkout without ever leaving the site.
Embedded insurance is when insurance is included in the purchase of a product or service. Tesla, for instance, sells auto insurance both online and in-store. Insurance solutions can be integrated with mobile apps, websites, and other partner ecosystems using transactional APIs and technology provided by embedded insurance firms.
In today’s era, individuals have started to build a portfolio to grow their wealth. Embedded investment programs intend to transform the wealth management industry by providing easy and affordable access to funds and stocks. Some of the use-cases of embedded investment apps include Small-case, IndMoney and Zerodha.
Key Players of Embedded Financing & Their Roles
An Embedded Finance Infrastructure is made up of three important organizations that collaborate to provide users with financial solutions.
Non-FinTech enterprises/businesses who own a customer-facing digital platform like a smartphone app, a website, or a desktop application. They may provide consumers bespoke financial solutions that are ’embedded’ within their platform thanks to their intimate expertise of target audience segments.
Embedded Finance Infrastructure Company
FinTech firm like Pirmid develops end-to-end software tools (APIs and SDKs) that connect financial institutions to digital platforms. An SDK (Software Development Kit) offers simple connections with a mobile or web app to swiftly import capabilities. The complete loan journey is integrated within the platform/app in the case of Embedded Finance. It also offers important value-added services such as loan lifecycle UI, alternative data underwriting engines, customer assistance, and more.
Banks, NBFCs, and small finance banks are all types of financial institutions. They serve a dual purpose. They are in the best position to manage regulatory, compliance, and credit risk because they provide financial services. They monitor and service loan requests from the Embedded Finance ecosystem using their network and people.
How Embedded Finance Works?
The most basic explanation of embedded finance is that it integrates a financial service within a non-financial program. Financial services have traditionally been divided into three categories:
- Value in space: Payment processing and typical bank products such as savings and checking accounts are included in this category of value transmission in space.
- Value in time: This category comprises investments, loans, and other kinds of financing that transmit value through time.
- Risk management: This category comprises insurance and other items that offer some level of risk protection.
Each of the three categories can be incorporated into a non-financial application that is distributed over the internet. Embedded finance distinguishes itself from other types of integration, such as vertical integration, by allowing cross-industry integration. A vertically integrated corporation, for example, may own its supply chain or manufacture its products, which it then distributes through branded retail shops.
Embedded banking is not like traditional banking. It works by incorporating a financial services firm within a non-financial services company’s product offering. One example is digital wallets. A person stores their payment card information in the app to use a digital wallet. A regular bank issues credit or debit cards. The user can then use the app to make purchases at physical stores, as well as make seamless purchases online or in the app store. They can also send money to other app users without having to repeatedly key in their bank account or credit card details.
Digital wallets such as Apple Pay and its competitor, Google Pay, are two instances of financial disruptors in the space category of value transmission. BNPL, Integrated banking services, QR code purchases, and Rideshare Insurance are just a few instances of how value is transferred through time and how risk is managed.
Traditional financial services organizations, fintech, and customers who use the products all profit from embedded banking. One significant advantage is the ability to create a seamless experience. The lower the friction in a transaction, the more likely the customer will complete it.
When shopping online, for example, buyers may abandon their carts because they have not stored their payment information and their credit or debit card is in a wallet in another room. They are more likely to complete the purchase if payment information is provided through the app or if they have the option of using BNPL.
Embedded finance is allowing businesses to dramatically alter their business practices. In the dissemination of financial services, digital channels will be critical. It will usher in a new era of financial solutions that are both inventive and effective. To remain strong in their market, businesses in all areas, as well as lenders, must use Embedded Finance Infrastructure. To increase CLTV and monetize their client base, digital platforms must use Embedded Finance.