In recent years, fintech has gained significant traction, with embedded finance becoming one of its key aspects. This approach involves integrating financial services directly into applications and platforms that are not traditionally associated with finance. This makes everyday financial interactions simpler and more seamless. In this article, we will explore the evolution of these products and how their landscape is changing.

How is the Embedded Finance Trend Gaining Strength?

The year 2024 brings many changes to the fintech and insurtech industries. New regulations, technologies, and evolving consumer needs are driving the growing significance of embedded finance. The COVID-19 pandemic accelerated the digitalization of many sectors, creating new opportunities for fintech. Many companies are investing in technologies that integrate financial services with other products, making embedded finance a crucial element of their business strategies.

According to a report by Bain Capital, embedded finance accounted for $2.6 trillion of total US financial transactions in 2021. It is estimated that by 2026, the value of these transactions will exceed $7 trillion, highlighting the enormous potential of this sector.

Examples of Embedded Finance Products

  • In-App Payments
    Services like Uber and Airbnb enable users to make payments directly within the app, simplifying the user experience.
  • Point-of-Sale Loans
    Companies such as Afterpay offer the option to split payments into installments directly at the point of purchase online.
  • Real-Time Insurance
    When booking flights, users can immediately purchase insurance, showcasing the integration of financial servHow Embedded Finance is Shaping the Landscape of Fintech and Other Industriesices into other products.
  • Banking Services in Non-Banking Apps
    Amazon provides credit cards and loyalty programs, illustrating how financial services can be embedded into e-commerce platforms.

A report by Bain Capital in 2022 analyzing the embedded finance market in the United States stated that consumer payments account for more than 60% of all such transactions.

Source

Benefits for Businesses and Consumers

Embedded finance offers a wide range of advantages for both businesses and consumers. For companies, it provides opportunities to enhance customer experiences, streamline operations, and drive revenue growth. Consumers, on the other hand, benefit from increased convenience, personalized financial services, and seamless integration into their daily lives. 

Key benefits of embedded finance for businesses include:

  • Improved Customer Experience
    Seamless financial services integrated into everyday applications lead to a more enjoyable and frictionless user journey.
  • Increased Revenue
    Offering additional financial products can open new revenue streams and enhance overall profitability.
  • Easier Access to Credit
    Embedded finance solutions often provide businesses and consumers with quicker and more convenient access to credit.
  • Better Cash Flow Management
    Financial tools integrated directly into business operations help in managing liquidity and cash flow more effectively.
  • Enhanced Customer Loyalty
    Personalized and convenient financial services can boost customer satisfaction and loyalty, fostering long-term relationships.

Embedded finance offers a fresh approach to gaining customer loyalty. Research indicates that 84% of consumers are more likely to remain loyal to a brand that offers a loyalty program, and 66% state that the ability to earn rewards influences their spending behavior. Additionally, in today’s high-inflation economy, 90% of consumers are more interested than ever in receiving discounts, using coupons, and getting cash back on their purchases.  

Source

Challenges in Implementing Integrated Financial Services

Implementing embedded finance faces certain challenges. Customers are often skeptical of new financial products, which makes acceptance difficult. Companies need to educate their customers and offer transparent terms.

Integrating financial services requires collaboration with multiple partners. This process can be complex and time-consuming. It necessitates advanced technological infrastructure and synchronization of activities across different departments and providers.

Additionally, legal regulations vary by region. This generates additional costs and requires specialized knowledge.

Despite these challenges, the benefits of embedded finance, such as expanding the offering directly at points of sale, can outweigh the difficulties. A strategic approach encompassing technology and customer education is essential.

The Future of Embedded Finance

The future of embedded finance looks promising, with the sector developing at a rapid pace. New technologies, such as artificial intelligence and data analytics, can further enhance the integration of financial services. Companies will continue to invest in the development of these solutions, benefiting both businesses and consumers. The increasing personalization and convenience of financial services make this trend increasingly attractive in the market.

It is also important to consider the specific needs of Generation Z, who will soon become the primary group of customers. Young people value convenience, speed, and personalized services. Embedded finance products can meet these expectations by offering intuitive and easy-to-use solutions. Leveraging customer emotions, such as through attractive loyalty programs, can increase engagement and brand loyalty. Generation Z is particularly sensitive to these aspects, so companies should focus on creating products that meet their specific needs.