How is embedded finance shaping the new enterprise world?
Gone are the days when things worked in isolation. Today’s consumers want an experience where everything is available at a single touchpoint.
The next big thing in financial technology is embedded finance. By integrating financial services into non-financial applications, it is possible to make it easier for customers to manage their accounts and purchase. Every one of the three conventional categories of financial services – the transfer of value in space, the transfer of value in time, and risk management – may be integrated into a non-financial program supplied through a network of APIs.
What is embedded finance?
Embedded finance is all about offering financial products and services by non-financial companies. It could be something as simple as an e-commerce merchant providing a loan or a communication service app offerings 1-click payments. By offering these financial options, businesses can meet their customers’ demands and provide them with the necessary solutions. Whether it’s a loan, payment program, or insurance plan, embedded finance can help businesses take their customer service to the next level.
Banking services are quickly becoming embedded into our everyday lives in ways we may not even realise. For example, many communication service providers now offer banking services directly on their platforms without redirecting customers to a bank. It is made possible by third-party “banking-as-a-service” companies that use API integrations to embed financial services into the user experience of non-financial companies.
At first glance, this may seem more convenient to access banking services. However, embedded finance has the potential to alter the way people engage with financial institutions, making financial management more accessible and more intuitive.
Embedded finance and Africa
Many MSMEs and a large cross-section of the population in Africa are underserved by traditional financial services. This demand spurs the rise of embedded finance in Africa. As per reports, the Embedded Finance sector in Africa & Middle East is anticipated to increase by 45.3% each year to reach $10,359.2 million by 2022. The embedded finance sector is anticipated to have a CAGR of 27.8% between 2022- 2029, and revenues will rise from $10.3 billion in 2022 to $39.8 billion in 2029.
Embedded finance will relieve fintechs and banks of the burden of providing financial services and give businesses control over their financial journey. This is why Flutterwave, a pan-African fintech startup, introduced a fintech-as-a-service (FaaS) solution that enables individual businesses to open accounts, perform KYC verification, accept money from, and manage their customers’ accounts has gained immense popularity in the recent times.
Pezesha, a Kenyan embedded finance fintech, has raised $11 million in investment. This gap is bridged by the fintech by providing productive credit to tech-enabled platforms such as Twiga Foods, Jumia, and Marketforce.
The embedded payments sector is still in its infancy in most of the world’s largest economies and African superpowers like Egypt and Kenya. In recent years, however, there has been a surge in the number of startups in the embedded payment sector, fueled by the joint efforts of governments and other stakeholders.
The region’s market expansion is fueled by several reasons, including a massive economy, a large young population, and abundant talented workers. Consequently, the region has significant potential to expand its fintech business beyond 2022.
Benefits of embedded finance
1. Embedded finance is beneficial for businesses.
Embedded finance streamlines transactions, keep customers engaged, and increases revenue streams for the company. A company offering multiple services on a single platform will make customers more loyal to its brand, allowing them to stay ahead of the competition. The Carbon app is a simple mobile platform that helps people pay bills, invest, get credit reports, and instant loans. It was designed to help cover unexpected expenses or urgent cash needs of unbanked or underserved customers in Nigeria.
2. Banking disruptions are being embraced by embedded finance.
It would have been strange to ask people to get financial services from a non-traditional institution like e-commerce or a food delivery app company. But now, since embedding financial services is way more common, it’s not as big of a deal, for example, in Konga. Konga started as a small e-commerce site only available to people in Lagos and has now turned into a major online retailer. Konga has also partnered up with some of the leading Nigerian banks to create KongaPay.
It is a safe and convenient way to make online payments, an issue in Africa. People are often hesitant to make online payments because they don’t trust that their information will be safe. However, with Konga’s innovation, this is no longer an issue.
3. Existing customers can benefit from embedded financing.
Do you know what’s irritating? When trying to purchase something, you get redirected to six different applications. That’s why it’s essential to maintain a unified, easy-to-use platform that your customers can navigate without any trouble. This way, they can obtain the needed services and complete transactions quickly and easily. You’re serving your existing customers better and attracting new ones by providing a unique and comprehensive solution.
Use cases for embedded finance
1- Embedded payments:
Embedded payments are an excellent way for businesses to streamline the checkout experience for their customers. By controlling the payment process from start to finish, companies can easily add new payment methods and provide a seamless experience for users.
2- Embedded insurance:
Integrated insurance is a new way for businesses to offer insurance to customers. It’s a way for companies to embed insurance financing tools right into products and services. It helps businesses grow sales and increase customer loyalty by providing insurance solutions that work in real-time.
3- Embedded lending:
It is like having your cake and eating it too. With “buy now, pay later” options, you can get what you want and spread the payments over time. This kind of financing is gaining popularity, particularly among online consumers. With no interest and flexible payment terms, it’s no wonder that more and more people are taking advantage of these deals.
How is embedded finance transforming financial services?
When planning for financial innovation, it’s essential to discern whether the solution is a bold experiment or something that will be table stakes in two to three years. After all, errors can lead to losses in either case–and it’s hard to say which will be costlier. Embedded finance is when non-financial companies have value propositions that would expand or change significantly with the addition of financial products or services.
Global companies that have embraced embedded finance have found that they have a distinct advantage when offering financial assistance. They can access essential resources like distribution channels, data, and resources. By leveraging these assets, they can offer more comprehensive financial aid to their customers.
Things to consider while selecting an embedded finance provider
Embedding financial services into a non-financial business can be done by partnering with service providers who act as critical enablers of this technology. Choosing the right partner with experience in helping companies to deliver embedded finance solutions can help shorten the journey from concept to implementation.
No one likes running all over the place to get things done. That’s why a one-stop shop is vital in managing payments. Look for a solution that can do everything, from ensuring easy management of global and local payment operations under one platform to maximising efficiency and approval rates.
Payouts are a lot like flowers. They brighten people’s days and are straightforward to manage when you have the right ecosystem. With the help of a payouts provider, you can quickly pay your customers, suppliers, service providers, sellers, and employees without having to worry about compliance or security.
And, if you want to go that extra mile for your consumers, provide them with various payment options and BNPL at the checkout. This way, they can choose what works best for them, and you can drive higher-order values– win, win!
Conclusion
Just as a ship is not seaworthy without the tide, business networks cannot function properly without embedded finance to combat slow and late payments. By embedding instant payment technology into B2B trade, we can create a win-win situation for all involved. 2022 is poised to be a massive driving force of innovation regarding embedded finance.
If you are looking to provide embedded financial assistance to your end user but lack the technological expertise- you can seek assistance from CIT Vericash. With a host of fintech services and solutions at our disposal, we can help you help your customers better.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.