The Impact of Embedded Finance on Financial Inclusion
Embedded finance is the integration of financial services into traditionally non-financial platforms. Bain Capital has projected the Embedded Finance market to be at $7 trillion dollar, and this technology is making every company a fintech company. Today, companies from various industries like manufacturing, IT, retail, and logistics are readily embracing embedded finance.
The global advancement in the development and acceptance of embedded finance can be felt strongly in Africa. Until a few years back, financial inclusivity was a distant reality in the African subcontinent, and traditional financial institutions couldn’t reach the remote areas. But digitalization has allowed the African people to become financially independent and empowered.
Tech giants like Google and Meta are now rapidly moving into the Fintech sector. Their global reach is unparalleled; thus, the scope is infinite with their entry into the digital financial sector!
What is Embedded Finance? What are experts saying?
Embedded finance, also known as embedded banking, refers to the seamless integration of financial services into a non-financial platform. It allows customers to access financial assistance through a third-party app or without in-context. For instance, customers will be able to make cashless payments using ride-hailing apps.
Before this, if a business wanted to enable their financial services, they had to create a Fintech branch within their organization, and this would include significant expenditure and years to build and operate. Embedded Finance will allow businesses in B2C, B2B, and MSME sectors to monetize their customer base, scale their product offering, and increase their customer lifetime value.
Courtesy: Forbes
Well-known Venture Capitalists like Matt Harris (Bain Capital Ventures) and Angela Strange (Andreessen Horowitz) have started encouraging their companies to embrace embedded finance. This would make every company a Fintech company and lead to financial inclusion.
However, the impact of embedded finance runs deeper than convenience, and it is an instrument for understanding customer spending habits, which can later be used for driving future business development.
How is it being offered? Which companies are leading the way?
Businesses are increasingly partnering with Fintech companies to adopt embedded finance. Here are the channels through which they’re being offered:
Embedded Payments: Payment infrastructures are being integrated with a platform to create payment flow.
Embedded Credit: This will allow customers to apply for and repay loans through a business platform.
Embedded Insurance: This refers to the bundling of insurance with purchasing a product.
Embedded Investments: This will allow platforms to integrate stock market and mutual fund investing through vertical features.
Fintech organization BBVA is allying with companies like Google, Uber Technologies, and Solaris bank to integrate its services in third-party platforms and reach new markets in Asia and Africa to widen their customer base.
In fact, Nigeria’s One Pipe Fintech Company has already invested $3.5 million in embedded finance. Since the integration, 6.3 million transactions with over $46.3 million have been processed.
The functions have already been expanded to customers and employees alike. For instance, through BBVA, Uber employees in Africa receive their salaries within minutes and can access both financial and non-financial concessions.
This new fintech model has been increasingly accelerating. The Light-year Capital Investment fund has predicted that by the end of 2025, embedded finance will be worth $230 billion in revenue, and the stock market value of such companies could cross the $1 trillion mark.
How does this impact financial inclusion?
Financial inclusion is defined by the availability of financial services to all factions of the world population, irrespective of their economic situation. Thus, embedded banking will contribute to financial inclusion heavily.
As large pools of customers will be accessed, they will enable instant and low-cost financial services to customers in African countries. Savings can also be digitally mobilized through these alternatives, and it will lead to convenient banking.
For example, companies like VERICASH are allowing companies to deliver embedded financial services by either integrating them or helping them become Fintech themselves. This is slowly leading to a digital transformation in how financial services operate in developing nations. Besides, companies have control over the prototype features and have full scalability regarding how their services reach regional markets.
The financial inclusion rate has doubled from 30% in 2011 to 60% in 2020 in Africa. Thus, the growing demand for convenient financial services has fueled the growth of embedded finance ecosystems. Mobile wallets and online payments will be the future of banking in Africa.
How can technology Platforms Play a Role?
At the heart of all this evolution in digital financial services and how it is being delivered across multiple players and platforms is the technology impact and the dominant influential force it plays into making this a reality. It is the tool that may facilitate the missing gaps between what may seem as a valid business model, a growing network and infrastructure, the demand, and bridging the value in between.
Over the course of the past several years, we have seen plenty of global technology providers penetrating this lucrative domain, each taking shots at satisfying a technology need by, what now seems an abundant, supply of financial providers, especially with many non-financial enterprises bullying their way in, however, it is far from being quenched.
An interesting example, coming to light, is a leading regional technology player that has been a leading participant in presenting innovative technology solutions to the banking and financial sector for more than a decade. CIT VERICASH, with its comprehensive SW platform, provides various backend and front end tools that enable any financial service provider, whether it be incumbent banks, non-banking financial institutions, or modern-day Fintechs, to create, design, and experiment with whatever business model they choose to take to market from ideation all the way to conception and validating it to a marketable product or service that can easily be delivered across multiple digital channels, a mobile app, web, self-service kiosks, or even USSD.
VERICASH is currently focusing on addressing this peculiarly growing trend amongst some of the large enterprise groups that are seriously considering introducing, or shall we say embedding, various financial services, from digital payments, lending, saving, insurance, or investment products within their existing platforms to their employees, end-user customers, or even their extended business ecosystem of suppliers & vendors. The idea is creating an enriched ecosystem that can capitalize on that and extract maximum value in this closed loop of transactions.
So today, such organizations and enterprises could easily utilize VERICASH’s digital technology platform to configure the type of services they want to offer. All they need to back that up is strategically choosing whether they need a regulatory license to directly provide it or will they partner with an existing license holder.
Conclusion
We are seeing extremely volatile times when it comes to how we all consume different financial services that have taken a deep dive in recent years with a complete set of new expectations that are mainly driven by the actual consumer. Regardless of the financial provider at hand, one thing is for sure everyone wants a piece to the extent tech giants, enterprises across various industries are all considering one way or the other to provide them to their ecosystems. Whether they choose to build it from scratch, simply partner with someone and aggregate their services or use white-labeled technology providers, is a matter of a strategic decision. One thing is for sure, those who choose to remain stagnant, will most likely certainly lose out.
About CIT Vericash
CIT VERICASH is a division of CIT GLOBAL, an innovative financial inclusion Software Platform that help enable all kind of Fintechs through the digital transformation of financial services, provision of its agile & scalable technology, deliver its ready regional financial markets network connectivity’s, and its global financial expertise. VERICASH empowers Fintechs to deliver innovative digital financial services to achieve the fastest growth with the maximum flexibility to address all their customers across multiple markets.
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.