Why Embedded Finance Isn’t Just Another Buzzword

Of the emerging trends in financial services, "embedded finance" is the one most likely to endure and define the new decade.

Matt Cockayne, CCO of Yapily, outlines what embedded finance is and the role it plays in modern business.

“Embedded finance” could very easily become the next overused hype cycle. Another phrase that gets bandied about, over-hyped by the press and industry talking heads alike, but that ultimately fails to meet the weighted expectations placed on it.

Embedded finance is already happening. And what’s more, it will only continue to improve the experience for both consumers and businesses across multiple industries, not to mention keep the fintech ecosystem growing in the coming years. As with any new concept, however, there are a number of misconceptions surrounding embedded finance – what it is, what it isn’t and the role it will play in the coming years.

What embedded finance is, and isn’t

A decade ago, financial services was an industry in and of itself, along with the likes of education, commerce and healthcare. Fast forward to 2020, and financial services is the ultimate enabler – one that touches almost every single industry as they look to incorporate financial products and services into their native offerings.

More and more we’re seeing non-banking players launch their own financial services to open up new revenue lines and improve customer experience. Apple launched a credit card. Amazon offers loans to merchants who have “stalls” with them online. It’s this native integration of financial services into any non-traditionally financial app or service offering that characterises embedded finance.

Embedded finance in action today

As such, embedded finance can take on myriad forms. The simplest would be your local take-away or pub enabling you to order and pay for your favourite Chinese or tipple online from the comfort of your home. Something many in fact did during lockdown. But it can also go much further. Tesla, for example, offers its own car insurance to would-be EV owners during the sales process itself.

Sticking with insurance, gig-economy workers, like Uber drivers, often need extra insurance beyond their standard cover for when they’re actively working for specific companies. To help bridge that gap, Uber and other companies now provide various levels of cover to the temporary workers they employ. As we see even greater uptake of gig work post Covid, this type of service will only grow.

Never mind the buzzwords

This is all well and good, though we’ve seen time and again new technologies and trends fail to meet expectations. But embedded finance is here to stay. Not simply because evolving customer expectations and a global pandemic have created the perfect petri dish for a radical reimagining of how and where the key functions of finance are delivered. There’s big money here too – the VC firm Andreessen Horowitz predicts it will increase the profitability of a customer five times over the original revenue stream.

Added to this, while Big Tech is currently leading the way, the most effective way for both banks and other fintechs to survive and emerge as winners in the coming years will be through partnerships. And the success of embedded finance is predicated on developing mutually beneficial partnerships across multiple industries.

As a lender, you can’t embed payments options for your customers online – thereby making it easier and more reliable for them to make repayments and enhancing their overall customer journey with you – without having a solid payments partner. One that has the best technical infrastructure and APIs that you can rely on to provide the quality payments service you want to give customers.

In the coming months and years we will see more partnerships emerge that facilitate embedded finance. Partnerships that will help the fintech ecosystem thrive in the coming months. Opening doors for new technologies, innovations and collaboration at the exact moment when it’s needed.

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