Redefining financial services with Embedded Finance
In today's rapidly evolving digital economy, financial services have entered a paradigm shift. Consumers now experience increasing accessibility where everything from payments to credit lines are seamlessly integrated into super apps, travel platforms or media channels. While digital cards, mobile wallets, Buy-Now-Pay-Later (BNPL) and micro-investments are commonplace terms in the consumer context, we are just beginning to explore their applications in a business environment. This is where Embedded Finance flexes its real value – through the integration of financial services into non-financial platforms and experiences, Embedded Finance is poised to disrupt the way businesses and consumers access and interact with financial services.
Based on Visa’s research, Embedded Finance is expected to unlock more than US$242 billion in market opportunity for financial providers across Asia Pacific by 20251, with majority of the opportunity in the small and medium-sized businesses (SMBs) segment. As these trends emerge, financial institutions and non-financial platforms now have the opportunity to capture a share of the evolving landscape.
As stakeholders remain on the cusp of this burgeoning growth, what is really driving this shift?
From one-off transactions to returning customers
Today’s consumers expect a streamlined and seamless end-to-end customer experience that is omnichannel, ubiquitous and digital. Consumers are placing more trust in everyday platforms that they interact with and the value-added services they offer, without necessarily paying attention to who the provider of those services are. The increase in demand for digital experiences, as well as trust in power brands have accelerated the shift in how customers use financial-related services.
Consumers are embracing Embedded Finance without even knowing it as businesses increasingly incorporate financial experiences onto their platforms, providing relevant offerings at the right moment of the customer journey to their customers to enhance their offering, thereby driving customer stickiness and loyalty to their platform and brand.
As digital transformation continues to shape the way we engage with commerce touchpoints, Embedded Finance extends ubiquity to blending financial services seamlessly into consumers’ daily activities and interactions with businesses.
Democratising credit access for SMBs
Lending will become the leading use case for Embedded Finance in Asia Pacific and this will be led by growth in the SMB lending space, with an estimated US$115 billion of addressable market value by 20252.
SMBs have traditionally been an under-tapped segment due to a lack of customer data available and limited distribution access for financial providers, all of which Embedded Finance can help address.
By integrating financial services into non-financial platforms already used by SMBs and having access to SMB data through third-party platforms, lenders can make faster lending decisions, providing seamless and real-time access to working capital for these merchants. This democratises access to lending and empowers SMBs to seize growth opportunities and meet business needs.
Adaptive success in the next frontier of finance
To benefit from the next frontier of Embedded Finance, financial service providers should equip themselves with technical capabilities that enable data sharing with non-financial platforms, invest in data governance, leverage open banking where available, and have API-ready products that will unlock scale and efficiency when interacting within the Embedded Finance ecosystem. Developing an operating framework that addresses regulatory requirements and data privacy laws is also imperative to inspire customer trust and safeguard data as financial information flows across more parties.
As a start, financial institutions can redefine their go-to-market strategy and leverage Embedded Finance to distribute services beyond their own channels. Complementary partnerships with platforms that provide access to customer bases or new industry verticals can become a strong lever for financial institutions to scale non-direct channels and acquire new customers. Financial solution providers that facilitate quick and seamless integrations between financial institutions and distribution partners are also emerging. These collaborations can help to offer banks and merchants turnkey services for delivery of embedded financial products.
Visa remains at the forefront of these trends in Embedded Finance, with a unique network of networks strategy to drive growth in this space. By expanding Visa’s Embedded Finance offerings and partnering with fintechs and platform providers across the value chain, Visa helps businesses and financial providers adapt to this new reality while unlocking new opportunities to drive growth in the digital economy.
Look out for more exciting developments that Visa is driving in Embedded Finance!
1 and 2 BCG research for Embedded Finance, commissioned by Visa (Nov 2022).