A Closer Look at Emerging Trends in Embedded Finance

Embedded finance looks set to bring about some dramatic changes in the financial services landscape. By bringing lending, insurance, and investment workflows into non-financial organizations, it promises to eliminate the need for traditional financial intermediaries. The potential now exists to alter existing workflows and customer journeys while providing high levels of customer convenience.

As the market evolves, new developments are constantly taking shape in embedded finance. Read on as we delve into the trends that are poised to shape the future.

The Benefits of Embedded Finance

Businesses across industries are increasingly adopting embedded finance, making it easier for customers to access financial services through synergistic bouquets of offerings. According to a recent report, the volume of payments through embedded channels is expected to reach $6.5 trillion by 2025.

Not only does this scale and speed of adoption alter how financial services are delivered, but it also opens a window of opportunity for fintech companies to build new partnerships, access different customer segments, improve customer experiences, and fuel new revenue streams.

So, what’s causing the growth of embedded finance? There are several drivers, including:

Customer convenience through the integration of digital interfaces with digital wallets, shopping carts, loyalty apps, and more.
Increased market reach by expanding across the value chain and capturing a larger share.
New revenue streams can be created by offering additional services and creating more relationships with other businesses and consumers.
Integrated financial experiences that allow customers to access a range of financial services via a single app or interface.

Top Trends

Businesses embarking on their journey today may never need to resort to traditional banking services. By leveraging a cutting-edge accounting platform, they can seamlessly manage all their financial activities, benefiting from a user-friendly, convenient, and effortlessly integrated experience built on embedded finance options. Leading global embedded finance platform Liberis recently secured $112 million in debt financing to expand embedded finance solutions to SMEs and fuel global expansion.

With the embedded finance revolution, here’s a look at the top trends and developments.

An increasing focus on customer experience: Competition in embedded finance is growing fast as providers accelerate the pace of innovation. As non-financial enterprises enter the market, they pose a threat to traditional banks and financial institutions. To differentiate themselves and stand out in a crowded market, existing players must adapt and change to remain competitive. They must focus on building customer-centric solutions and encourage innovation across the customer lifecycle.
Integration of AI and ML: As advancements in AI continue to surge, fintechs will more commonly integrate AI and ML into embedded finance. Such integration will deliver several benefits, including intelligent customer analysis, smarter alerts, and automated monitoring. AI and ML will also reduce the burden of excessive reporting while automating compliance and strengthening the security of financial transactions.
Incentive-based offerings: With competition in the fintech space constantly escalating, organizations will increasingly explore the benefits of incentive-based offerings. Offering incentives or rewards based on customer needs and/or budgets will help them achieve their financial goals. By creating such offerings, brands will set new standards for engagement and lay the foundation for lasting customer relationships.
Strengthening APIs: Application Programming Interfaces (APIs) are indispensable to the success of embedded finance. Since they act as the bridge between financial institution accounts, fintech companies, and non-financial companies, fintech organizations will look to strengthen APIs to allow diverse software applications to communicate and share data.
Strengthening APIs: Application Programming Interfaces (APIs) are indispensable to the success of embedded finance. Since they act as the bridge between financial institution accounts, fintech companies, and non-financial companies, fintech organizations will look to strengthen APIs to allow diverse software applications to communicate and share data.
The growth of the buy-now-pay-later model: As embedded finance becomes mainstream, a key focus for fintechs will be on continuing the growth of the ‘buy-now, pay-later’ (BNPL) model. Integrating embedded finance with BNPL will offer customers more choices for payment at checkout, minimize the risk of chargebacks, and enable payment methods that suit their budgets.
Embedding data privacy and security: A: Financial transactions are extremely susceptible to cyberattacks and data thefts. As financial data is integrated into more and more apps, protecting sensitive information will become a top priority in the realm of embedded finance. Companies will drive more attention (and investment) towards regulatory compliance, particularly across regulations such as GDPR.
Greater partnerships: A: The coming years will also witness an increase in collaboration between traditional financial institutions and fintech companies. As banks recognize the potential for revenue growth through embedded finance, they will forge stronger partnerships with fintech firms and expand their reach. This partnership will enable them to drive greater innovation in the financial experiences they create for their customers.
Exploring new business use cases: A: The landscape for embedded finance applications will evolve to enable an array of newer business use cases. From payment solutions that allow patients to better control their medical bills to apps that offer a one-stop shop for property search and financing for real estate customers, these use cases will ensure financial management is readily available to small and medium-sized enterprises.

As financial (and non-financial) organizations look to drive growth and success, embedded finance is quickly becoming more common. Through the seamless integration of financial and non-financial services in a single interface, it paves the way for increased customer convenience, a larger market share, greater revenue, and seamless integrated experiences. Staying abreast of the latest developments in embedded finance can enable the level of differentiation companies need to win!