Why Is Embedded Finance Relevant Today?
Applied effectively, embedded finance can create a better financial ecosystem, where more people than ever can access meaningful financial products and services, more conveniently and affordably. Essentially, the entire concept of embedded finance involves financial services from companies with no financial background that are sold through cross-industry convergence.
Big technology companies, retailers, and mobility providers are all a part of this. An economic rationale can be found here; adding financial services to a company’s original business strengthens its base – and enables it to penetrate new markets.
Moreover, a license is required for the provision of financial services. Embedded finance is, therefore, made possible through “Banking-as-a-Service” providers. Business partners collaborate with banks that grant licenses.
Importance Of Embedded Finance For Businesses
With embedded finance thriving over the years, no business should trail behind as that would simply mean passing your customers along to your competitors. Here is why:
- Redesigning Businesses’ Price Chain: The COVID-19 pandemic has demonstrated that businesses can communicate and manage effectively in new ways. A lot of companies have been forced to adapt in unprecedented ways, after adapting at a staggering pace and scale. Specifically, businesses will rethink their value chain and try to contour operations, build new revenue sources, and cut costs. Furthermore, embedded finance simplifies and speeds up the complex B2B payment process, therefore increasing company productivity.
- Disruption Of The Payroll: Embedded finance creates a ripple effect across processes, right from the start. Companies will use this technology to automate payroll services. This will allow them to pay salaries on demand. Moreover, salary advances or direct deposits could be made, enabling account holders to receive paychecks ahead of time. As a result, businesses can lend to their employees and generate more income.
- Behavioural Changes In People: The pandemic forced people to reconsider their buying behaviour. As a consequence, demand for online and digital services shifted in 2020. Having become the norm for most, this shift will continue into 2022 and beyond. Perhaps the most notable trend is the shift from physical to digital. In fact, studies have shown that embedded finance helps businesses reach new and existing customers online.
How Does Embedded Finance Fit Into Today’s Economy?
Over the past few years, banking has evolved significantly. Financial services are becoming more equitably distributed and liberated through open banking, which allows them to be integrated into larger ecosystems. Using Banking-as-a-Service, this opportunity can be translated into concrete, customer-centric applications.
Meanwhile, keeping up with digitally savvy customers requires a customer-centric approach. Compared to many long-established banks, neobanks offer favourable conditions to entice customers to switch or open second or third accounts. In addition, the providers are planning to exploit platform effects by integrating user-centric partner networks: by using these networks, neobanks can enhance loyalty among their customers.
A growing number of customers are turning away from traditional financial services. Personal interaction, the former basis of bank trust, is no longer in demand, as banks no longer maintain a large branch network. Services are now the main focus.
For many brands, this opens up the possibility of embedded finance offerings. Since banks possess both the trust and loyalty necessary to convince their customers to utilize their services, they have the potential to strongly influence their customers.