It is without a doubt that the fintech industry is increasingly dominating the sphere. The latest trend and innovation that is getting insiders talking is embedded finance. Embedded finance is the native integration of financial services into non-banking verticals such as Apple card, Shopify merchant accounts, and Amazon loans. With the rise of embedded finance, we are now seeing non-banking players venture into offering financial services to improve their user experience and access additional sources of revenue.
The benefit is that with tech companies having the ability to integrate fintech companies’ services into their products, they increase conversion, while the fintech lands a new distribution channel. Given that in the digital age, convenience wins the customer, embedded finance offers a “win/win” scenario for all participating companies and the consumers. It is no wonder that the embedded finance industry has been estimated to be worth over $7 trillion in ten years’ time.
Leveraging embedded finance enables fintech insiders to reimagine entire industries and create entirely new types of products – in effect expanding an already massively growing field. The possibilities are seemingly endless with embedded finance, where payments can create an entirely new category.
For example, Chinese company Yizhibo allows you to purchase merchandise seen in livestreams with the click of a button. The payment is powered by fintechs like Ant Financial. In the U.S., Google Maps recently released the ability for users to find and purchase parking directly through the interface. The myriad of possibilities for embedding finance into daily products and services presents the opportunity to create big business for any who enter the field.
Venture firm Andreessen Horowitz estimates that embedding financial services will increase the profitability of a customer by over 5x the original revenue stream. However, JP Morgan also estimates that embedded finance penetration is still low, at about 10% today despite its massive potential for growth.
According to Forbes, despite its current statistics, it is likely that investment in this growing trend will yield positive results so long as companies offer embedded services at the right time and place, leverage data to make the experience better, and keep the service simple.
Whether as a participant, investor, or innovator, there is little doubt that embedded finance will be an exciting field to watch as it permeates different sectors in newer and creative ways in the coming years. Start-ups, SMEs, and big corporations that will be able to successfully leverage this innovation will increase client value while broadening revenue lines.