24 Mar, 2023

The world around us is changing rapidly. Across all industries, sectors, and geographies, digital technologies create new business models and enhance customer experience.

Every aspect of businesses, from where we work to the work we do, is fundamentally different from what it was a few years ago.

Today, businesses have started thinking about digital technologies as a supportive function and strategic competency. Innovative new digital products, services and enterprises disrupt the market and significantly impact the value of existing products and services. Embedded Finance is one of the major developments we see right now.

When we talk about Embedded Finance, it's easy to see it as a natural continuation of the Fintech products we're used to. It is an integration of fintech with a non-financial product, service, or solution in simpler terms. We can trace the purpose of its development back to the need for integrating digital-based solutions and services with non-financial companies that require new methodologies to offer their products and services online. 

At the very core of Embedded Finance, we find a slew of digital transformations that better meet the changing purchasing habits of consumers all over the world. While older generations still rely on traditional methods, the new generation prefers to "order everything online". As a result, payment processing companies like PayPal, Payoneer and neo-banks like Revolut and Wise (formerly Transferwise) are seen as top names in the industry. 

This is fuelling the demand for financial services from a non-traditional source rather than a traditional one. But it is about more than just convenience. Embedded Finance makes processes less time-consuming, smooth and accessible. At its core is the streamlined customer experience.

Consumer data is used in embedded finance to personalise and improve the customer experience. It also allows businesses to reimagine the services and goods they offer to their clients. Moreover, they limit customer interaction and time consumption with other companies related to immediate purchases. 

As the financial services industry moves into the digital domain, this leads to a more automated process and disruption to existing banking and credit systems, albeit empowering to customers. We're observing fundamental changes across the way a variety of markets operate.

Over the last decade, there has been an increase in the demand for cashless and digital payments. Global transaction volumes increased by 11.2% from 2014 to 2015, reaching 433 billion, with the launch of mobile contactless payment solutions akin to Apple Pay, Google Pay, Alipay, and other similar solutions supporting this development during the last two years.

This upward spiral of growth means we are likely to see a future where embedded finance is the new standard in an attempt to achieve: 

  • Instant, verified transactions
  • Protection from fraudulent chargebacks.
  • Reduced transaction fees from monopolistic credit card companies.
  • A borderless customer base, without the hassle of cross-border banking
  • Increased revenue
  • Smooth transaction experience

Ecommerce provides one of the most efficient points-of-access for the everyday consumer to witness the viability and appeal of embedded finance. With that in mind, it will be essential for payment solutions to be usable, stable, and accessible to optimise convenience and minimise risk for merchants.

Security in general and security audit operations are at the top of the list regarding priorities related to fintech systems and products. Fintech companies use various forms of data to improve their user experience and keep consumers more engaged with their application/ product/ service. Designers and developers are working tirelessly to find what works best for their users/ business.

The applications of embedded finance are limitless. Companies across different markets and industries are unlocking new benefits in adopting the new model. Be it services from ridesharing companies like Ola, Uber, or digital wallets, P2P payment services from Apple, Google, Amazon, Facebook, etc., they are and will be everywhere. 


The connection between Banking-as-a-Service (BaaS) and Embedded Finance

Banking-as-a-Service (BaaS) is revolutionizing embedded finance by providing non-financial companies with access to the financial infrastructure and services they need to offer financial products to their customers. This is done through APIs and other technology solutions that allow companies to integrate financial services into their existing platforms and products.

BaaS enables non-financial companies to offer financial services without having to become financial institutions themselves. This eliminates the need for companies to invest in the infrastructure and resources necessary to offer financial services, reducing their costs and enabling them to focus on their core business.


Forging the Future of Fintech

A conservative estimate from market analysts predicts that embedded finance will become a $7 trillion industry by 2030. By 2025, it can expect to generate $230 billion in new revenue. Embedded payments are a critical component of the digital transformation of companies, moving us one step closer to Industry 4.0. And the ability of non-financial companies to offer financial products and services to their customers is critical to achieving this.  

Interest in embedded finance has been considerable in the MENA region - the global opportunity hub – due to its transformative powers for both banks and non-financial firms. In the last few years, regulators in the MENA region have set several milestones in the
development of an open banking ecosystem. For instance, the Central Bank of Bahrain
(CBB) launched its open banking framework in October 2020, Saudi Central Bank (SAMA) issued its framework in November 2022, and in the UAE the Dubai Financial Services Authority (DFSA) has granted the first open banking-related license within the Dubai International Financial Centre (DIFC).

The UAE has taken the lead in supporting new technology and paving the way
for development and innovation in this field, which is based on the convergence of our online and offline worlds. Many other countries, hopefully, will soon follow the UAE’s lead, seeing the multiple ways in which embedded finance facilitates the integration of users’ financial lives and digital lives. 

There have already been great strides in boosting access to banking services across the
MENA region since 2017, with the democratization of financial access through digital solutions and increasing mobile penetration. The COVID-19 pandemic pushed many processes to be moved online. However, the maturity of new technologies, including embedded finance, was also fundamental to the shift.

After the phenomenal growth of mobile banking services in the financial sector, many organizations are now looking into expanding their product segment to include the full scope of interactive and transactional services. This evolution of technology, together with consumer sentiment and expectations, has had a significant impact on the financial and retail industries. In the competitive landscape of today's market, consumers value their time and money, and firms need to keep up with the changing state of mobility to survive the onslaught of competitors.

Embedded finance will play an increasingly more significant role in companies' growth strategies whose success derives from offering more transactional capabilities to clients. For CEOs, embedded finance signifies a move towards consumer-focused financial products. This shift allows companies to build stronger revenue value chains, drive brand loyalty and differentiate their brands from those still watching from the sidelines.


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