Fintech innovations have made digital payments a breeze. In the hustle and bustle of our daily lives, we rarely marvel at or appreciate these innovations, since they do not stand out but are woven into our habits. Embedded finance rounds out the list.
Simply put, embedded finance is the implanting of financial services onto non-financial platforms, technologies, or product mechanisms, with the intent to offer financial products to customers right at the source.
The embedded finance buzz started with payments, in which a rider or buyer can pay without switching to another app. Today, banking, insurance, consumer lending, and wealth management fall under the embedded finance umbrella.
In that regard, here’s an overview of the embedded finance landscape’s four major players:
- Solution providers: With an improved focus on customer segments and loyalty, these players integrate plug-and-play financial solutions into online platforms. Fintech companies are often the ones that provide solutions that are tailored for showcase platform needs. They are usually pay-per-use, on-demand, and hybrid businesses.
- Data enablers: They act as mediators between solution providers and showcase platforms, distributing information between them back and forth. Technical infrastructure includes APIs, SDKs, and connectivity services like BaaS. Usually, they enhance or redesign an existing solution, whereas BaaS providers use their infrastructure to power the services.
- Showcase platform: A solution can be embedded in a network or be located on a standalone site. To the end customer, it provides a frictionless buying experience. Customers can access these platforms by using the web, mobile, and POS devices. In doing so, they connect banks to consumers by providing end-to-end financial services.
- Financial Institutions and other regulatory bodies: Among them are banks, NBFCs, investment firms, and insurance companies, whose services are extended to showcase platforms by solution providers. The core services of underwriting, risk management, regulatory compliance, and credit risks are covered in these areas.
To Conclude
Each of the listed players unbundles financial services based on business requirements and customer segments. Collaboration among banks, fintech companies, and businesses are enabled through embedded finance. It brings about a fresh perspective to enhance the user experience by simplifying and transforming cumbersome processes. However, all of this would unfold in the background, for this is the very essence of embedded finance.
