Stay Ahead of the Curve with Embedded Finance Trends for 2023

Embedded finance holds the promise of taking your platform’s services to the next level. By offering tailored financial services, you’re uniquely positioned to help your users run their businesses and their finances directly from your platform. Embedded Finance has created a revolution like no other in the world of digital banking and payments.

Embedded finance offers both banks and nonfinancial services brands the ability to provide a frictionless customer experience.

What is Embedded Finance?

Embedded finance is the integration of financial services or products, such as payments, within a nonfinancial services company’s customer value chain and offers brands the ability to shape a seamless customer experience.

Embedded finance allows businesses to offer tailored financial services to their customers, leading to better customer experiences, increased revenue, and greater customer loyalty. As the adoption of embedded finance solutions continues to grow, it is expected to become the norm in the financial services industry, transforming how we interact with financial services for years to come.

Embedded finance solutions can be categorized into three main types:

Embedded Payments

Embedded finance allows consumers to pay for goods and services through a third-party application.

Embedded Lending

Embedded finance provides instant loans to customers within a third-party application.

Embedded Insurance

Embedded finance offers insurance policies and coverage to consumers within third-party applications.

However, embedded financial tools help companies reach more consumers, improve data analytics, increase customer retention, and create easier and more secure financial transactions. In reference to the integration of financial services into non-financial platforms and processes, embedded finance allows businesses to offer financial products and services to their customers seamlessly and efficiently without redirecting them to a separate financial institution or website.

Some of the key trends driving the surge of embedded finance include:

Buy Now, Pay Later (BNPL)

In a BNPL payment model, you can choose a payment program that allows you to make weekly or monthly payments from your bank account instead of paying the whole amount upfront. These point-of-sale loans are rapidly gaining popularity and are driving the enhancement of the user experience and customer loyalty by encouraging repeat purchases.

Recent studies show that most small business owners have less than $5,000 in hand for financial crises. In our current difficult economic period, businesses can use BNPL as an embedded finance product to gain a competitive advantage by securing missed sales and stretching invoice payments for better cash flow management.

APIs

One of the embedded finance trends Quickly gaining momentum is using APIs (application programming interfaces). Fintech companies are making it easier for businesses to accept and process payments through plug-and-play solutions. By incorporating additional services into their offerings, companies can gain a competitive advantage in the market and drive growth.

Moreover, the rise of APIs creates more opportunities for businesses to pick and choose which services they want to integrate, leading to productive partnerships that cater to even the most sophisticated users.

Digital Wallets and Contactless Transactions

Since the beginning of the COVID-19 pandemic, the popularity of contactless transactions has surged. The global contactless payment terminals market is expected to reach $43.4 billion by 2026, with major players including Visa, MasterCard, Apple, Google, Amazon, and Samsung.

Digital wallets have numerous use cases, including in-house banking for businesses, crowdfunding platforms, online and e-commerce marketplaces, and more.

DEFI and WEB3

DeFi, or decentralized finance, is an emerging trend within the finance industry that uses blockchain technology to offer financial services without needing intermediaries.

DeFi is one of the most notable crypto industry technologies since Bitcoin was released in 2009, and more than 6600 other cryptocurrencies are traded in the crypto market today. This provides greater financial freedom and access to services for individuals who may not be able to use traditional banking systems.

The total daily volume of DeFi transactions has reached $53.6 billion, representing 10.56% of all global crypto volume. As the world continues to shift towards a more decentralized and interconnected future, we will likely see even more growth and development in these areas.

After analyzing the benefits, we can thus say that the benefits of embedded finance are clear, including increased customer loyalty, an improved user experience, and enhanced revenue streams. As technology continues to advance, we can expect embedded finance to become even more prevalent and disruptive, leading to a more accessible and inclusive financial ecosystem for everyone.