Throughout history, finance and banking have seamlessly adapted to integrate with evolving consumer lifestyles. Embedded Finance exemplifies this ongoing integration, strategically placing financial services directly within customer interactions at the moments they’re needed.
Industry experts have pinpointed embedded finance trends as a major development area, not only for financial institutions but also for non-financial companies seeking to participate in this burgeoning market. The embedded finance market is projected to experience explosive growth, surging from $63.2 billion in 2023 to a staggering $291.3 billion by 2033.
To capitalise on this opportunity and gain a competitive edge, businesses need to stay informed about the latest 2024 predictions and emerging trends within embedded banking. This is a space that evolves rapidly; and so must they.
Embedded Finance primer
Embedded finance refers to integrating financial services, such as checking accounts, loans, insurance, and investment tools, directly into the platforms of non-financial companies. This integration often occurs through partnerships between technology providers, traditional financial institutions, and the non-financial company itself.
While the concept of integrating financial products into non-financial transactions isn’t entirely new, embedded finance has gained significant momentum in recent years.
The term itself rose to prominence in the mid-to-late 2010s, coinciding with a confluence of trends in the fintech and retail app space. Additionally, the widespread adoption of application programming interfaces (APIs) and Software-as-a-Service (SaaS) models has facilitated the integration of financial services into non-financial platforms.
Trend 1: Integration with E-commerce Platforms
One of the key embedded finance trends in 2024 centres around its integration with e-commerce platforms. As online marketplaces become the future of retail, embedded banking offers a strategic weapon to fuel growth in this space.
Embedded finance lets marketplaces offer personalised financing at checkout, such as flexible payments or credit options. This can boost sales and customer satisfaction by giving them more buying power.
But the real game-changer might be loyalty programs. While traditional stores use loyalty programs, online marketplaces haven’t fully tapped this potential. By seamlessly combining finance and rewards, marketplaces can create a powerful tool to keep customers coming back for more.
Trend 2: Rise of Buy Now, Pay Later services
Another prominent embedded finance trend is the rise of Buy Now, Pay Later (BNPL) services. These services have become a familiar sight for online shoppers, appearing at checkout precisely when consumers are considering their budget.
BNPL solutions offer an alternative to traditional upfront payments by splitting the purchase amount into smaller instalments, typically spread over weeks or months, often with no interest charges.
Trend 3: Expansion into new sectors
The expansion of embedded finance beyond traditional sectors presents exciting possibilities. In the automotive industry, for example, connected and autonomous vehicles hold immense potential for integrating financial services.
This innovation has the potential to significantly enhance the user experience by offering on-the-go payments, streamlined vehicle financing, and convenient insurance options directly within the car itself.
Moreover, embedded banking can transform cars into mobile banking hubs, blurring the lines between financial services and automotive operations. This convergence creates opportunities for entirely new business models and revenue streams for both automotive manufacturers and financial institutions.
Trend 4: Partnerships with FinTech firms
The rise of embedded finance necessitates a strategic shift towards collaboration. This trend is particularly evident in partnerships between traditional financial institutions and fintech firms.
This strategic teamwork allows each party to leverage its strengths. Fintech companies bring innovative solutions and a focus on user experience, while established institutions provide robust financial infrastructure and regulatory expertise.
Trend 5: Prioritising Cybersecurity for Embedded Finance
As embedded banking continues to gain traction, ensuring the security of these transactions becomes paramount. This trend reflects the growing recognition that data security is not just a technical hurdle, but a strategic imperative. Financial institutions, fintech companies, and non-financial participants will all need to prioritise collaboration and information sharing to address emerging threats and vulnerabilities within the complex embedded banking ecosystem.
Trend 6: Regulatory Changes
Financial models like BNPL underscores the ongoing debate surrounding regulatory frameworks. While BNPL offers convenience, it has sparked discussions on the need for enhanced safeguards to protect consumer interests and promote responsible lending practices. Some call for stricter rules to prevent debt spirals and clear terms. However, fintechs find existing regulations hard to adapt to their evolving products.
Trend 7: Improved Analytics for Embedded Finance
Data is the lifeblood of informed decision-making, and B2B marketplaces, portals, and apps are no exception. By integrating financial services within the user experience, these platforms gain access to a rich data stream related to transactions, users, and the sales cycle.
Embedded finance solutions can further improve user experience by streamlining the consumer feedback process. This facilitates a deeper understanding of user pain points, paving the way for experience improvements. Ultimately, these data-driven insights inform future development efforts, ensuring a platform that caters effectively to user needs.
Outlook on embedded finance
Embedding financial services can create new revenue streams for businesses. For non-financial institutions, integrating financial services unlocks new revenue streams through partnerships with financial providers. This collaboration fosters the creation of additional services and strengthens relationships with both businesses and consumers.
It is not just new revenue streams that are at stake. Embedded finance trends are reaching a point where 2024 predictions suggest an environment ready to reward businesses with greater customer loyalty, growing existing revenue, and a sustainable flow of data to compound the business benefits of consumer behaviour with a better understanding of it.
- Embedded Finance
