Winners and Losers of Embedded Finance Technology

Embedded Finance Technology

The boom in FinTech services in the wake of the pandemic was so rapid and unstoppable that only now it’s possible to more objectively assess its consequences. Let’s see how the technologies that have evolved over the past 3 years have affected the financial sector: 

  • Who ultimately won and can count on profits from the introduction of new technologies;
  • Who lost part of their market and are forced to endure the loss of profits.

Among different technologies that have grown during this time, such as Blockchains, Robotic Process Automation (RPA), and Cloud Banking, Embedded Finance (EF) occupies a special place. Because it is considered by many venture capitalists as a key monetization lever. It is expected that compared to 2020, when this wave has risen, the profit from the EF will grow 10 times by 2025.

What Is the Main Purpose of Embedded Finance

Among the main technologies that challenged the priority of traditional banks, Embedded Finance occupies one of the first places. Because they allow companies that are working outside the financial sector to provide financial services. 

Thanks to EF, there is no need to contact banks or insurance companies for a credit card, insurance, etc. since any e-commerce store that has integrated this capability into its product line can provide these services quickly and without unnecessary red tape. For example, the lending mechanism for buying large expensive items no longer requires going to the bank to apply for a loan as credit can be obtained directly on the merchant’s website thanks to built-in APIs connecting financial and non-financial service providers.

Who Is Primarily Interested in the Development of Embedded Finance

  • The initiator and one of the main winners of the spread of the EF are neo-banks, which were completely self-excluded from the presence in the physical reality and concentrated exclusively on the provision of financial services in the digital environment.
  • In their evolution, they relied on a strong developer base, which provided them with software capabilities for a new digital financial product line. Developers were able to make this niche quite profitable, and therefore, they worthily enjoy prestige and demand for their services.
  • However, after the launch of Embedded Finance, e-commerce companies have become the main engine of their rapid development. Seeing the competitive advantage in integrating FinTech services into their platforms, they have become a major customer of EF services, thus driving progress in this area.
  • A special place among these non-financial companies that stimulate the EF is occupied by leading marketplaces. They allow e-businesses of various sizes to offer their products through their platforms. That is why they are trying to develop more advanced services, including providing loans to customers, issuing corporate cards, etc.

Who Has Been Negatively Affected by the Explosive Development of Embedded Finance

The digitalization of all aspects of public life has hit hard the traditional institutions that are accustomed to their dominance and are not ready for change. Finance was no exception in this regard, and it was traditional banks that felt that they were becoming uncompetitive in comparison with dynamically developing neo-banks.

To recover from this situation, they also began to increasingly use the services of development companies to integrate a new digital product line into their arsenal of services. As a result, online lending has become increasingly offered by traditional banks. They have been forced to keep up with the times so as not to become completely unnecessary in the new digital world.

Types of EF Products and Services

Non-financial companies receive additional profit, as well as an expansion of the client base, thanks to the integration of Embedded Finance. That is why they are trying to broaden the range of financial products offered as much as possible. Among the most common financial offers they can make are the following:

  • Lending — loans at a point of sale at lower interest rates have become beneficial to both buyers and sellers. Consumers save their time and money, and sellers get the opportunity to sell high-value goods more actively.
  • Branded credit cards have become one of the fashionable and highly functional things for both large corporations and medium-sized businesses. They are offered to both employees and consumers to avoid recourse to traditional banks. In addition to simplifying financial transactions, such cards increase the loyalty of employees and consumers and promote the brand.
  • Insurance — this service has left many insurance agents out of work since it has become much easier to get any necessary insurance. This financial service becomes just some addition to the purchase that you make on the site or in the offline store.
  • Embedded Payments — a service that allows you to pay the seller of goods with one click, as well as receive various discounts or bonuses for using the services of the e-commerce platform.

What to Do if the Seller Hasn’t Integrated Embedded Finance Yet

The ease of obtaining loans through the EF makes consumers think that they can get such a service from almost any seller. However, despite the growing popularity of Embedded Finance, not all companies are yet involved in the realization of this progressive solution. 

Therefore, when buying expensive goods, consumers may be faced with the need to obtain a quick loan from a third-party lender. In this case, it is best to use special platforms, such as Payday Depot, which allow you to select lenders and financial institutions by comparing their offers. Such an organization of lending allows you to get a loan very quickly because you will receive offers from potential lenders within a few minutes after applying for credit.

Any transformation under the influence of new technologies is painful for some subjects and opens up wide opportunities for others. The financial industry is no exception in this regard because Embedded Finance technology makes life easier for consumers and non-financial service providers and also puts traditional banks at risk. If they can adapt to the new digital high-tech realities, they will retain a certain share of the financial market. However, it will undoubtedly become smaller, since both neo-banks and large corporations, which have become leaders in the development of the EF, will not want to give up their primacy and the right to provide independent financial services to the population.

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