Embedded finance is a term that is used to describe the integration of financial products and services into everyday non-financial products and services.
In other words, financial products and services are being “embedded” into the fabric of our everyday lives.
This trend is being driven by the increasing demand for financial products and services that are more convenient, accessible, and affordable.
An Expert Overview of Embedded Finance
Have you ever used a financial service that wasn’t provided by a traditional bank? Maybe you’ve used a digital wallet to split a bill with friends, or signed up for a subscription that automatically deducts money from your checking account each month.
If so, then you’ve already experienced embedded finance. Embedded finance is the use of Banking-as-a-Service and API-driven banking and payments services to integrate financial services within other environments and ecosystems.
In other words, it’s about making financial services more accessible and convenient by embedding them into the apps and platforms we use every day.
What Is the Potential of Embedded Finance?
While embedded finance is still in its early stages, it has the potential to transform the way we interact with financial services.
For example, imagine being able to book a hotel room and pay for it directly from your travel app, without having to enter your credit card information.
Or what if you could apply for a loan from your favorite online retailer, and get instant approval based on your purchase history?
These are just some of the ways in which embedded finance could make our lives easier and more efficient.
So far, embedded finance has mostly been used by fintech startups and tech giants like Amazon and Uber. But as the benefits of this new paradigm become more evident, it’s likely that traditional banks will also begin to embrace embedded finance.
What Do the Stats Suggest?
The embedded finance market is expected to grow from $1.2 trillion in 2020 to $6.8 trillion by 2025, according to a report by BCG. This staggering growth is being driven by the following factors:
• The increasing popularity of digital devices and the Internet of Things (IoT)
• The growing demand for on-demand services
• The increasing use of artificial intelligence (AI) and machine learning (ML)
• The rising cost of traditional financial services
• The increasing regulation of the financial sector
What Are Some Examples of Embedded Finance?
One of the most popular examples of embedded finance is Amazon’s Prime membership program, which offers customers free two-day shipping on millions of items, as well as access to Prime Video, Prime Music, Prime Reading, and more. For an annual fee of $119, Amazon Prime members also get access to a variety of exclusive deals and discounts.
Another example of embedded finance is Apple Pay. With Apple Pay, you can use your iPhone or Apple Watch to make purchases at stores, in apps, and online. You can also use Apple Pay to send and receive money with friends and family. And starting later this year, you’ll be able to use Apple Pay to pay for rides with Uber and Lyft.
Final words
As you can see, embedded finance is all around us. It’s convenient, it’s accessible, and it’s becoming more and more affordable every day. If you’re not already using some form of embedded finance in your everyday life, now is the time to start.