Traditional banking models are under intense pressure as Covid-19 continues to alter our daily lives. With the rapidly evolving technology, financial services are no longer under the stewardship of conventional methods. Democratisation of finance is taking place as several non financial companies are putting themselves in a position of proving financial products.
These companies might be providing more in the future, all because of embedded finance. The companies from a large range of industries have the chance at layering banking capabilities to broaden their overall customers needs and this the process of embedded finance- integrating financial services into non financial provider solutions.
The fintech has been the most important factor in using digital services, apps to improve banking systems , wealth management according to the chief officers at API Currencycloud. He added that the evolution of embedded finances is the next stage in fintech ‘s progress.
Apple’s collaboration with Goldman Sachs to produce Apple Card, Shopify enabling their merchants to accept payments directly and partnering with fintech companies to embed buy-now-pay-later functions to its customers , Banking as a service( BaaS) helping the proliferation of embedded finance and many more platforms enabling digital payment gateway services to their users are an example of the progress of embedded finance of fintech companies.
The embedded finance has the potential to equip every business with at least some fintech approaches.
Lightyear capital, a private-equity firm considers three interconnected categories of fintech companies driving the bulk of growth -Providers , Enablers and containers.
Services providers plug financial offering to platforms and increase distribution where in the companies providing data infrastructure and connectivity through API platforms acts as enablers. Containers offers platforms that aggregate financial services across providers, allowing customers to access a variety of solutions in a hassle free manner.
In the coming decade, embedded finance is expected to grow automatically and will dominate the industry by 2030 according to many fintech executives and industry leads from firms such as Bain Capital, Currencycloud, Locke Lord , Plaid etc.
Just as Internet is no longer a discrete market, fintech also will no longer be a discrete sector in the coming years due to its embedding financial services seen in software , big tech firms to financial companies and non-financial products.
Embedded finance will grow from $22.5 billion in 2020 to $230 billion in 2025, as reported by Light-year capital highlighting four key areas where it will be profoundly used – wealth management, consumer lending, insurance and payments. All these segments being responsible for $2.6 billion, $15.7 billion, $70.7 billion and a whopping $140.8 billion in revenue respectively.
To conclude , business that pursue embedded finance strategies can deliver well thought solutions, risk management is better and increases the customer retention , reports Mark Vassallo, managing partner at Light-year Capital.
