How Embedded Finance Is Fuelling The Growth Of Digital Finance Platforms

Customers can now access a wide range of financial services online without ever interacting with an actual bank. Financial services now come neatly tied into non-financial platforms online, enabled by what fintechs call embedded finance. 

This model, however, is not particularly new; it has contributed significantly to India’s growing online platform business for a while now. A look at most D2C and B2C platforms puts things into perspective. Open any app on your app phone, fashion, food-tech, or even fitness, and you have a wide range of payment options at the checkout. You can pay through UPI, wallets, net banking, or even opt for EMI and Pay Later options.

However, once you delve a little deeper beyond customer-facing digital platforms, you will see this tech powering super-specific business contexts. These instances of embedded finance are a mere scratch on the surface. The coming years will see embedded finance used widely and innovatively across industries. 

A report by Research and Markets last year predicted that the Indian embedded finance industry is set to grow at a CAGR of 30.4% and will reach $ 21,127.5 Mn by 2029.

So, what makes embedded finance so promising? For starters, it benefits every stakeholder involved in the ecosystem. The magic happens when three parties — digital platforms, financial service providers, and embedded finance fintechs — join hands and play to their strengths. 

Powering The Future Of Digital Finance And Platforms

In 2021, India had 180-190 Mn online shoppers, which is predicted to increase to 400-450 Mn by 2027. With the rise in digital users, platforms and institutions have scaled up their businesses too. As credit and online payments become the norm in online shopping, embedded finance will act as the glue that brings platforms and institutions together.

Here are some ways that embedded finance has (and will continue to) benefit stakeholders in the digital economy:

Improving Business Metrics

Platforms want to retain existing customers and acquire new ones. Credit offerings like EMIs, Pay-In-Three, and Buy Now Pay Later have proven to boost these user metrics. 

On the financial institution side, embedded finance gives banks the opportunity to explore new distribution channels and broaden their customer pool — without the heavy lifting. 

Going Beyond Distribution

Along with providing the infrastructure to disburse financial services, embedded finance can also provide businesses with the intelligence to personalise offerings to customers. This is a win for all parties involved. Users get personalised offerings that suit their needs, digital businesses improve customer experience, and financial services are equipped with the data and information to make strategic decisions. 

Allowing Each Party To Play At Their Strengths

Embedded finance companies build end-to-end stacks that power in-context financial solutions, allowing other parties to focus on what they do best. Today, a finance product can be launched within a product with just a few lines of code in a matter of weeks. 

The embedded finance ecosystem brings together digital businesses and financial institutions to provide customers with a digital experience that is personalised, convenient, and above all, inclusive. As the tech grows in demand, the ecosystem is soon shaping up to be a well-oiled machine much greater than the sum of its parts. Will it be the fuel that powers the digital economy for the next billion? I, for one, am confident that it will!