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Banking and payments infrastructure designed for embedded finance could become the heart of the payments landscape sooner than you think.
Massive growth projections will see new providers and distributors emerge, with many still wondering how they can play a role in embedded finance, so in terms of technology, partnerships or expertise, there are already Some have a solid presence.
It has therefore become important to understand how the embedded finance landscape is shaping in terms of participants, key drivers and potential opportunities.
Embedded finance refers to placing financial products into what can be considered a non-financial customer experience or platform.
A classic example of this is that non-banking entities have acted as channels for banks, providing functions such as private label credit cards and sales financing for retailers.
The concept of embedded finance is by no means new, but it is undeniable that it has evolved as financial instruments enter a new phase of seamless integration into digital interfaces.
From digital wallets to accounting software. From shopping carts to loyalty program apps.
The possibilities are nearly endless, but the underlying theme is that consumers are beginning to feel that acquiring financial services has become a natural extension of what they were already experiencing in the first place.
This means that embedded finance will become even more deeply embedded as it reshapes the e-commerce landscape.
In terms of technology as well as merchant and consumer behavior, embedded finance has taken full advantage of the opportunities presented by the new digital avenues.
The innovation that open banking has brought to individuals and businesses has led to near-market adoption of these new technologies.
By enabling third-party fintechs to access users’ banking data and perform transactions, finance is now present in the non-financial customer journey and is experienced almost everywhere.
And as more and more digital natives emerge, the pool of users and consumers expands, opening up new businesses. Both rely on digital platforms to provide practical financial services.
In fact, this dynamic market has made small businesses just starting out even think about interacting with traditional banks.
But despite the many opportunities looming, banks, fintechs, software companies and payment providers may still struggle to figure out how to get involved and find their place. .
First and foremost, it is important to contextualize and understand that embedded finance is likely to emerge where there is a high frequency of digital interaction with end consumers.
Retailers, online marketplaces, and business software companies are prime examples of this critical mass of users.
Because of this, there are usually two moving parts behind the embedded financial mechanism: the distributor and the provider.
These digital platform operators, also known as embedded finance distributors, are fintechs (providing customizable digital platforms, digital solutions and financial products) and balance sheet providers (accredited or licensed financial ) depends on the provider, such as Institutions that typically provide compliance and/or risk services and may bear the risk of credit default).
The balance of these two moving parts along the value chain, from a risk management perspective, also correlates with how revenue is generated.
This is because such revenue dynamics depend on the nature of the embedded financial product itself (lending vs. deposit and/or payment).
Embedded finance is going nowhere as it boasts a higher value proposition for both customers and businesses.
Given the fast pace of change in the financial world, the foundation for future leadership has not been established. That means there is room for new entrants.
There are still many legacy financial institutions that are not ready to externalize their own workflows and processes, so the path to supporting key services is still wide open.
Additionally, many embedded finance distributors are looking to providers that deploy their financial products in a regulated manner.
While there is still much to be learned about embedded finance reach, choosing where to compete may be the most important factor in a new entrant’s strategy.
Banking and payments infrastructure designed for embedded finance could become the heart of the payments landscape sooner than you think.
Massive growth projections will see new providers and distributors emerge, with many still wondering how they can play a role in embedded finance, so in terms of technology, partnerships or expertise, there are already Some have a solid presence.
It has therefore become important to understand how the embedded finance landscape is shaping in terms of participants, key drivers and potential opportunities.
Embedded finance refers to placing financial products into what can be considered a non-financial customer experience or platform.
A classic example of this is that non-banking entities have acted as channels for banks, providing functions such as private label credit cards and sales financing for retailers.
The concept of embedded finance is by no means new, but it is undeniable that it has evolved as financial instruments enter a new phase of seamless integration into digital interfaces.
From digital wallets to accounting software. From shopping carts to loyalty program apps.
The possibilities are nearly endless, but the underlying theme is that consumers are beginning to feel that acquiring financial services has become a natural extension of what they were already experiencing in the first place.
This means that embedded finance will become even more deeply embedded as it reshapes the e-commerce landscape.
In terms of technology as well as merchant and consumer behavior, embedded finance has taken full advantage of the opportunities presented by the new digital avenues.
The innovation that open banking has brought to individuals and businesses has led to near-market adoption of these new technologies.
By enabling third-party fintechs to access users’ banking data and perform transactions, finance is now present in the non-financial customer journey and is experienced almost everywhere.
And as more and more digital natives emerge, the pool of users and consumers expands, opening up new businesses. Both rely on digital platforms to provide practical financial services.
In fact, this dynamic market has made small businesses just starting out even think about interacting with traditional banks.
But despite the many opportunities looming, banks, fintechs, software companies and payment providers may still struggle to figure out how to get involved and find their place. .
First and foremost, it is important to contextualize and understand that embedded finance is likely to emerge where there is a high frequency of digital interaction with end consumers.
Retailers, online marketplaces, and business software companies are prime examples of this critical mass of users.
Because of this, there are usually two moving parts behind the embedded financial mechanism: the distributor and the provider.
These digital platform operators, also known as embedded finance distributors, are fintechs (providing customizable digital platforms, digital solutions and financial instruments) and balance sheet providers (either accredited or licensed financial or) depends on the provider. Institutions that typically provide compliance and/or risk services and may bear the risk of credit default).
The balance of these two moving parts along the value chain, from a risk management perspective, also correlates with how revenue is generated.
This is because such revenue dynamics depend on the nature of the embedded financial product itself (lending vs. deposit and/or payment).
Embedded finance is going nowhere as it boasts a higher value proposition for both customers and businesses.
Given the fast pace of change in the financial world, the foundation for future leadership has not been established. That means there is room for new entrants.
There are still many legacy financial institutions that are not ready to externalize their own workflows and processes, so the path to supporting key services is still wide open.
Additionally, many embedded finance distributors are looking to providers that deploy their financial products in a regulated manner.
While there is still much to be learned about embedded finance reach, choosing where to compete may be the most important factor in a new entrant’s strategy.
