Embedded finance in trending and a study by Accenture found that 47% of non-finance companies had already invested in it. 85% of companies using embedded finance have reported being able to attract new users. 87.5% of those companies have been able to increase engagement with customers.

So, what is embedded finance and why is it gaining in popularity is explained by Mr. Bahaa Abdul Hussein in this blog.

Embedded Finance

Embedded finance refers to the use of financial instruments by companies that are not financial enterprises. It allows companies and online stores to use banking software as a part of their mobile app or website using BaaS (Banking as a Service). This helps customers to make payments without having to visit a third-party website for this purpose.

The use of embedded finance is beneficial for customers. It helps them to carry out payment transactions without having to key in their card details every time. They can also get to enjoy other facilities like paying in installments, and insurance.

The future of embedded finance

As per Bahaa Abdul Hussein, it is expected that embedded finance will grow at a rate of 215% over the next 5 years. The use of APIs or Application Programming Interfaces by service providers will make this possible. The factors involved include:

  • Rebundling to make a smooth transition from decentralized services packages to umbrella-like packages. This helps to make the services more popular allowing for an increased customer base.
  • One-stop shops allow a single interface for carrying out both financial and non-financial transactions
  • Open banking has already been implemented by banks like Revolut and Halifax. This will allow provision of an end-to-end financial experience.

Embedded finance is not just beneficial for customers. It offers many benefits even for merchants. The benefits that merchants would get through embedded finance are:

  • Since no further processes are required, it helps merchants with high conversion rates.
  • The payment system will be seamless, and it allows fast checkout. This makes it convenient with no waiting for users.
  • When customers make a purchase, it leads to time saving for issues like loan approvals, period for payment confirmation, bill settling, etc.
  • It offers new business methods like subscription system and direct to customer. This would help merchants stand out among competitors.
  • It helps them to control cash flow by reducing sales outstanding.

9 out of 10 customers in a survey said that having different payment options helped them make a decision and also encouraged them to spend more. 78% shoppers favor convenience in e-commerce.

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