Embedded Finance: the Future of Banking By Fiona Catherine Jerry

Embedded Finance: the Future of Banking

Fiona Catherine Jerry | Friday, 21 April 2023, 14:47 IST

Embedded Finance is the concept of financial services being integrated into everyday products and services. This means that you could use a transportation app to make payments and access other financial services, or a retail store could offer its customers financial services right in their stores. This type of banking will make it easier for people to access financial services, as well as increase efficiency and customer loyalty. Embedded Finance will also open up opportunities for new revenue streams and create a competitive advantage for businesses that are able to offer these services. Furthermore, it could lead to more efficient and secure financial transactions, resulting in lower costs and fewer risks. Moreover, Embedded Finance could help to create an inclusive financial system, allowing people to access the same financial services regardless of their location or income. For instance, embedded finance technology could enable businesses to provide access to micro-loans and other financial services to unbanked individuals in remote or rural areas who would otherwise be excluded from traditional banking services. This would help to bridge the financial gap, ensuring that everyone can access the same financial services regardless of their financial status.

Embedded finance will enable financial institutions to access new markets, increase customer engagement and satisfaction, and provide more tailored financial services. Let us see how -

New markets to open up

By providing financial services through existing digital platforms and applications, embedded finance can make it easier for financial institutions to reach customers who may not have access to traditional financial services. This can open up new markets and increase the customer base for financial institutions. Additionally, embedded finance can reduce operating costs and improve efficiency by reducing manual processes and allowing for automated transactions. This can help financial institutions become more competitive and improve their bottom line. For example, banks can embed their products into third-party apps, such as in the ride-sharing industry, to provide customers with an easy and automated way to pay for their rides. This can lead to increased customer loyalty, as customers will no longer have to switch between apps to make payments. It will also provide the financial institution with access to a wider customer base, as customers of the third-party apps will now be exposed to their products.

Increase in customer engagement

By being able to offer multiple payment solutions on one platform, customers can easily find the option that best suits their needs, leading to a better user experience. This can make customers more likely to remain loyal to the financial institution and promote its services to their friends and family. This in turn can lead to increased customer acquisition and higher levels of customer engagement. It also helps to create a positive brand image, which can positively influence customer retention and loyalty. This can have a direct impact on the institution’s bottom line, as customer retention and loyalty are key drivers of profitability. Additionally, customer loyalty and engagement can lead to referrals, which can drive even more customer acquisition.For example, when a customer has a positive experience with their bank, they may post about it on social media, which can lead to increased trust in the brand and an increase in customers.

Financial services to be tailored to customer requirements

Embedded finance technologies allow for more personalized services, such as customizing a loan for a specific customer or providing tailored advice for a particular situation. This allows for a better customer experience and more efficient use of resources. This type of technology also provides a more secure system, as customers' identities and data are better protected. It also helps to reduce costs for financial institutions as they can streamline their processes and automate manual tasks. For instance, embedded finance technologies can be used to provide instant loan approval or to process payments faster, both of which can help to reduce costs and improve customer experience.

Finally, It enables businesses to offer innovative services and products quickly and securely, while providing customers with a streamlined, personalized experience. Embedded finance data can help develop more accurate risk assessments, allowing more informed decision making. It allows companies to better understand their customers' needs and develop more innovative products and services. This could result in improved access to financial services for everyone. Embedded finance data can help companies assess creditworthiness and manage risk more effectively. For instance, a company could offer more tailored or discounted services to low-income customers, or a bank could offer more competitive interest rates on loans for customers with higher credit scores. This could result in more inclusive and affordable financial products, and a wider range of services that cater to everyone's needs. With the right tools, companies can also gain a better understanding of their customers, enabling them to develop more tailored services and products.