By Ajay Kadyan, Co-Founder and CTO of Zimyo
Have you ever wondered how are you able to make payments for a ride even before reaching your destination or paying utility bills without even stepping out of your home? I am sure you must be aware about it – via Paytm, Google Pay; yes, you can name a lot of channels that make instant payments happen. But how is this happening, how are traditional banks getting replaced with digital transactions? The answer is simple – because of embedded financial services.
Embedded finance is the new business model that is gaining attention these days. Today, non-traditional financial players such as Amazon, Google, etc. are also trying their luck for market share in consumer financial services. Besides these conglomerates, there are many HR tech platforms that are making access to financial services hassle-free.
Embedded finance is a completely new concept for some people; therefore today we’ll take a look at the examples of embedded finance that will transform the near future:
1. Embedded Payments
Embedded payments mean making payments with the touch of a button. It leads to faster checkout and settlement processes, thus offering a great payment experience. Embedded payments allow users to make payments from a single place without having the need to search their pockets for some cash or swipe cards. Food-delivery apps such as Zomato and Swiggy and payroll automation software, etc. enable users to make purchases and make embedded payments. These apps let consumers make payments without switching between apps.
2. Embedded Card Payments
Apart from making payments through credit cards and debit cards, you can make payments via embedded cards. Embedded cards allow end-users to transfer funds electronically onto the card and to make purchases up to the total cash value held on the card. There are multiple platforms that issue smart cards, virtual cards, or expense cards. These cards can be a convenient alternative to cash. Embedded card payments are secure as all the information is encrypted. They also allow faster processing and are cost-effective than traditional cards.
3. Embedded Lending
In this digital era, you don’t need to run to banks, again and again, check your credit scores, or wait for the underwriting process completion, to request a loan. Today, many non-financial products/services have entered the financial segment that allows users to apply for and get a loan right at the point of purchase. This removes the need for using third parties, excessive paperwork, and lengthy processes. The user can get personal loans at the tap of a button. Not only food delivery or retail apps but even HR tech platforms also offer embedded lending to make both employee and employer’s life easier.
4. Embedded Investments
Agree or not, but not many of us know about secure financial investments. We don’t even think about it, let alone investing any money. But becoming financially educated is important as it helps in the effective management of our money. Making embedded investments is a wise way to manage your money. Embedded investments simplify the investment process by offering users a single platform to invest and manage their money. Embedded Investments allow users to invest in the stock market, mutual funds, retirement plans, without leaving the platform they’re on.
5. Embedded Insurance
According to S&P Global Market Intelligence data, India is the second-largest insurtech market in Asia-Pacific, accounting for 35 per cent of the $3.66 billion insurtech-focused venture investments made in the country. Since people are becoming more and more tech-savvy, technical integration is of enormous importance in selling insurance policies. Given the complexities in the traditional methods of buying insurance plans, we can say that embedded finance is a much more viable option. Because it allows insurance companies to easily approach customers. On the other hand, customers are more likely to buy from a trusted platform than from a foreign entity.
6. Embedded Banking
Embedded banking is the type of banking in which banking-like services are offered by non-financial players. It replaces the checking or savings accounts provided by banking institutions. From a single platform, you can make investments, apply for loans, smart cards, or manage your transactions. This offers users a seamless banking experience. Embedded banking services make processes more efficient with fewer touch points and they are much more cost-effective as compared to normal banking.
Technology can bridge the gap between financial services and end consumers. Embedded finance makes access to financial services fast and hassle-free, thereby improving customer satisfaction. As more and more non-traditional players are entering the fintech segment, you can expect to see higher adoption of embedded finance among direct-to-consumer companies.