The role of banks in society has changed throughout history. In the past, clients did not need much from the bank: just to have a safe place to store their money. Such collaboration was accompanied by considerable bureaucracy and a lot of paperwork. However, as time has passed the financial market changed, bringing new financial institutions to the market and changing people’s expectations and visions of financial services.
Today, in 2022 many banks appeared to be too conservative and too old-fashioned to respond to the needs of the market. The industry of financial services is fastly moving away from traditional brick-and-mortar branches toward digital embedded finance to enhance customer services and gain new customers, with APIs powering this shift. As a result of these processes, according to statistics, more than 4,000 branches of banks have closed in the United Kingdom in the course of the last six years. Moreover, according to Forbes, brick and mortar bank branches could become extinct in the United States by 2034.
In the new market conditions, fintech companies demonstrated themselves as progressive revolutionizers. They started to change the financial sphere, offering the clients the possibility to perform all the financial operations quickly, remotely, and in a few clicks, totally removing all the difficulties related to the opening of a bank account, money transfer, credit, or investment management. Such an approach fits the customers since according to Pew Research Center, more than 1/3 of American adults under age 50 in 2018 claimed that they do not make any cash purchases in a typical week. In other words, digitalization is transforming the financial sphere, being shaped by the new reality, people’s expectations and habits, as well as fierce competition. Overall, the shift from brick-and-mortar finance has been a long process, however, the pandemics of COVID-19 have sped up all the processes. Businesses of all kinds attempted to accelerate digital transformation as people switched to remote shopping, work, and financial transactions.
Embedded finance companies are those businesses of the non-financial sector that integrate financial services directly into their products and services. They provide a huge range of possibilities for businesses, allowing them to improve their offering in new ways. The appearance of embedded finance was very natural and logical since the latter makes the market more democratic. With embedded finance, the clients can get access to financial services, whenever they need them and in a convenient way. The vendors of financial products, in turn, gain access to new clients at a reduced cost, transforming the nature of the financial system. The following figure demonstrates the expected forecast for the market of embedded finance by 2030.
Expected Forecast for the Market of Embedded Finance by 2030 (According to Capco)
The analysis of the above-mentioned figure demonstrates that embedded finance would grow in the upcoming years. The largest growth is expected in the domains of payments and insurance. However, the growth within the other spheres would also be significant.
It helps to add value and offer better targeting. Embedded financial services give the possibility to companies to see the habits of the customers and provide them with more targeted solutions. For instance, e-commerce giants (like Amazon, Apple, etc.) with access to vast amounts of user data can create unique financial products that would perfectly fit the needs of their customers.
It solves problems. Having wide applicability, embedded finance can help to solve a wide range of different problems. For instance, initially, Uber started to use embedded finance attempting to have consistent and on-time payments for the customers. Similarly, other companies are using embedded finance to solve their own problems.
It helps to redesign the price chain of the business, to build a new value chain, and to find new sources of revenue, while scaling back the costs.
It often fits the needs and expectations of the people better than traditional conservative banks. Human behavior and expectations of financial services have changed. It is predicted that the demand for digital and online services would only grow in the forthcoming years and this trend would only intensify. The banks have also entered the competition in the domain of embedded finance. In this sphere, they can use the new channels of distribution for their services and products.
In the last decade, there was a large increase in the number of fintech companies providing embedded services, therefore the competition on the market now is very intense. The most prominent players on the market are Amazon, Samsung, Google, Uber, Tesla. However, it is also necessary to mention:
Visa is one of the largest payment systems in the world and one of the undisputed leaders in the financial market. According to statistics, Visa covers about 200 countries and territories, allowing the use of domestic and international payments for more than 160 currencies. In addition, Visa has more than 3 billion cards and 2 billion bank accounts.
MasterCard – huge American multinational corporation that serves consumers, small and medium businesses, government and public sector, large enterprises, credit unions and banks. Functioning in more than 210 countries, the company is contributing to inclusive global digital economy.
Tuum – the modular banking platform that combines business know-how with advanced technology, and allows launching highly configurable financial products and services within weeks.
Finastra – the company offers applications that drive financial institutions, and marketplaces, accelerating the development of the industry. Besides, it serves as an open innovation platform that provides the banks and fintechs the possibility to connect and collaborate.
Stripe – the large Irish American financial services and software company that offers payment processing software and application programming interfaces for e-commerce websites and mobile applications. Millions of companies of all sizes – from startups to Fortune 500s utilize Stripe’s APIs and software to send payouts, accept payments, and manage their businesses online.
Paysafe – multinational company that provides secure and simple payment solutions to businesses of all sizes around the world.
There are many different possibilities to embed finance into your business. The most common use cases are the following:
Overall, the new players in the financial market will not displace banks in the short-and medium perspectives, however, they will occupy a valuable part of the market, contributing to greater competition.
The embedded finance solutions provide a lot of opportunities, however, their implementation is often complex, since there are no explanations on how to connect API’s to the business processes. 42flows.tech has very rich experience in the domain of integration services, being a professional and progressive technology partner with the best experts in the industry. Thus, we offer:
- help in choosing the solution that will suit you best;
- description of the main processes;
- connection of all the processes based on different financial service providers.
We are ready to offer you tailored and efficient solutions that will provide a competitive advantage to your business. 42flows.tech is delivering embedded finance projects all over the world, making the revolution in the financial sphere. We can help you to modernize digital infrastructure, generate new sources of revenue and reach agile and flexible business growth.
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