Why embedded finance is at the epicentre of fintech’s success in 2023
Embedded finance has quickly outperformed its forecast as a short-term industry fad. In fact, the industry is now predicted to be worth USD$ 7.2 trillion by 2030 — which is just over 7 years away. Heading into 2023, we’re starting to see a resurgence in the category — one where embedded finance leads the opportunities for the banks and fintechs alike.
The revamp of embedded finance started with Buy Now, Pay Later (BNPL) in the mid 2010’s when instalment payments became ‘a thing’ once again, prompting the sector to grow faster than ever before. With this growth came the rise not only in consumer uptake, but the options available for consumers to utilise instalment payments with emerging fintech players including ZIIP, Afterpay and Klarna all claiming a stake in the high-growth market.
It could be argued that following the recent release of the Treasury’s opinions paper, BNPL offerings will consolidate across the market to only allow for credit providers to offer the service — sending embedded finance as a sector into limbo. But, truthfully, Limepay started its journey as a fintech in the BNPL market and what we’ve quickly grown to realise is that there’s so much more than just lending when it comes to embedded finance. In reality, we’ve really only just begun to scratch the surface of the revenue to be reaped in this market. We see the key opportunity being the aggregation of money movement, payments acceptance and loan origination into one seamless experience for customers, be they consumers or businesses.
The long winded dilemma to achieving this however, lies with collaboration in the industry. What has become very evident to us is that both banks and fintechs have a role to play in bringing embedded finance offerings to life. A great example of this is recommendations that stemmed from the Treasury’s opinions paper, highlighting three options to regulate the BNPL market into one that’s more sustainable and responsible.
To recap, the options for regulatory intervention include a stronger BNPL industry code of practice, limited regulation under the Credit Act or full regulation under the Act. The latter two options to enlist regulation in the BNPL market under the Credit Act will no doubt have an impact on fintechs in the space who do not hold a credit licence, throwing the complete sector into disarray. But what if there was a way that fintechs could defy all odds and win in 2023?
The answer lies in collaborative partnerships where both banks and fintechs stand a chance to win. This will be the key to fintechs and banks both ‘making it’ in the next year.
When we look at the problem embedded finance solves, we uncover that one core focus is at its epicentre: experience. Embedded finance is all about building financial solutions into the channels where consumers live, work and play to accelerate conversion time. It’s based on the premise of convenience — the easier brands make it to buy, the more consumers will in fact buy it. Why? Because the experience is seamless.
During the emergence of embedded finance offerings over the past decade, banks grappled to innovate due to legacy infrastructure that set back their ability to offer agile solutions that essentially ‘plug in’ to the back end of brand ecosystems to offer branded embedded finance solutions. Sadly, some are still grappling with this challenge today, however, therein lies an opportunity for fintechs to support.
Working in collaboration with fintechs, particularly in the payments space, banks can begin to tap into the various avenues that embedded finance solutions offer. Referring back to a BNPL scenario, banks could leverage their credit licence to work with fintechs and deploy BNPL offerings that align to regulatory requirements — should the regulation recommendations from the Treasury’s issues paper progress.
With each party — banks and fintechs — playing to their strengths, new opportunities to create and implement embedded finance products and services begin to emerge. This not only is a win-win for banks and fintechs alike, but more importantly it allows brands to deliver financial products that simply add greater value to their customer experience by making it simpler to transact.
There’s no doubt that we’re on the cusp of a seismic shift in fintech that will see consolidation in key sectors such as BNPL. In order to weather the storm, banks and fintechs must look towards collaboration — each playing to their strengths by assessing the role that they play in the overall customer experience. Only through collaboration will banks and fintechs capitalise on the opportunities available in embedded finance in order to both win.
Written by Willie Pang (pictured), CEO of Limepay.
