Leslin K Seemon
| 107 views | 6 min read
Indian finance is one of the most dynamic and exciting landscapes in the world. And at the heart of this landscape, embedded finance is emerging as a quiet revolution. By integrating financial services like lending, savings, and wealth management directly into non-financial applications, it empowers users with simplified access to personalised financial tools tailored to their activities and needs.
This blog is a look at how embedded finance is all set to touch every aspect of our financial lives and its far-reaching implications.
By definition, Embedded finance refers to integrating financial services directly into the products and platforms that people use in their everyday lives.
Just like how calling and messaging features are built into most smartphones by default nowadays, embedded finance aims to provide banking and lending in a similar seamless manner - wherever and whenever you need it, without having to switch between multiple separate apps.
Effective embedded finance solutions meet the customer where they are with a financial option they need, whether that be a loan, payment program, insurance plan, or easy way to make a payment.
Embedded finance has its roots in India dating back over a decade. Early pioneers like MobiKwik embedded digital wallets and payment options directly into e-commerce and gaming platforms, allowing seamless transactions without users having to switch between apps.
Over time, more players entered the embedded finance space. Platforms like Paytm embedded lending and insurance directly in their super-app, making financial products ubiquitous for their merchant partners and users.
Today, embedded finance permeates sectors like e-commerce, mobility, and healthcare in innovative ways. For instance, e-commerce giants like Flipkart and Myntra embed lending at checkout via partnerships with NBFCs. This allows shoppers to split cart values into multiple interest-free EMIs, boosting sales.
In the mobility space, Ola Money embedded micro-insurance for cab rides covering theft or damage. This saw rapid adoption as it removed friction by bundling insurance directly with the cab booking experience.
Healthcare platforms like Practo also let patients finance medical bills or premiums via embedded lending. Such embedded finance improves access to critical services for those with irregular incomes.
Several regulatory developments and technological enablers have catalysed the expansion of embedded finance in India. Chief among these are account aggregators, open banking, BNPL, and OCEN.
Account aggregators act as a bridge between users, banks, and fintech players by seamlessly and securely sharing financial data with user consent. This allows platforms to offer personalised products based on real-time account and transaction insights without users manually entering data.
As RupeeRedee, an account aggregator startup explains, "We enable lending decisions based on actual cash flows rather than relying solely on credit scores. This expands access to fair financing options."
Open banking regulations promote data sharing between financial institutions through common interoperable standards. Complementing this, the RBI-promoted Open Credit Enablement Network (OCEN) is a platform allowing online lenders, NBFCs, and banks to seamlessly underwrite and disburse loans via open APIs.
Together, open banking and OCEN streamline embedded finance by enabling real-time underwriting and fund transfers between any platform and financial provider. As per RBI Governor Shaktikanta Das, "This will foster innovation, lower costs and spur financial inclusion."
BNPL services let users split cart values into interest-free instalments, driving higher conversions for merchants. Players like ZestMoney and Slice partner with e-tailers to embed BNPL directly at checkout.
This popularity of BNPL, cites ZestMoney CEO Lizzie Chapman, "paved the way for broader adoption of embedded finance as users appreciate seamless, flexible products meeting their real-time needs within familiar experiences."
As financial services become digital-first, embedded finance will play a key role in deepening financial inclusion across Bharat. Experts project several new use cases emerging over the next 3-5 years.
Platforms will increasingly embed savings, insurance, and wealth management for gig workers, farmers, and MSMEs based on their cash flows and activities. This will help shield vulnerable groups from economic shocks.
As traditional sectors digitise, insurtech and agricultural platforms can embed insurance premia calculations and payouts tailored to crop cycles or business needs. Embedded finance will build resilience by securely linking financial protection to users' core engagements and workflows.
But beyond definition, it matters how it all plays efficiently in the real world.
How Does Embedded Finance Work?
Embedded finance works through APIs (Application Programming Interfaces) that connect financial service providers with non-financial platforms. This enables seamless transactions and financial activities within a single user interface.
Why is Embedded Finance Important?
Embedded finance offers convenience and a better user experience by eliminating the need to switch between multiple platforms. It also opens up new revenue streams for businesses and fosters financial inclusion.
How Does UPI Fit into Embedded Finance?
Unified Payments Interface (UPI) is a real-time payment system that facilitates inter-bank transactions. It's a key enabler of embedded finance in India, allowing seamless money transfers and payments within various apps and platforms.
As the embedded finance ecosystem matures in India via regulatory push and technological progress, financial services will fade seamlessly into the backgrounds of people's online and real-world activities. Traditional boundaries separating sectors will further dissipate.
Most importantly, a wider population will gain access to customised, frictionless tools meeting their spending habits and life stages. This will drive greater financial inclusion and self-reliance over the long run. The future of finance indeed looks promising as platforms across industries integrate it as a universal utility enhancing all experiences.
But it is a long overhaul and needs subsequent developments and progress to see its fruition.
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Reference Reads : Finance in the experience age
Embedded Finance - 4 ways it will change FinTech Embedded Finance: Catalysing growth in India in 2023