On a continent such as Africa, with a large, rural population which has historically been underserved in the provision of banking and financial services, it is no exaggeration to say that embedded finance is transforming lives. Embedded finance and new, digital banking platforms are providing millions of Africans with access to the global economy, resulting in the emergence of many more small-to-medium businesses (SMBs).
Growing the small business ecosystem is critical in the growth of emerging economies and for socio-economic equality. In the past, individuals and businesses only had the single option of traditional brick-and-mortar banks and needed to travel to a branch to open an account or transact. Traditional banks’ transactions remain largely paper-based, take time to process, and come with complex and opaque fee structures ill-suited to the needs of SMBs in today’s digital environment.
Across the world, SMBs are searching for streamlined solutions tailored to the specific needs of the sector in which they are operating. Inefficient payment systems cause cashflow log jams, slow cross-border remittances and losses relating to high currency conversion transaction fees. When it comes to global money movement and cross-border payments, neo-banks, banking and financial services apps are far more agile, offering embedded finance options that streamline SMBs’ operations.
What is embedded finance?
Embedded finance refers to the seamless integration of financial services into non-financial products and services, allowing consumers and businesses to access, manage, and utilise financial solutions within the context of their existing activities and platforms. This approach leverages advanced technology to break down traditional barriers associated with standalone banking institutions. Embedded finance empowers individuals and businesses by providing them with tailored financial tools and resources that align with their specific needs and preferences, ultimately creating a more inclusive and accessible financial ecosystem.
Embedded finance dissolves the literal and figurative boundaries imposed by traditional banking models, allowing businesses and individuals to process payments, apply for loans and insurance, and access investment opportunities all via digital platforms with which they are already familiar.
Intuitive interfaces between apps allow quick, easy and secure onboarding processes with know-your-client (KYC) and know-your-business (KYB) technologies, verifying customer data in real-time. Application Programme Interfaces (APIs) serve as the connective tissue that enables seamless communication between software systems. This interoperability is crucial for embedding financial functionality directly into non-financial apps and platforms.
More than technology
But embedded finance is not only about technical functionality. It’s about economic empowerment for businesses and individuals. It’s about facilitating safe and seamless relationships between SMBs or individual users, and technology that they are using on mobile devices during the course of every day. Embedded finance is being able to click to pay for a product on a retail store’s online e-commerce site, as well as clicking for ‘buy now pay later’ options. It’s also adding purchase protection in the form of insurance, or finding an investment vehicle on a digital finance app. For SMBs, the ease with which they can buy and sell products and services is revolutionising their commercial environments, and they are no longer restricted to any single geographical territory.
From financial exclusion to financial inclusion
Embedded finance is a way in which global economies can ensure that no one is left behind in the provision of banking services. People with mobility challenges or living in outlying areas no longer have to travel to visit a bank, they can participate in the global economy using just their mobile device, accessing services from which they were previously excluded. Embedded finance is democratising access to once complex and now digitally simplified financial services.