Embedded finance – the latest buzzword in the digital space, and for good reason: it is changing how we interact with financial services. As the world turns increasingly towards digital payment processes, there is a huge incentive to make these processes a seamless part of our everyday lives. Embedded finance does this by enabling non-financial companies to integrate them as part of their digital offerings, without the associated development and compliance costs.
By doing this, non-financial corporations, can make the customer journey easier, quicker, and more convenient, and extend the lifetime value for customers by offering an enhanced payment experience. For example, a retailer can offer Buy Now Pay Later (BNPL) as part of the shopping experience and telcos can include fintech offerings to their customers. Last year, in collaboration with leading fintech enablement partner Ukheshe Technologies, Telkom introduced Africa’s first Mastercard virtual card for use on WhatsApp, enabling Telkom Pay customers to make digital payments and empowering millions of South Africans – even those without a bank account – to access the digital economy and transact via their mobile phones.
Latest estimates suggest the total market for embedded finance could be worth up to $124 billion by 2025.
A study by Plaid reveals 88 percent of companies that implement embedded finance report increased engagement with their customers, and 85 percent say that it helps them acquire new customers. Traditional organisations opting not to consider embedded finance risk eroding their revenue streams from the SME sector by up to 8 percent according to analyst predictions.
Clearly, SMEs that stay ahead of the game and scale up successfully will be those that can adapt and incorporate these fintech solutions into their platforms. Doing so creates more efficient, customer-centric business models, and provides financial services directly to customers without having to rely on another app or website. The fundamental rule of payments is that the longer it takes for the transaction to process, the less that transaction is worth. Embedded finance addresses this by taking all the friction out of the payment process, making it instant and easy.
It is unfeasible for companies not to move towards embedded financial solutions, but the major barrier to implementation is a society that still relies heavily on legacy payment systems. As the digital payments space continues to grow, however, the huge opportunities embedded finance can offer SMEs as well as traditional institutions, and the direct impact this innovation can have on people’s lives and businesses, will be impossible to ignore.
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