March 13, 2024

Embedded Finance: Redefining Fintech, Powering Partnerships, and Transforming Economies

Embedded Finance seamlessly integrates financial services into everyday apps and platforms, accelerating financial inclusion and operational efficiency through strategic partnerships.

Embedded Finance: Redefining Fintech, Powering Partnerships, and Transforming Economies

A disruptive force is quietly reshaping the landscape — Embedded Finance. Imagine a world where financial services are seamlessly integrated into your favourite app or platform. This isn't science fiction; it's the reality that Embedded Finance companies are ushering in. Let’s dive into the impact, demystify the mechanics, and explore the benefits through real examples and tangible metrics.

How Does Embedded Finance Work?

At its core, Embedded Finance is about bringing financial services to where you already are. Think of it as your favourite food delivery app offering you a customised benefit, like a discount on your favourite burger joint, or your e-commerce platform providing instant financing based on your previous activity. The magic happens through strategic partnerships between non-financial companies and fintech providers.

The Benefits Unveiled: Real-World Examples

Financial Inclusion…Accelerated

By embedding basic banking services into everyday apps, users gain access to a suite of financial services that they didn’t even think they were eligible for. Combining existing banking product sets with alternative data and high engagement has become the recipe to pre-qualify users for financial services they didn't think they were eligible for in the first place. The everyday app we all use not only has plenty of activity data but has a critical mass of users to really make a big dent into accessibility of the data we use. It's all about reaching the unreached. 

Think of a small shop that has been using ecommerce sites like Shopify since launch being able to unlock financing from a financial institution that is able to leverage the information as a means for verifying transactions, revenue and trends.

Seamless Transactions, Operational Efficiency

This is an example we’re all taking for granted when hoping into a taxi. Ride hailing apps like Uber (Global), Grab (SEA) or Careem (Middle East) have made it so simple to charge our cards and settle payments as soon as the ride has been completed that it's hard to remember to pay the actual taxi that still takes cash. Through embedded tools, like saving a card on file, embedded payment have enabled seamless checkout options across all e-commerce sites turning cumbersome processes into swift, user-friendly interactions. Think of Amazon’s 1 Click Buy - efficiency isn't just a buzzword; it's a quantifiable edge.

The Power of Partnerships

Embedded Finance thrives on collaboration. Non-financial companies partner with fintech firms to offer a spectrum of financial services. This isn't just a convenience for users; This a core switch from having a transactional relationship between a bank and a third party to a strategic alliance that yields economic benefits for both parties. 

Revenue Surges Through Collaboration

Providing a revenue share of financial transactions provides non-banking or non-financial institutions with upside exposure to the financial services sector from a revenue and customer engagement standpoint while not having to deal with the growing complexity of navigating risk and compliance considerations. In this model, embedded finance provides us with a recipe of how to leverage the strengths of each organisation. Fintechs solve for compliance, funding and end-to-end financial management while e-commerce platforms have cracked the code of what it takes to keep customers engaged and happy.

Combining the best of both world means 2 things: 

  1. Providing fintechs with the ability to target and attract an already engaged user base via strategic partner
  2. Ability to provide a top class financial service enabled by a simple  / intuitive user experience and powered by the alternative platform data that partners have access to.

This fusion is a potent recipe for economic growth.

Creating Win/Win/Win situations

The models that are here to stay are the ones where every party is a winner. Partnerships between established platforms and financial institutions are able to set up winning propositions.

  • Financial institutions are able to tap into an existing user base, effectively target them and as a result this significantly reduces the cost of onboarding users - Based on research and previous experiences, this can be reduced by more than 50-70%! 
  • By providing access to their user base, platforms are able to get a revenue share from financial transactions but also they would achieve a higher rate of active users and are able to retain them for a longer period of time on their platform.
  • Finally, users (whether individuals or businesses) now have easy access to financial services that might not have been available to them before. More importantly, given that the cost to onboard and service these customers is significantly reduced, part of those benefits would translate to best-in-class offers on platforms that they already use on a everyday basis. 

How Embedded Finance Models are Making a Difference Embedded finance models are surging globally, from  Apple Card in the US, European players Swan with Carrefour Standard Chartered’s Nexus partnering with Bukalapak in south-east Asia. These are all examples of business models that have disrupted their respective markets with easy, straightforward and differentiated propositions which gave them the right to win. 

The UAE fintech scene has made significant progress in the past few years enabled by progressive regulations by the CBUAE, the FSRA in ADGM and the DFSA in DIFC. While digital payments have led the way, embedded finance business models are now in high demand and sweeping the market.

A new player has emerged identifying a clear gap in the SME financing market. CredibleX has set its goal to simplify the financial life that SMEs have to go through and is doing so by being embedded with ecosystem partners to provide easy and fast access to a segment that finds it extremely challenging to access any type of financial solution let alone access to financing. An ecosystem partner is any partner that already serves the intended target market. In CredibleX’s case, it partners up with companies who already serve the SME market and want to add financing options within their platform. In this case, an SME user completes the full account opening and servicing  journey digitally without having to visit a banking  branch or talk to a bank representative and is able to receive the financing they need to grow their business in less than 48 hours. In comparison, the same process takes around 3-5 days to get eligibility approval and another 20 days for a full loan approval. 

The secret sauce: CredibleX is able to achieve this through 3 key factors:

  • The power of partnerships provides access to engaged and verified SMEs and access partner alternate data that feeds data into the underwriting model 
  • State of the art technology that enables an automated underwriting process and allows simple and fast partner integrations
  • Being a regulated entity not only provides the end user with a great sense of comfort and helps to provide trust but also enables it to access credit bureau data which other entities might not have access to. 

Conclusion: A Financial Revolution Unfolding

Embedded Finance is not an industry trend; nor is it about disrupting the finance industry; it's about democratising access to finance and increasing financial inclusion. Embedded Finance isn’t just changing the game; it’s rewriting the rules.

Interested in learning more about how your business can benefit from CredibleX? Reach out to us at hello@crediblex.io.

Disclaimer:The information provided herein, including any opinions, views, or recommendations expressed, is for informational purposes only and should not be construed as financial advice. Any investment or financial decision should be made after thorough research and consideration of your own financial situation and risk tolerance. We do not assume any responsibility for the accuracy, completeness, or timeliness of the information provided.

Hassan Reda

Hassan Reda

Chief Product Officer

About the author.

Chief Product Officer at Credible X, has held senior positions in embedded finance and digital banking leading Product and Design teams.