05 September 2023 |

Embedded Finance: A Global POV 


Often, I’m asked, “What’s the biggest challenge fintech companies face today?” or “What do the successful ones do differently?” 

It all boils down to the hubris factor, which means believing anyone can solve problems without involving those directly affected.  

It’s almost laughable — to think you can solve any problem without involving the people who experience it. Decisions are best made by the people affected by them. Anyone who experiences something is more of an expert than the so-called experts. 

This is why I travel – to experience things for myself and understand what people are going through rather than relying on second-hand knowledge (like what’s gained over social media).

This month, I’m on the road every week—California, Wisconsin, Florida—to attend and speak at fintech-related events. As I travel, I cannot help but keep my fintech nerd brain activated. I’m enthralled by how everyday humans interact with their finances via non-finance apps — aka embedded finance. 

Embedded finance is the integration of financial services into non-financial products or services like loans, insurance, or payments within the familiar experience of a non-financial product or service. Your favorite ridesharing app is the perfect example. 

Now, here’s the mind-blowing part: In 2022, the global embedded finance market was valued at a whopping $66.8 billion, and guess what? It’s projected to reach a jaw-dropping $622.9 billion by 2032.

But, some hurdles come with expanding embedded financial services globally. Going global is more complex than Ctrl+C and Ctrl+V. 

It’s more like navigating a complex maze with culture, lifestyles, and local issues at every turn. It takes time, resources, and a willingness to invest, but the rewards in market share and untapped opportunities are colossal.

To get into this subject further, I sat down with my friend Ahon Sarkar, General Manager of Helix, right after he’d endured a 12-hour flight from Taiwan. 

With Ahon’s help, I got the lowdown on the potential of global embedded finance.

Imagine you’re trying to introduce embedded finance in different corners of the world. Every region is on its unique financial journey, influenced by its distinct cultural values and norms. 

This diversity encourages businesses to do some soul-searching, question their assumptions, and customize their offerings to match local preferences.

This brings me to the thought: What if, instead of relying solely on digital solutions, we prioritized creating authentic, meaningful human connections when expanding into other markets? With that, expanding fintech products or solutions into international markets is possible.

Ahon and I likened this idea of leveraging human connectivity to expand digital financial services in meaningful ways to travel with a local. There’s someone there to give you that warm introduction to the culture, so you’re not left guessing or unintentionally disrespecting a particular cultural norm. 

So that’s the key. To offer embedded financial services worldwide, it’s essential to understand different cultures and adapt accordingly. Every region has unique economic landscapes influenced by cultural norms and values. Customizing products or services to fit each community’s preferences is table stakes. 

And when companies choose to offer specific products and services and tailor them to specific communities, that opens the door to niche markets.

The Challenge of Niche Focus

I’m a big fan of the niche focus, but I know that while this presents an opportunity, it also necessitates a sustainable business model to thrive. 

Focusing on a niche market requires understanding what sets it apart and how to serve its distinct requirements profitably.

Many businesses targeting niche markets have faltered by failing to answer crucial questions:

  • What sets this niche apart, and what do its members need that differs from the broader population?
  • How can the business make money while serving a smaller customer base?
  • How can the company expand and suit adjacent needs effectively?

Successful niche-focused businesses find their answers by starting small and creating a meaningful impact within the niche. They crack the code of a sustainable business model and then expand into adjacent areas, such as insurance, lending, or financial management.

Embedded Finance: A Game-Changer

Embedded finance has the potential to revolutionize niche-focused businesses. It offers opportunities to scale, increase customer engagement, and generate new revenue streams.

Embedded finance becomes especially relevant in the current macroeconomic climate. 

Businesses are realizing that achieving rapid scale independently may be challenging. As a result, many are pivoting to embedded finance solutions to navigate this new terrain effectively.

This shift towards embedded finance can be seen across various sectors. 

For instance, companies like Spiral focused on charitable giving. UpRise embraces embedded finance to expand its offerings without the hefty costs and resource commitment of building everything in-house. 

This approach not only aids their growth but also benefits other companies seeking to provide similar services.

A Thoughtful Approach

Businesses must consider whether their intrinsic problems can be solved through embedded finance and whether it aligns with their overall strategy.

It’s not about seeing embedded finance as a silver bullet but as a complementary tool to achieve specific goals:

  • Solve Intrinsic Problems: Analyze your core challenges. Can embedded finance help address these issues? For instance, a mortgage lending company experiencing high drop-off rates could use embedded finance to help potential customers save for their down payments.
  • Competitive Advantage: Identify your unique value proposition. Why would customers save or transact with your embedded finance solution over traditional options? Tailor your offerings to your niche market to create a competitive edge.
  • Focus on Profitability: Profitability is paramount. While embedded finance can drive revenue growth, it should also contribute to profit growth. Investors are increasingly emphasizing profitability as a key metric.

Surviving the Current Landscape

This year is about being the fittest in the industry. Companies that have crafted sound business models, mastered fraud prevention, and perfected customer acquisition are likely to thrive.

It’s important to remember that sometimes, the most successful companies are not necessarily the flashy, well-known brands. Being financially sound, operationally efficient, and adaptable to changing circumstances can lead to long-term success.

As for emerging markets, India, South Korea, and Latin America have the most embedded financial promise, says Ahon. India’s growing middle class and digital adoption make it attractive. South Korea offers potential for trading and remittances. Latin America presents opportunities for financial inclusion and collaboration. 

Venturing into emerging markets poses challenges, but they’re growth opportunities. Businesses must partner with locals who understand the region’s needs. Success hinges on adaptability and cultural awareness. Collaboration and a region-focused approach unlock its potential. 

My bets are on those who embrace change, respect diverse cultures, and travel to stay innovative — those leaders will benefit from the future of embedded finance.