Embedded Finance: Redefining Financial Services

Small businesses starting today may never interact with a conventional bank. By logging into their e-commerce or accounting platform, they can open a deposit account, order a debit card, and meet most of their financing needs. The operators of these platforms are not usually banks. Rather, they are software companies that partner with banks and technology providers to embed financial products into a single seamless, convenient, and easy-to-use customer experience. The world of finance is undergoing a profound transformation as embedded finance gains prominence. Embedded finance integrates financial services seamlessly into non-financial platforms, revolutionizing how we access and interact with financial products. By 2030 the industry expects embedded finance to change market structures and business models. Recent research from British research agency Tribe argues the three most important financial technologies in 2030 will be machine learning (71%), the internet of things (49%) and automation (40%). As a leading technology provider, AdviceRobo is at the forefront of delivering acquisition and risk mitigation tools for embedded lending & insurance, enabling us to explore the transformative potential of this field. Therefore, we delve in this blog into the immense growth opportunities of embedded finance and the crucial role played by dynamic data, artificial intelligence (AI), and generative AI.

The Power of Integration

According to McKinsey is what sets the next generation of embedded finance apart is its integration of financial products into digital interfaces that users engage with daily. Digital wallets, customer loyalty apps, accounting software, and shopping-cart platforms are just a few examples of these deeply embedded financial experiences. Acquiring financial services becomes a natural extension of non-financial activities like shopping online or managing inventory. This heightened level of integration has according to British market research agency Grand View fueled the significant growth of embedded finance (CAGR 32.2%), with the global market projected to reach USD 588.49 billion by 2030.

Dynamic Data: The Key to Superior Risk Management and Personalization

At AdviceRobo, we understand that risk can hinder growth, especially for products that rely on individual evaluations, in-person interactions, or regulatory processes, like commercial real estate financing. These factors make it challenging to fully digitize the entire process from start to finish. Despite these constraints, we also see that lower risk, automatable products suitable for offering via embedded finance could account for as much as 50 percent of banking revenue pools. Embedded finance platforms thrive on dynamic data, collected from various sources like digital psycho-behavior, open banking and the internet of things. This valuable data includes user interactions, transactions, and preferences, providing businesses with profound insights into customer behavior. By leveraging dynamic data, companies can refine their financial offerings, detect patterns, and identify potential risks. This comprehensive understanding of customers allows for personalized and timely financial solutions, enhancing the overall user experience.

AI: Revolutionizing Embedded Finance

Artificial intelligence (AI) plays a crucial role in embedded finance by leveraging dynamic data to generate real-time actionable insights and deliver personalized experiences. Machine learning algorithms analyze transactional patterns and historical data to identify fraud and mitigate risks. AI-powered chatbots and virtual assistants revolutionize customer support, providing instant and accurate assistance. Moreover, AI enables embedded finance platforms to offer personalized recommendations tailored to users' financial behavior and goals.

The Rise of Generative AI

But we’ve now come to an era that even offers possibilities to go far beyond real-time insights. Generative AI takes embedded finance to new heights by creating innovative and customized financial products and services like super apps and digital assistants. Through large datasets and sophisticated algorithms, generative AI simulates and generates novel financial solutions to address specific needs. Customized insurance plans based on risk profiles and investment portfolios optimized for financial goals are just a few examples of its capabilities. Generative AI enables embedded finance platforms to continually evolve and offer cutting-edge solutions surpassing traditional financial institutions.

Unlock your Potential: Embrace Embedded Finance and Drive the Digital Revolution 

Embedded finance, empowered by dynamic data, AI, and generative AI, is reshaping the financial landscape. It offers enhanced convenience, personalization, and accessibility, revolutionizing the way we access and interact with financial products. As the market continues to expand, the integration of financial services into non-financial platforms will become more prevalent. The future of embedded finance holds tremendous opportunities for businesses and consumers alike, leading to a more inclusive and digitally-driven financial ecosystem. However, to embark on this transformative journey, businesses must be bold, innovative, and adaptable. They must focus their strategies on outperforming as distributor, technology provider or balance sheet provider and invest in talent and resources to build a competitive edge in dynamic data analysis, machine learning, and automation fueling their strategy. The race is on, and those who fall behind risk being left in the wake of progress. It's time to challenge the status quo, break free from traditional boundaries, and reimagine the future of finance. Embedded finance offers the gateway to a more inclusive and accessible financial ecosystem, empowering individuals and businesses to fulfill their aspirations and dreams. 

So, are you ready to take the leap? Seize the moment, and let embedded finance propel your business to new heights and secure your place in the digital revolution!