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Embedded Finance empowering the BaaS dimensions
Embedded Finance empowering the BaaS dimensions

March 2, 2022

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Embedded finance is a primary agent of BaaS in terms of providing enormous opportunities and alternatives for dealing with risks to all players in the financial services ecosystem. Within the mainstream payment sector, embedded finance and BaaS are the most promising and undervalued development areas.

Embedded Finance and its working

Embedded Finance is a new trend in financial technology that combines debit cards, loans, investments, and insurance products. Embedded finance is the key to success in this approach in industries where transaction speed is critical to driving growth and performance. Integration of BaaS and embedded finance has become a normal practice as the financial sector evolves.

Embedded finance makes it easier for businesses to manage and promote new financial services. It enables financial firms to include lending, banking, payment processing, and insurance services in their digital offerings. It is a unique solution in the financial services industry that does not necessitate the formation of any partnerships to deal with regulatory processes and standard compliance.

Embedded finance as a sort of BaaS works by using sophisticated APIs and simply plugging in services for packaging, which necessitates a self-designed ecosystem. APIs provide smooth financing across marketplaces and huge online retailers. It refers to the capacity to work and isolate services based on their appeal and integration into the service model. The area's potential, when combined with the use of DeFi tools, allows for the purchase of an instalment plan on a credit basis.

The platform of BaaS is in great demand in the field of neo-banking, and it plays a critical role in focusing on the product area through embedded financing. The potential to create a niche in new banks as per BaaS solutions to improve time to market and decrease transaction costs, embedded investments and hazards within the infrastructure is provided by cutting-edge APIs.

Embedded finance-oriented BaaS benefits   

Embedded finance on integrating to the BaaS generates multiple kinds of benefits to the businesses in the context of incorporating the aspects of finance within it. 

Attaining additional income sources

Using built-in financing in the form of extra alternatives tied to services or goods to increase the number of revenue channels. The embedded financial system of Hydrogen, for example, offers a 1% rise in income on an annual basis when debit cards are used for online purchases.

Enhancing product competitiveness

The user experience improves as a result of client products that provide easy-to-use guidance through an intuitive interface. This would make the service or product more appealing to clients and help in the formation of future demands through the use of future services.

Conversions number rise

As the users are illustrated with a clear understanding for completing a transaction, they are noted to conduct more purchases through the enhancement of the conversions on the application and website. 

Obtaining extra customer data

The users are found to share transaction data through email and phone. Based on the additional information, better organization of improved service can be accomplished.

Use cases and examples of embedded finance application in BaaS

A notable business case is about the integration of the services of conventional payment into non-banking organizations like the alliance of Uber and Mexican BBVA. As a result of the extended functionality within the merchant application, the drivers acquire the capability of receiving payments within minutes through direct discounts, loans, and cashback access at the gas stations. 

In addition to it, these kinds of services are obtained from both the emission side and the acquiring side.  

As per the Solarisbank Report, 42% of people in Germany are using Klarna, a BNPL service at least once yearly and the penetration rate is increasing significantly with time. Financial products are also getting applied in the video game economy as well. It helps in selling an account of the game on unofficial sites. The inclusion of blockchain technology helps in the development of smart contracts leading to the emergence of the direction of GameFi.

Embedded Finance BaaS transfiguring financial services

Embedded finance-based BaaS showing promise to the financial institutions to drive and transform the financial services in three different phases. 

First phase: Distribution of financial services via the existing platforms for establishing an ecosystem comprising the services for leveraging the value chain. 

Second phase: It aims to present communication between non-FinTech and FinTech companies and acknowledge the services for correct management. Here, optimization of the financial service distributions is another crucial factor to deal with.  

Third phase: Integration of the financial procedures via the platform present to attain further growth for payment transaction as per the external financial procedures to become prominent. It presents a network for facilitating payments.

Embedded finance BaaS trends

In the present times, major trends can be observed that can alter the entire situation of the financial environment completely. 

  • All in one.
  • Open API.
  • Natural demand.
  • Technological changes. 

The trends would aid in the development of progressive finance tools for integrating debit cards, payments, insurance, and investments into different non-financial products. One can directly lend the digital platforms as per the online supplier and online store of the company without the need to fill out the questionnaire. It would generate belief among the users that the use of the applications does not require the necessity of having financial knowledge. It is about driving the customers within the banking applications. 

 


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