Embedded Finance Market - Forecasts from 2024 to 2029

The embedded finance market is expected to grow at a CAGR of 36.23% from US$57.435 billion in 2022 to US$500.189 billion in 2029.

Embedded finance represents a groundbreaking and transformative concept that goes beyond traditional financial service delivery. It's all about seamlessly integrating financial offerings into non-financial products and ecosystems, fundamentally changing the way we interact with money. This revolutionary approach provides consumers with unparalleled convenience, enabling them to access financial tools and services without having to switch between different platforms or providers. This paradigm shift is not only reshaping the way businesses deliver services but also introducing innovative ways for customers to engage with these services. Embedded finance essentially extends the boundaries of financial accessibility. It creates exciting new possibilities for financial institutions and non-financial enterprises alike to cater to a more diverse clientele, breaking down traditional silos and boundaries. These solutions are designed to meet customers where they are, offering a comprehensive suite of financial options, including loans, flexible payment plans, insurance packages, and streamlined payment methods. By doing so, embedded finance is not just a technological evolution but a fundamental shift in how individuals interact with financial services, making them an integral part of their daily lives. Simultaneously, it presents fresh vistas for businesses, allowing them to not only meet but also exceed the evolving needs of their customers in an ever-changing and increasingly interconnected world.

Introduction:

The embedded finance market is currently undergoing exponential growth, reshaping the way individuals engage with financial services on a global scale. This transformative phenomenon involves the seamless integration of financial services into an array of non-financial platforms and applications, spanning from e-commerce websites to ride-sharing apps and social media networks. This integration offers a myriad of advantages, not only for financial institutions but also for companies operating outside the traditional financial sector, as it empowers them to tap into a broader clientele. Effective embedded finance solutions adapt to the specific financial needs of consumers, offering them a range of options such as loans, payment plans, insurance coverage, and streamlined payment methods. By affording customers these tailor-made financial solutions within the context of their daily interactions, embedded finance serves as a pivotal innovation that opens up new markets and elevates customer experiences in numerous industries. It represents a revolution within the financial sector, as it liberates businesses from their reliance on conventional financial institutions. The infusion of financial services into the infrastructure of non-financial enterprises enables them to streamline processes, bolster efficiency, and augment overall productivity. In addition to these advantages, embedded finance extends its benefits to consumers, granting them access to more convenient and cost-effective choices, including zero-interest point-of-sale loans. The proliferation of embedded finance can be attributed to the growing reliance on smartphones, mobile devices, and the Internet for conducting business transactions. As customers and businesses increasingly engage with one another online, embedded finance has become a ubiquitous and essential feature of the modern financial landscape.

Drivers:

• Increasing digitization in multiple spaces:The surge in digitization spans various sectors and industries, with embedded finance emerging as a prominent outcome of this digital transformation. This trend is characterized by businesses seamlessly incorporating their operations into the digital landscape, specifically through the utilization of smartphones, mobile devices, and the vast expanse of the internet. In this era, the virtual realm serves as a pivotal platform where customers and businesses interact and transact, making embedded finance a pervasive and indispensable component of modern commerce. As this digital fusion continues to evolve, embedded finance has become more prevalent than ever before, firmly establishing its presence as an integral facet of contemporary economic activities.
• Rise UPI payments:The burgeoning adoption of UPI payments stands as a pivotal catalyst propelling the exponential expansion of the embedded finance market. UPIs, formally known as the Unified Payments Interface, represent a cutting-edge and efficient real-time payment system meticulously crafted and introduced by the esteemed National Payments Corporation of India. This innovative system empowers individuals with the ability to transfer funds seamlessly and instantaneously between their respective bank accounts through the convenience of a mobile device. Its user-friendly interface and near-instantaneous transaction processing have revolutionized the way people handle financial transactions, making it a cornerstone of the evolving financial landscape. The widespread embrace of UPI payments not only fosters financial inclusivity but also cultivates a dynamic ecosystem for emerging embedded finance solutions and services.
• Increasing consumer and SME lending:The embedded finance market is experiencing a notable surge in growth, primarily driven by the increasing prevalence of consumer and SME lending solutions. With the advent of innovative financial technologies such as Unified Payments Interfaces (UPIs), consumer lending, SME lending, and insurance services, the financial landscape is undergoing a transformative shift. This evolution extends far beyond just the financial sector, as it is poised to have a profound impact on various industries, from finance to retail. As these concepts gain momentum and recognition, they are set to catalyze the market's upward trajectory, offering a more efficient, accessible, and digitized approach to managing finances and insurance needs. In the forecast period, the embedded finance market is expected to continue its expansion, marking a significant advancement in how we interact with and leverage financial services across different sectors.
• Diversifying sources of income:The integration of financial services into well-established customer experiences has given rise to a multitude of fresh revenue channels, significantly expanding the profit potential for businesses. Moreover, this trend is expected to persist and evolve, leading to the emergence of further income streams as companies explore innovative and inventive means to enhance their offerings through embedded finance. As the marketplace continues to evolve, the opportunities for generating additional revenue are bound to proliferate, providing businesses with a fertile ground for financial growth and sustainability.
• Embedded insurance:Embedded insurance, a prominent component within the overarching realm of embedded finance, stands as a significant catalyst propelling the dynamic landscape of financial services. This innovative approach empowers consumers to seamlessly acquire insurance coverage without leaving the digital ecosystem of their preferred platform, whether it be a ride-sharing application or an e-commerce website. The profound allure of embedded insurance lies in its dual promise of enhanced convenience and economic efficiency for end-users. Facilitating the direct purchase of insurance policies within these digital contexts eliminates the need for cumbersome, off-platform interactions. This transition to user-centric, in-context insurance acquisition not only fosters user satisfaction but also sparks an evolution in the traditional business models, carving out new revenue streams for the platforms that incorporate this novel feature. It's a testament to how the convergence of finance and technology continues to reshape the way we engage with and benefit from financial services, simplifying the complexity of securing insurance while unlocking uncharted opportunities for businesses to diversify their income sources.

Products offered by key companies:

• Stripe's embedded finance solution allows companies to provide financial services without having to build their financial infrastructure. This includes services such as payments, lending, and insurance. Stripe's embedded finance solution is easy to use and integrates seamlessly with existing business platforms.
• Finastra's embedded finance solution is a platform that enables businesses to embed financial services into their products and offerings. This includes services such as payments, lending, account management, and more. Finastra's embedded finance solution is designed to be flexible and scalable, so it can be used by businesses of all sizes.

Prominent growth in the embedded payment segment within the embedded finance market:

The embedded finance market is experiencing rapid and dynamic growth, reshaping the way individuals engage with financial services on a fundamental level. Within this expansive landscape, the embedded payment segment stands out as a pivotal force propelling the overarching growth of embedded finance. This specific segment reached unparalleled heights in terms of expansion and influence, primarily due to its unique ability to grant access to alternative funding sources and streamline the purchasing experience for consumers. This optimization of the buying process has led to increased levels of satisfaction and brand loyalty among customers, reinforcing the significance of embedded payments. Notably, the surge of embedded payments is closely tied to the widespread adoption of the Unified Payments Interface (UPI), a real-time payment system pioneered by the National Payments Corporation of India. UPI's success in simplifying and expediting financial transactions has undoubtedly played a substantial role in elevating the embedded payment sector. Furthermore, an intriguing trend has emerged in the landscape of non-financial businesses: they now employ payments as their primary and continuous touchpoint for customer engagement, harnessing extensive data from each step of the customer journey. The strategy of integrating payment services seamlessly into well-established buyer journeys has already borne fruit, opening up numerous new revenue streams that complement traditional revenue channels. Therefore, the embedded payment segment is undeniably a key driver of the embedded finance market, and its continued expansion appears to be a virtually assured outcome.

The Asia Pacific region is expected to hold a significant share of the embedded finance market:

The Asia Pacific region is poised to play a pivotal role in the embedded finance market, with South Asia and the Pacific emerging as global leaders in fintech innovation. This leadership status is attributed to the remarkable surge in technological advancements brought forth by numerous vendors operating in the region. In a concerted effort to foster financial inclusion, many Asian nations have exhibited a commendable receptivity towards embedded finance solutions. The growth of embedded finance is anticipated to be particularly pronounced in regions with robust tech ecosystems, and the Asia Pacific region, with its extensive mobile and internet penetration, is a prime example of this phenomenon. This growth story is set to be primarily written by Emerging APAC nations like China, India, and Indonesia, thanks to their possession of the largest fintech players, substantial underbanked populations, a plethora of small and medium-sized enterprises, and a burgeoning tech-savvy youth and middle class. In sum, the Asia Pacific region is poised to claim a substantial share of the embedded finance market due to its ongoing technological advancements, open-minded approach to embedded finance, and the prevalence of mobile and internet connectivity.

Key developments:

• In March 2023, SAP Fioneer, a software company, recently launched a B2B embedded finance platform for financial institutions. The platform is designed to help financial institutions improve their services in the increasingly digitized trade environment and stay ahead of the competition.
• In March 2023, Railsr, the embedded finance platform, has today announced that a consortium led by D Squared Capital has acquired and recapitalized Railsr, and a change of control has been agreed with the UK's Financial Conduct Authority.

Segment

By Type

• Embedded Payment
• Embedded Insurance
• Embedded Investment
• Embedded Lending
• Embedded Banking

By Business Model

• B2B
• B2C
• B2B2B
• B2B2C

By End Users

• Retail
• Healthcare
• Logistics
• Manufacturing
• Travel & Entertainment
• Others

By Geography

• North America
• United States
• Canada
• Mexico
• South America
• Brazil
• Argentina
• Others
• Europe
• United Kingdom
• Germany
• France
• Spain
• Others
• Middle East and Africa
• Saudi Arabia
• UAE
• Israel
• Others
• Asia Pacific
• Japan
• China
• India
• South Korea
• Indonesia
• Thailand
• Others