By carefully decoding integrated finance, India will be able to achieve financial inclusion in 2022
By decoding integrated finance, India can achieve financial inclusion
Due to increased internet penetration, government regulatory and legislative support, and the launch of India Stack, among others, financial services in India have witnessed tremendous development in recent years. The Reserve Bank of India’s Financial Inclusion Index also shows steady progress.
However, India’s access to financial services appears to be very limited compared to rich countries and some Asian rivals. India still has a long way to go, with an insurance penetration rate of *4.2%, a personal loan to GDP ratio of **13% and a total market capitalization of around ***US $3.21 trillion (the total US and China market capitalizations are approximately $47.3 trillion and $11.5 trillion, respectively).
This is partly due to the way financial services have traditionally been developed and delivered. Financial services have traditionally been top-down, with an expensive mode of distribution involving multiple branches, high interaction models involving contact centers, relationship managers, etc. As a result, access has been significantly skewed in favor of the wealthy.
This is unquestionably changing, with various banking and neo-banking apps/fintechs challenging the industry with new distribution strategies and a unique focus on certain market groups that have been overlooked or unserved by traditional players. However, the recent introduction of ‘integrated finance’ has the potential to accelerate financial inclusion for millions more Indians in the coming years while creating long-term value for other stakeholders.
To put it simply, Embedded Finance is a concept that allows any non-financial organization (Individuals, Startups, Fintechs, Digital Companies, or Large Companies) to offer financial services (cards, accounts, insurance, credits, investments) to its customers. customers via Embedded Finance. Financial platform.
It used to be that a non-financial company could offer financial services by investing heavily in technology infrastructure and spending a lot of time and effort getting the proper licenses from the authorities. Integrated finance systems would allow companies to skip both processes by providing “plug-and-play” capabilities for large organizations using API stacks and easier-to-use no-code/low-code stacks for organizations. people. These platforms have strong ties to major banks and insurers, enabling them to provide financial services.
The benefits of integrated finance are numerous and we are already seeing applications all over the world. Tesla just started selling car insurance on its checkout page, YouTube now lets users buy products while watching live video, and Google Maps now lets users schedule and pay for parking spots. parking directly from the application..
These examples demonstrate the most important advantage that Integrated financing gives clients: access to the right financial service when they need it most. Embedded Finance, from a platform perspective, offers a chance to generate additional revenue streams through revenue sharing partnerships for the distribution and custody of financial assets. Financial services can be integrated into core customer buying journeys to drive customer engagement, loyalty and lifetime value.
Embedded Finance can help a bank or insurance company minimize customer acquisition and service expenses. In India, an intriguing environment is emerging, with companies employing various tactics to gain momentum in an otherwise fragmented industry. Integrated financial systems have emerged that provide functionality for various combinations of financial products.
Others focus on specialization – giving a single product with a higher degree of customization – while others focus on a varied and comprehensive collection of products. Insurance and integrated payments already have several intriguing applications. Travel companies like MakeMyTrip and Ola have already started offering contextual insurance to their consumers. Customers can now purchase BNPL items directly from e-commerce companies.
Integrated finance offers undeniably interesting possibilities. Early adopters are expected to include large customer-facing digital businesses, e-commerce, and B2B digital brands. Embedded Finance allows creators and influencers to monetize their brands (for example, an influencer providing a brand card to their followers). If applied correctly, Embedded Finance can help any institution with a large mass of users. However, there are difficulties. To begin with, a complicated product such as loans cannot be provided without a thorough consumer survey.
Enterprises and embedded platforms should figure out how to get the most out of their customer data. Second, for some items, it must be determined whether revenue sharing with banks is feasible. Finally, the capabilities of the Embedded Finance platform, as well as the bank or insurer, will define the extent of customization and personalization.
It is still too early to grasp the full potential of Embedded Finance, but it is undeniably a business opportunity worth exploring. Other no-code/low-code enablers are likely to appear in the future, opening up previously inconceivable use cases. Customers will most likely benefit from companies that integrate their data with Embedded Finance solutions to create value-added services.