According to the “Global Embedded Finance Market Intelligence Databook Subscription – Q1 2024” by ResearchAndMarkets.com, the global embedded finance is expected to grow by 47.8% on annual basis and reached a total value of US$8,570.1 million in 2023. The embedded finance industry is expected to grow steadily even over the next years, recording a CAGR of 32.9% during 2023-2029 with an increase of value from US$8,570.1 million in 2023 to US$31,896.6 million by 2029. These kind of developments in the embedded finance sector at global level have surged significantly as both fintech firms and banking institutions seek to capitalize on the growing shift toward embedded financial offerings. Digital platforms and businesses are increasingly integrating financial services into their products and services to drive customer loyalty, revenue growth, and convenience. Even Private equity and venture capital firms are foreseeing high growth in the sector, especially in countries like India, where the market will record strong growth as more consumers bank, invest, borrow, and make online transactions. The market is also projected to record robust growth in the B2B embedded lending space, as small businesses struggle to access working capital through traditional channels.
EMBEDDED LENDING LEADING THE GROWTH OF THE EMBEDDED FINANCE INDUSTRY IN THE GLOBAL MARKET
The macroeconomic challenges faced by small and medium-sized businesses are driving the demand for working capital globally. With merchants and retailers struggling to access credit through traditional channels, due to rising interest rates, embedded lending providers are experiencing strong growth around the world.
In India, Rupifi announced that the firm had disbursed over INR 20 billion in loans to businesses since its inception in 2020. The firm is offering embedded lending solutions through leading B2B marketplaces across sectors, including FMCG, Pharma, Fashion, and Electronics, among others.
In the United States, Amazon launched a cash advance feature for sellers on its platform. The feature will allow merchants to grow and scale their businesses, which will subsequently drive revenue growth from the e-commerce giant. Walmart, on the other hand, is also planning to introduce its buy now pay later product to drive more revenue.
In Europe, many of the B2B BNPL providers have raised funding rounds to provide credit facilities to more merchants and retailers. The funding rounds indicate that global venture capital and private equity firms are foreseeing growth in the B2B embedded payment space.
The trend is projected to further continue over the next three to four years, as the economic environment continues to drive the demand for credit access among small and medium-sized businesses globally.
THE DEMAND FOR EMBEDDED FINANCE IS GROWING SIGNIFICANTLY IN THE TRAVEL AND TOURISM SECTOR
Globally, travel activities have posted a strong rebound after two years of pandemic-induced restrictions. The pent-up travel demand has also resulted in the demand for embedded finance solutions, such as lending and insurance, at the checkout. As a result, firms are forging strategic alliances and launching new products globally.
In Australia, Zip partnered with JetStar airline operators to provide air travelers with a flexible payment solution at checkout. The service is expected to gain widespread traction due to the rising cost of living and pent-up travel demand.
In the United States, Afterpay partnered with Expedia, the global travel-based booking platform. The partnership will allow travelers to book flights, accommodations, and other travel activities using the buy now pay later payment method.
In Europe, Visitors Coverage, the pan-European insurtech firm, launched an embedded software-as-a-service solution amid the growing demand for such solutions among travelers in the region.
From the short to medium-term perspective, the publisher expects more such strategic partnerships and product launches that cater to the growing demand for embedded finance solutions among travelers.
BANKING INSTITUTIONS CAN DRIVE REVENUE GROWTH BY OFFERING EMBEDDED FINANCE SERVICES TO SMALL AND MEDIUM-SIZED ENTERPRISES
Digital platforms are offering an array of financial services, thereby capturing the majority of the embedded finance market over the last few years. The growth of fintech firms has threatened the operations of conventional banks, who have been left far behind due to innovation and investment from digital platforms. However, the embedded finance industry is projected to grow significantly over the next three to four years, and conventional banks can still capitalize on the expected growth.
According to a report from Accenture, embedded finance offerings from small and medium-sized businesses can bring as much as US$92 billion in revenue for conventional banks by 2025. To capitalize on the growing market, banks need to strengthen as well as expand their relationships with consumers, while forging strategic alliances with leading digital platform providers. By delivering exceptional convenience and digital experiences, fintech firms have taken the market share from banking institutions. Consequently, traditional banking firms also need to focus on delivering more value to their customers through innovative experience and customer service.
