SAP Fioneer’s Vishal Shah on the future of embedded finance

Do you see power for embedded finance in the products and services you use personally?

As finance becomes deeply embedded over time, the financial service will become part of our everyday life and activities. As a futurist, it would be great to witness the evolution of embedded finance in travel and transportation systems. As an example, imagine a scenario where one simply completes a train journey and the right amount of travel fare is automatically deducted from your digital wallet, without having to pass through fare gates. Similarly, you could park your car without needing any parking tickets and instead get charged directly based on your entry and exit from the car park. In a B2B scenario, a payment request would be triggered automatically when goods are delivered by a lorry and the receipt is signed digitally by a warehouse clerk.

How should companies be adapting their businesses in order to exploit embedded finance?

Embedded finance will become integrated into the financial services ecosystem and over time will be beneficial for all those involved. Traditional financial institutions, such as banks, will be able to serve their existing clients efficiently and effectively, thereby increasing their share of wallet and reducing costs. Over time, this will also allow them to acquire new clients and enter new markets which will in turn drive new revenue streams. Fintechs can achieve global scale and accelerate their time to market by partnering with well-known global Software as a Service (SaaS) vendors to embed their propositions and deliver a frictionless experience. Further, micro, small and medium enterprises (MSMEs) will be able to grow their business profitably with ease of access to capital and have the ability to manage their cash flow during uncertain economic times. 

What does an embedded future look like? Will embedded banking be the end of banks, embedded lending the end of traditional lenders?

Embedded banking could potentially mean that banks will lose touch with the end user or client as digitisation continues to limit personalised interaction. Incumbent banks are protected by regulations and trusted by people due to their proven record of keeping up with rigorous compliance requirements. However, banks roles might be reduced to being a provider of compliance in the industry and their services might be seen as more utilitarian.

To stay relevant, traditional financial services organisations should focus not just on the breadth of their digital channels but also improve the depth of digital engagement with their clients. They can do so by embracing the ecosystem model and collaborating with innovators, fintechs, technology companies and truly focusing on delivering “experience innovation” rather than simply “product innovation”. Many incumbent banks are still organised internally by product siloes and innovation is still all about crafting a new product, such as BNPL, and launching in the market. That will have to change.

What does utopia look like in terms of embedded finance? What is the best-case scenario?

If you truly want to embed finance, then the prime focus should be to simplify the lifestyle and the work-style of the end user. People want to be able to get a ride home without worrying about how to pay for it or splitting the bill. People also want to buy homes, and getting a mortgage is consequential. Banks need to change their narrative from “Know Your Customer” to “Understand My Customer”.

Data and its applications have the power to do two things. Firstly, respond to changing consumer behaviour; and secondly, change consumer behaviour. Utilising data to drive contextual and hyper-personalised banking will benefit the end user immensely. Firstly, contextualisation will allow end users to quickly and efficiently search for the best financial product or service to meet their needs. Secondly, hyper-personalisation will enable financial product features to be tailored to the end user as there is never a one-size-fits-all.

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