The Future of Embedded Finance: Insights from Industry Leaders

Summary report by Kapronasia following a roundtable discussion which took place at Elevandi Insights during the Singapore FinTech Festival 2023

Key Insights from the Singapore FinTech Festival 2023: Embedded Finance Roundtable Summary

Embedded finance, defined as the seamless integration of banking and payments into non-financial brands via APIs and microservices, has rapidly emerged as a focal point of innovation and competition among Asia's financial institutions and technology firms. While previously considered a niche domain, embedded finance has now become front and centre of numerous sectors’ strategy.  

Powerful secular tailwinds are propelling this momentum. Rising consumer appetite for integrated digital experiences increasingly necessitate the integration of financial conveniences within everyday applications.  

Meanwhile, buoyed by smartphone penetration and digital savviness, China, India, and Southeast Asia’s surging middle-class consumers seek on-demand financial tools to optimise spending and cash flow management. Embedded finance also unlocks pathways for financial inclusion by meeting unbanked and underbanked segments where they are across Asia's high-growth emerging markets. 

As embedded services permeate travel, e-commerce, ride-hailing, social media and other non-financial verticals, traditional profit pools now stand vulnerable to disintermediation. In parallel, trailblazing startups with deep mobile-app customer intimacy increasingly encroach on incumbents’ historical relationships. Amidst this rising platform revolution, both legacy and digital-first financial institutions find themselves at a crossroads.  

Understanding and overcoming barriers to embedded finance the dialogue

For Asian bankers in particular, pursuit of embedded finance represents a strategic imperative to either bolster differentiation or risk disintermediation on their home turf. But hurdles stand in the way of mainstream adoption, as expressed by numerous industry experts at a roundtable held during the most recent Singapore FinTech Festival.  

While speakers at the ‘Embedded Finance: What’s next?’ roundtable unanimously heralded embedded finance’s potential, most acknowledged the existence of underlying realities. As one banker puts it, despite sitting on vast troves of customer data, few institutions have infrastructure to access insights and analytics at enterprise scale. Legacy architecture made up of mergers and disparate systems often hobble embedded finance aspirations before they ever commence.  

Standardised APIs and cloud platforms can smoothen this transition, allowing the modular orchestration of banking components where cumbersome legacy systems have historically erected barriers. 

Beyond data and integration challenges, leaders also cited cultural barriers within incumbent banks where monetisation is predominantly focused on legacy products. With embedded services requiring specialised design, risk management and rollout, getting internal buy-in can prove challenging especially when the economics of new embedded finance products differ from conventional revenue streams.

However, despite hurdles demanding attention, our discussion spotlighted openings through which institutions are charting paths forward. As mentioned, for legacy banks, embedding financial products within the mobile tools that consumers today rely on provides lifelines to lost engagement. Speakers cited examples of institutions cultivating ecosystem partnerships, where each party focuses on their individual core competencies to jointly deliver exceptional experiences. Banks can provide compliant money movement and risk infrastructure while collaborators leverage their app development acumen to integrate native access points into external customer touchpoints such as social, e-commerce, or lifestyle apps that users utilise daily.  

While reaching customers through external apps can increase adoption of embedded financial solutions, speakers noted equally important opportunities to layer modular financial tools into business workflows. In these instances, banks embed tailored money management directly into software platforms serving commercial clients. Leaders shared examples spanning hospitality services, healthcare delivery, construction and more - each powered by embedded revenue collection, payments and financing activating at precisely the right junctures with no manual intervention. One of India’s leading telehealth platforms, Practo, embeds insurance claims, payment gateways and financing options for patients directly in the platform, which increases convenience and lowers cost dramatically. 

Speakers also noted the vast financial inclusion implications embedded services bring across Asia. Tie-ups with non-bank distributors - often mobile apps and commerce sites - enable appropriately tailored offerings to extend financial inclusion among unbanked groups by meeting them within familiar ecosystems. As an example, Indonesia’s Bukalapak, one of the country’s largest e-commerce providers, provides merchants and consumers financing solutions directly on the platform. 

Charting the path towards embedded finance at scale

However, if such promise is to be fulfilled at scale, there must be deliberate efforts to bridge the current fragmentation. There is an urgency to architect for openness and interoperability, with emerging capabilities today showing promise.  

One speaker mentioned that instead of completely replacing old systems with new ones, which can be risky, organisations are choosing to add new, flexible cloud-based services to the edges of legacy infrastructure. They are doing this bit by bit, gradually separating parts like communication channels, decision-making processes, and product systems from the main, old systems. Then, they use small, separate services (microservices) to make these functions available for use outside the organization through APIs. 

This liberation and modularisation unshackle institutions from past constraints. With critical functions on open frameworks, embedded finance optimisation becomes continuous. Using cloud delivery models, capabilities upgrade independently while still orchestrating together to deliver responsive user experiences.  

Partnerships multiply as third parties integrate and innovate atop newly exposed APIs, just as apps build upon iOS and Android. Most importantly, iterations accelerate, allowing offerings to perpetually attune themselves to customer behaviours and platform advances. 

The dialogue reaffirmed embedded finance’s ascent as a decisively disruptive force in Asia’s financial landscape. However, speakers concurred that work remains to convert its underlying potential into broad reality.  

This epochal shift distills the cannots from the cans and wills from the won’ts among regional leaders. As trailblazers press forward, lessons will undoubtedly unfold around optimal mechanisms balancing innovation with inclusion, and enablement with ecological stewardship. Throughout this unfolding journey, one imperative seems certain: embedded finance has redefined financial services and inherently, our collective capacity to place opportunity, access and tools where customers need them most.