However, despite significant progress, India still faces challenges in achieving comprehensive financial inclusion. Millions of individuals, particularly those in rural and remote areas, lack access to formal financial services.
Embedded finance as-a-service can bridge this gap by integrating financial services seamlessly into non-financial platforms.
Unlocking New Value Chains:
a. Expanding Access: Embedded finance as-a-service extends financial services to previously underserved populations by leveraging the existing user base of non-financial platforms. By integrating financial services within these platforms, individuals gain convenient access to banking, payments, loans, insurance, and investments. This democratizes access to financial services, creating new value chains and driving economic growth. Bajaj Finance was the pioneer in this segment a decade ago, when it empowered customers of consumer durables to access credit at the point of purchase, which was unparalleled then.
b. Customized Solutions: The integration of financial services into non-financial platforms allows for the development of personalized solutions. By analysing user behaviour and transaction patterns, embedded finance providers can offer customized credit scoring models, insurance products, and investment recommendations, addressing the specific needs of individual consumers. This tailored approach unlocks new value chains by providing relevant and targeted financial services to users.c. Collaboration and Innovation: Embedded finance encourages collaboration between fintech companies, banks, and non-financial platforms. This collaboration fosters innovation, leading to the creation of new value chains within the financial ecosystem. For example, partnerships between ride-hailing platforms and banks enable customers to access financial products such as auto loans or insurance coverage seamlessly.Examples of Value Chain Creation:
a. Digital Payment Players: Fintech companies like Paytm, PhonePe and Google Pay have revolutionized the digital payment landscape in India. By integrating with various merchants and offering digital wallets, players have created new value chains, allowing users to make payments for goods and services easily. Players like Paytm now disburses loans to millions of customers with the power of data, embedded with its platform, expanding the formal credit receiving customers by a large margin.b. Supply Chain Financing: Embedded finance enables supply chain financing by facilitating seamless transactions and credit disbursement within the supply chain ecosystem. For instance, fintech companies partnering with e-commerce platforms can provide working capital loans to small businesses and suppliers, unlocking new value chains and supporting business growth.
c. Investment Platforms: Embedded finance has transformed investment opportunities for retail investors. Platforms such as Zerodha and Groww provide seamless access to investment products like mutual funds and stocks, empowering individuals to participate in the capital markets and unlock new value chains within the investment landscape.
d. Neo Banks/ Technology Service Providers: NeoBanks and TSPs like Tally are increasingly providing value added services on book keeping, taxation and supporting the formalization of the customer records and providing them services to get adequate financing based on digital records.
Embedded finance as-a-service plays a pivotal role in deepening financial inclusion and unlocking new value chains in India’s new age economy. By integrating financial services into non-financial platforms, embedded finance empowers underserved populations, expands access to financial services, and drives economic growth. Collaborations between fintech companies, banks, and non-financial platforms foster innovation and create new value chains. However, addressing regulatory challenges and prioritizing data security are essential to ensure the sustainable growth of embedded finance. By embracing embedded finance as-a-service, India can unlock its transformative potential, foster financial inclusion and drive economic development all across.
The writer is C0-Founder, FlexiLoans.com
