How embedded finance is democratising the financial services experience for SMEs in Asia-Pacific

The past few years has seen embedded finance proliferating in the APAC region, with digital technology lowering not just the costs of financial services but also their access barriers.

In 2023, embedded finance will make traditional financial services even more prevalent, so here is a look at how it is shaping up.

Financial services, anywhere, anytime 
Partnerships with infrastructure providers through API integrations are growing between financial institutions and solution providers, and this has led to service flexibility, innovation and enhanced customer experience. The most common embedded iterations such as payment, lending, and/or investment are already found in many SME service and B2C commerce platforms.

For other enterprises, embedded finance is also gaining traction in B2B use cases. With fintech simplifying B2B payment innovations, companies big and small can choose to enable digital B2B commerce to facilitate more efficient cross-border payments. An example would be a solution that could help businesses and their customers make collections, conversions and payouts in their respective time zones, using local currencies and networks. Such an implementation would automatically streamline the money movement process to make things simpler, cheaper and more convenient for all parties, without sacrificing traceability. 

Reaching the unbanked and underbanked 
Embedded finance today, is extensively implemented in SME platforms, resulting in essential financial services becoming available to the masses. This includes those unserved or underserved by financial institutions and infrastructures, hence, embedded finance is often mentioned interchangeably with the democratisation of finance.

The World Economic Forum estimates that over six in 10 Southeast Asians are either underbanked or unbanked today, and embedded finance can provide these demographics access to financial services like storing money digitally, making cross-border payments, and possibly even investing in stocks and shares.

Tonga Development Bank (TDB) has done this successfully for Tonga’s SMEs by partnering with Currencycloud to access a host of international payment rails so that Tonga’s businesses can access new global trading opportunities. By enabling digital connectivity for its business customers, TDB effectively turned a practice in financial inclusion into a new revenue stream.

Helping banks grow
Embedded finance, in the form of B2B banking-as-a-service solutions, can also help traditional banks grow. For the thousands of local banks, community banks and credit unions across the APAC region, such offerings can benefit them with fast service portfolio expansion, speedy market penetration, and increased payment revenue. 

According to Accenture, embedded finance is actually an ideal vehicle for commercial banks, as it protects their business customer bases and allows them to capitalize on new growth opportunities. 

Results from its recent global survey show that some 40% of businesses are already interested in receiving banking services on the digital platforms they currently use. It was also discovered that should embedded finance penetrate the SME market successfully by 2025, Accenture estimates that global bank revenue could increase to US$92 billion. In fact, if SME banking revenue were to hit $32 billion by 2025, it would trigger traditional banking offerings to shift to embedded finance experiences.

Embedded finance in the B2B space would likely begin with smaller banks and financial service providers, as the bigger institutions are more wary of potential disruption to their existing offerings. Community and regional banks, however, will find this option viable for expanding their revenue base with more footprints and local relationships.

More investment choices 
One of the fastest growing embedded finance iterations is embedded investment, which includes the investment-linked insurance plans that are mushrooming across digital platforms. Generally considered a lower risk investment, such long-term, low upfront cost investments are easily consumed and hence, more popular amongst entry level, infrequent and younger investors.

For the more serious players, fractional trading is trending on fintech investment platforms, like the UK-based micro-investing platform, Wombat. By augmenting its services with embedded trading, it is attracting the small investor market segment with offerings like the trading of fractional UK, US, and EU shares, and unlimited commission-free trading of UK and US shares from a new, no subscription-fee service.

A brighter future with embedded finance 
Embedded finance is making financial services more vibrant and competitive, with end consumers the biggest beneficiaries.

However, banks and enterprises too can benefit from more cost-effective, efficient, and varied financial options, while gaining new channel opportunities, opening more revenue streams and keeping ahead of the competition.