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Tuesday

The Future of Embedded Fintech: Pros and Cons

Fintech, or financial technology, is one of the hottest topics in the payments industry today.

There are podcasts, conferences, and endless articles on fintech’s capacity to revolutionize the way we bank.

But it’s not just for bankers. Investors must understand how this game-changing industry could affect their portfolios and retirement savings.

The Future of Embedded Fintech, Pros and Cons: eAskme
The Future of Embedded Fintech, Pros and Cons: eAskme

New technologies are being developed that could potentially disrupt the payments sector.

Despite the threat, there is a consensus that financial institutions are on the right track.

Banks are building new mobile platforms that enable them to deliver services to their customers on desktops, laptops, tablets, or smartphones.

Rich functionality and artificial intelligence (AI) capabilities will be part of those solutions.

Here we will discuss the pros and cons of microfinance and how the future of financial services will be very different in just a few years.

What is Embedded Finance?

Embedded technology is usually built into a more extensive product, like the operating system or personal computer.

It’s also often part of an application that does not have a standalone function but plays an integral role in optimal overall product functioning.

The technology is usually developed to run on a common platform, like a PC or a smartphone.

Embedded finance integrates analytics, AI, and machine learning into the financial services ecosystem.

It involves using the technology to “sense” the user and their environment and delivering a tailored experience to the end user.

The intelligence is used in both backend and frontend systems that help to enhance customer experience.

What are the Types of Embedded Finance?

There are several different types of embedded finance.

They include embedded banking, embedded payments, branded payment cards, embedded lending, and embedded insurance.

Embedded banking delivers innovative services through a product or service with an established customer base.

The goal is to increase customer satisfaction and use while maintaining and growing the bank’s profitability per customer.

Embedded payments refer to e-wallets and other payment solutions like mobile wallets, mPOS systems, point of sale (PoS) terminals, and direct-to-the-customer (D2C) micropayments.

These solutions help banks to create new financial services and improve their customer experience.

Branded payment cards offer security, such as chip-and-PIN or EMV technology. They are branded and promoted as part of a bank’s overall customer experience and loyalty program.

They cut costs while increasing revenue per customer by reducing churn rates.

The lending solutions and apps can be used with bank-issued cards to offer lower rates, better rates of return, and more flexible lending options.

They provide products to those consumers who don’t qualify for traditional loans.

Embedded insurance refers to the use of analytics, AI, and machine learning applications embedded in insurance products. It offers complete transparency throughout the whole application process.

Advantages of Embedded Finance:

Adopting embedded finance technology offers many benefits for banks and their customers.

It helps reduce the costs of customer acquisition and acquire more customers. It’s also a way for banks to provide a service that their customers want.

Banks can build their solutions or use an outside vendor to provide them with the necessary functionality.

If they don’t have the in-house expertise or resources, they can outsource it to developers for further integration into their current organization.

The technology provides 24/7 service, instant communication, and secure transactions.

Customers can interact with the bank online, in their environment, and on any device they choose.

They can also use their voice, text, and facial recognition technologies to speak commands that respond to them. These features are all powered by AI and machine learning.

On top of these benefits, banks can also predict their customers’ needs and tailor the financial services to their specific requirements.

This provides an authentic personal experience that increases customer loyalty and satisfaction.

Financial institutions can also monitor their customers’ activity and devices and predict future needs.

This is especially useful for high-risk clients, monitoring their behavior to ensure they are not spending above their limits.

Cons of Embedded Finance:

A major issue with embedded financial technologies is security. Most platforms rely on the simple use of a password to access sensitive data.

But, even today’s most sophisticated encryption technology is not good enough to protect data from malicious actors, especially in an environment where public and private keys are used to encrypt information and sign transactions.

This makes data vulnerable to breaches.

There are also privacy issues surrounding embedded banking and payments because financial institutions can access customer and transaction data over the Internet.

Other disadvantages include:

  • Higher implementation costs.
  • Lack of control over technology partners.
  • Additional IT infrastructure or staff is needed to manage the operations and support the customers.

What is the Future of Embedded Finance?

The future of embedded finance is exciting. Smartwatches will use facial recognition technology to authenticate transactions, while smartphones and tablets will become even more powerful and efficient through increased biometric authentication.

We will also see more connected devices offering instant notifications via voice, sight, and vibration, notifying the user of important events without the need to be at their desk or phone.

The smartphone will become an extension of ourselves rather than a tool to perform tasks on behalf of others.

The digital transformation in banking will continue to develop. This will enable banks to reach out to more people and foster relationships with their customers through a broader range of products and services.

There is a need for IT providers, infrastructure builders, and services providers to collaborate so that all the technology works in harmony. Automation is key.

AI-driven systems can detect changes in customer behavior, allowing the bank to react quickly while implementing new policies.

This will help banks become more agile and respond appropriately individually.

Embedded finance is no longer a futuristic idea. It’s already here and evolving fast. Implementing it requires a certain level of creativity and the ability to change.

The modern consumer is driven by convenience and is unlikely to wait long to get a service.

Being digital first will be crucial for banks and financial institutions of the future.

They need to embrace IT-led innovation not only because it’s emerging but also because it makes them more efficient and able to provide a better customer experience.

Still have any questions, feel free to ask me via comments.
 
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