Accelerating financial inclusion through the use of embedded finance

Embedded finance demonstrates an opportunity for fintechs, banks and lenders to create more tools and resources for those that may not have access to traditional banking. [iStockphoto]

Until a few years ago, getting a loan from a bank was quite an arduous task. The banking and financial industries have traditionally interacted with customers face-to-face in physical branches. Performing basic transactions often involved commuting to a bank and filling out countless forms, a tedious process where a successful transaction was not guaranteed.

New fintech solutions have disrupted the banking industry. Start-ups and small businesses have decoupled some of the core banking services and consumers can now access quick loans, bank accounts, savings and investment products, or payments from a range of providers without setting foot into a bank. This is a boon to a growing tech-savvy audience, both banked and unbanked.

Embedded finance, or the integration of traditional retail financial services into platforms that consumers use on a daily basis, has gathered momentum during the pandemic. These companies are meeting consumers where they are, be it a corner store, a pharmacy, or even a restaurant.

By offering solutions like digital credit and savings products at highly frequented merchants, consumers can unlock a range of financial services that were previously unreachable. Start-up entrepreneurs and early-stage investors have redoubled their efforts in this area and – judging by the recent fundraises from companies like Wasoko, Marketforce 360, and Kibanda Top-Up – investors have taken notice.

The rapid global development and acceptance of embedded finance can be felt significantly on the African continent where until a few years back, financial inclusivity was a distant reality, and traditional financial institutions couldn’t reach remote areas.

However, digitalization has empowered the African population and allowed the region to become financially independent and empowered. A significant portion of people now have access to a variety of financial products not only through their bank but also through other applications.

Fintech startups are starting to bundle together banking services and this competition is making banks up their game. The banking sector is having to refine their own services in order to keep up with the rapid pace of fintech. 

Through this development, the dominant tech platforms are now leaning more heavily into the sub-sector and challenging to maintain their position as the dominant distributors.

Before, one would access financial services through their bank or through an agent but today that is increasingly happening through mobile devices with the advent of mobile banking and internet banking applications.

We are seeing the growth of startups with very unique models aimed at reaching the most underserved customer where they are. Many are actually introducing bank accounts as a means of accessing the customer across multiple segments.

Startups will start with lending and then transition to bank accounts, a debit card and additional services. This is the next generation of what the fintech giants of the continent will look like. They will no longer be specialists in doing one service particularly well, but they'll actually be able to aggregate more products and provide a multitude of services to the customer.

Embedded finance now looks set to transform industries and this demonstrates an opportunity for fintechs, banks and lenders to create more tools and resources for those that may not have access to traditional banking and financial services.

We expect many more use cases to come. It's a great opportunity for start-ups, SMEs and large corporations to create more client value while capturing new revenue lines.

It’s also a good reason for incumbents to partner with fintech startups to accelerate initiatives that offer more support to the underserved and underbanked. Banks and financial businesses can save money, resources, and time by leveraging non-financial companies and their infrastructures to offer their financial tools.

The writer, Efayomi Carr, is the Principal of Flourish Ventures.