Embedded Financial Services: The Big Opportunity for Indian Banks

For Indian banks, integrating financial services into consumer platforms presents a substantial growth opportunity. Embedded finance as a concept is garnering interest worldwide with adoption growing at an impressive rate. The Indian market adoption is also set to grow at a rapid pace, especially after establishing open standards with ‘Open Credit Enablement Network’ (OCEN) .

In this new era, banks and other financial institutions can expand their services beyond traditional banking environments and enter various platforms where their customers are already engaged.

The Era of Embedded Finance: A Deeper Exploration

Embedded finance demonstrates the ongoing change in the financial services industry by directly integrating financial functions into non-financial platforms and systems. This embedding includes everything from simple financial services like payments to more complicated ones like loans and insurance.

For instance, when making a purchase in retail, the payment occurs directly within the retailer's application, resulting in a quicker checkout. Similarly, embedded finance may enable users to pay for their transportation within the app or even allow drivers to insure their vehicles using the same platform in the transportation industry.

By lowering friction, increasing convenience, and fostering a seamless user experience, finance integration into these multiple platforms aims to expedite the consumer journey. Embedded finance meets today's customers' needs, who value time, convenience, and simplicity more than ever before.

¹ According to Bain & Company , financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion, or nearly 5%, of total US financial transactions in 2021, and by 2026 will exceed $7 trillion. This suggests a significant move towards integrating financial services into everyday applications.

However, this transition comes with challenges and will require financial institutions to rethink their strategies, processes, and partnerships to thrive in the age of embedded finance.

India's Emerging Market Dynamics: An Examination of Growth Opportunities

As one of the world's fastest-growing economies, India's market dynamics present unique opportunities for the growth of embedded finance. In particular, two key factors make the country a fertile ground for this expansion - the rapid increase in internet usage and the adoption of digital banking services.

India's internet user base has seen exponential growth in recent years, fueled by increasing smartphone penetration, affordable data plans, and the proliferation of digital infrastructure. ²According to the Digital 2023 report by Datareportal, India boasts more than 692 million internet users, which accounts for around 56% of the country's total population. This massive digital user base indicates a substantial pool of potential customers for embedded finance services.

The Indian market also presents an opportunity to enhance financial inclusion through embedded finance. The advent of embedded finance can open up avenues to provide these underserved communities with easier access to financial services. By integrating financial services into commonly used platforms, banks, and financial institutions can reach out to these communities, offering them a convenient and accessible way to manage their finances.

Cultivating a Culture of Collaboration and Innovation

The embedded finance model necessitates an approach that encourages cross-functional collaboration and a shared understanding of common goals.

Banks need to foster a culture of innovation where new ideas are encouraged and rewarded. This could involve setting up dedicated innovation labs, investing in research and development, and encouraging employees to think creatively and challenge the status quo.

The shift towards embedded finance requires banks to be flexible in their business models, processes, and operations. For instance, embedding financial services into non-financial platforms may need a new approach to risk assessment, customer service, or data management. Banks must be willing to adapt or create new processes to accommodate these changes.

A collaboration that inspires partners' faith in the bank's digital infrastructure will be the most successful. Strong cybersecurity, effective cloud service management, a secure network, and a collaborative work environment can all impact how well these alliances are formed.

At Tata Tele Business Services, we are at the forefront of such digital transformations, committed to enabling businesses in India to leverage the full potential of embedded finance. With our industry-leading solutions, we ensure seamless collaboration and communication between financial service and platform partners. Don't wait to be part of the future of finance.

Contact us today to learn how Tata Tele Business Services can empower your business with our collaboration and cloud communication solutions. Contact us now!

References

1. https://www.bain.com/insights/embedded-finance/
2. https://datareportal.com/reports/digital-2023-india/