Vasanth Kamath is the founder & CEO of smallcase.
The future of fintech is here, and to empower enablers and partners, there is a dire need to understand embedded financial products and the methodology used to identify and organise system requirements. Financial products have a wide and varied scope that includes loans, insurance, mutual funds, stocks, digital gold and so on. (This article will not be covering services like payments, opening savings or bank accounts).
There is massive potential in integrating as well as embedding financial products into scenarios where content and context live. We are at the dawn of a new age in fintech, where companies are beginning to embed financial services within their offerings to attract and retain customers. We will eventually see a growing appetite for bundled embedded fintech products where platforms offering full-suite solutions with financial capabilities are going to be what customers prefer. Embedded financial products can go beyond financial apps or institutions or adding other products for cross-selling or up-selling purposes. Seemingly unrelated and non-financial use-cases also end up embedding financial products into their workflows, for example, chat, ecommerce, SaaS, lifestyle, content and so on.
From loans to BNPL (Buy-Now-Pay-Later)
What began in ecommerce—converting purchases into monthly instalments for the customers’ convenience—has found a lot of takers even outside the traditional set-ups that require EMIs. BNPL (Buy-Now-Pay-Later) facilities have gone beyond a physical product and spread to experiences such as vacations and weddings. Enabling loans via WhatsApp using credit protocol infrastructure, such as the OCEN framework, would make loans accessible to people without having to go to banks. The same methodology can be extended to use cases like drivers or delivery partners who can, in the long run, get access to loans based on their ratings or earnings on respective ride-sharing and food delivery apps, thus driving the financial inclusion of gig workers.
Insurance is next
We often overlook the fact that insurance is an invisible underline to all that we do; it allows us to take a risk, to travel, to innovate, as it provides a security net, should the worst happen. As BNPL checkout options, seamless integrations and customisable financial products are becoming commonplace. Insurance will follow a similar trajectory. It will become better positioned to fit context and content while helping customers make efficient financial decisions. The bundling of insurance within the purchase of products or services leads to better, interesting product use cases and protection against adverse scenarios. For example, missing flight insurance while booking flights, travel insurance while booking rides, phone or device insurance while buying gadgets, and so on. This seamless integration is currently being led by both insurance companies like Acko and infrastructural layers like Riskcovry working with other insurance companies.
Wealth management needs to become mainstream
From a consumer perspective, it is important and sensible to attach investments and savings behaviour to a catalyst moment like a purchase, or attainment of a personal goal or any other spend, as this will mainstream disciplined investing, thereby putting more power in the hands of the customer. Digital gold via APIs has become the entry product for any app looking to start offering wealth products. Encouraged by use cases like roundups, spare change investing as no minimum ticket size exists for buying digital gold, remove friction around recurring investments and thus leads to easier adoption.
Similarly, mutual funds have become a household product because of the ubiquity in investing in them. APIs like Star MF by BSE enable this to happen across any app and use case. The Indian market, however, has yet to see major innovative workflows at scale. For example, in China, Yuebao by Alipay or Alibaba has become the largest money market fund by auto-sweeping funds from customer and merchant wallet accounts. It offers a better transaction experience and a higher yield for consumers and merchants. It is not just via product workflows, but transaction mechanisms like auto-pausing SIPs (for seasonal use cases like farmers) or micro-SIPs (under Rs 500 SIPs for spare change investing) or SWP for digital subscription purchases (get Netflix at lower rates) that can power mutual fund penetration.
Embedded financial products can enable non-brokerage apps to offer transactions for stocks and ETFs. Content and media platforms have begun using these APIs, making information and content actionable on their stories, articles and pages, advisory and wealth apps providing services on listed securities without taking up a broking license.
Outside consumer use cases like the ones above, SaaS and corporate use cases are an untapped market. For example, if HRMS systems enabled taking a loan against salary up to certain limits, it would quicken the process and avoid judgement. If payroll software allowed employees to opt-in to get part of their salary in equity or debt fund units or if HRMS or tax modules enabled investment into tax-saving products like NPS, PPF, ELSS right from the portal, it can solve a lot of coordination and discovery issues.
Embedded finance will be to fintech what ecommerce was to the internet—increasingly verticalized and no longer functioning in discrete categories.
The writer is a Founder & CEO, smallcase.
The thoughts and opinions shared here are of the author.
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