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Embedded Finance is projected to surpass $7 trillion in market value by 2030.
Traditional banks are struggling to compete with seamless fintech solutions.
Collaboration, rather than competition, may be the key for banks to thrive in this evolving ecosystem.
Embedded Finance is fundamentally reshaping the financial landscape. As consumers increasingly embrace seamless digital experiences, such as paying for groceries through an app or using a credit card with a single tap, embedded finance is becoming the new norm.
Meanwhile, traditional banks often remain on the sidelines, struggling to keep pace. This raises a pressing question: Are they truly competing, or are they simply being left behind?
Also Read: How Crypto is Bridging the Gap Left by Traditional Banking?
Embedded finance integrates core financial services, including payments, loans, insurance, and investments, directly into non-financial platforms. For example, think of a ride-hailing app with an in-app wallet or an e-commerce site that offers instant loans at checkout.
Hopping from one software application to another or visiting a bank is no longer required. Users now expect financial tools to be integrated directly into their digital activities. Such a transformative shift is going to change banking from the perspective of ordinary users.
Every second day, embedded finance is booming. The industry forecast indicates that the international embedded finance market is expected to surge from nearly $60 billion in 2023 to over $7 trillion by 2030. Embedded lending in India alone is predicted to have a growth rate of over 40% CAGR through 2028.
Capitalizing on this trend, fintech players and tech platforms, such as Amazon Pay, Google Pay, and Flipkart's EMI options, have been able to offer faster and more personalized solutions than traditional banks could ever provide.
A strict regulatory framework, legacy technology systems, and risk-averse cultures watch the operation of traditional banks. While ensuring security and compliance, these elements also create bottlenecks in innovation. Similarly, the case of fintech integration is that most banks are slow to adopt or adapt to new technologies.
Gen Z and Millennials, as customers, now expect real-time approvals, personalised offerings, and quick service. A clunky app or a three-day waiting period for a loan no longer works. Unfortunately, this is the reality in many large banks.
Traditional banks still hold out hope despite the challenges. Some are recognizing the writing on the wall and opting for collaboration over competition. By partnering with fintech companies, banks can plug into agile tech ecosystems while still providing the trust and regulatory assurance that consumers value.
Examples include ICICI Bank's collaboration with Amazon for lending services or SBI's partnerships with various startups to improve customer experience and reach underserved markets.
This model of fintech integration enables banks to maintain relevance without having to start from scratch technologically.
Banks that disregard embedded finance are careless in addition to being risky. Convenience is a key driver in consumers' decision-making, and financial services are no longer viable. Digital banking trends enable everything from micro-investments to insurance, all just a few taps away.
Go even farther afield by appreciating that embedded Finance is now quietly powering several sectors outside fintech, including logistics, healthcare, education, and retail.
Also Read: How Crypto is Bridging the Gap Left by Traditional Banking?
Embedded finance is the future of banking, and the market is growing, highlighting the need for significant updates to the traditional banking model. Traditional banks rely on their infrastructure and trust their customers. If it fails to evolve at a prompt pace, it will lose in the race for embedded, seamless financial experiences.
Building on their successes, banks must either quickly reimagine themselves to become parallel to embedded finance or form some important alliances. The financial future is currently an integrated solution to the apps used daily, not just a theoretical concept.
