Forging the Future of Fintech with Embedded Finance and Invisible Banking

As the world becomes increasingly digital, gone are the days of physically going to a bank to conduct transactions or apply for loans. Instead, we can now do all of these things from the convenience of our mobile phones.

This shift towards digital financial services has given rise to embedded finance, where financial products and services like lending, payment processing, or insurance are integrated into everyday non-financial businesses’ infrastructures without the need to redirect to traditional financial institutions, which makes financial services more accessible, seamless, and convenient¹.

In the United States (US), it is reported that embedded finance already accounted for $2.6 trillion in 2021 and, by 2026, it will exceed $7 trillion². Asia is expected to follow suit as the market is primed for an embedded finance boom³ as demand will grow due to its value proposition of improving customer experiences and creating greater financial access, along with providing cost-reduction and risk-reduction opportunities to companies throughout the value chain. The future-forward development of embedded financial technology is widely regarded to also have the potential of completely changing the financial services business model across the globe and becoming a full-blown gold rush⁴ ⁵.

Within the Southeast Asian market, Boost, the regional full spectrum fintech arm of Axiata, already has a head start in this space. The company recently took centre stage in the fintech industry when it became one of the few winners of the highly coveted digital bank license in Malaysia and will be leading the efforts to close the gap on financial inclusion. In fact, the company has a proven track record via its existing AI-based digital lending business that’s serving the underserved at scale with over RM2.5 billion worth of loans disbursed to thousands of MSMEs across Malaysia and Indonesia, while maintaining a healthy single-digit non-performing loan rate.

Additionally, through its holistic fintech ecosystem spanning its all-in-one fintech app that has accumulated over 10 million users, merchant solutions that has more than half a million merchant touchpoints, and cross-border payment platform that bridges transactions across 7 countries, Boost has a distinct incumbent advantage of leveraging and integrating its AI-based lending business across its various business verticals within its upcoming digital bank offerings to become a leader in the embedded finance arena.

For example, when merchants and MSMEs need to make orders from distributors and suppliers to buy weekly stock, Boost currently offers lending solutions through an API link for merchants to order stock using credit as an alternative to cash within that purchasing module. With Boost, digital financial solutions are embedded within the existing transaction journey and purchasing cycle of businesses, which resulted in a high repeat rate on loans, reaching over 90% in Malaysia and Indonesia.

The company is expected to further expand and extrapolate this model across its holistic fintech ecosystem for both merchants and users, potentially spanning across its partners in bill payments, online shopping, micro-insurance, entertainment, and more with the upcoming digital bank.

Not only that, the greater convenience and accessibility of embedded finance will pave the way for the rise of invisible banking, where the customer experience of digital financial products and services becomes so seamless and unobtrusive that it is barely noticeable within our daily lives.

So why is this important? In a region where a large percentage of the population is either unbanked or underbanked, the adoption of embedded finance and invisible banking will ensure that users can meet their financial needs through non-financial platforms. This is crucial for creating a positive user experience and ensuring that financial services are accessible to everyone – regardless of their financial literacy.

However, as with any new technology, there are also risks associated with invisible banking. Ensuring the security and privacy of customer data will be crucial, as well as ensuring that customers are protected from predatory or unethical practices. As the industry matures and regulations are put in place, the risks will decrease as cybersecurity best practices are implemented to protect firms and customers.

References:

¹ What Is Embedded Finance?

² Embedded Finance: What It Takes to Prosper in the New Value Chain

³ Asia primed for embedded finance boom

⁴ Reshaping Access To Financial Services

⁵ The $7 Trillion Embedded Finance And BaaS Gold Rush

This content is provided by BOOST Malaysia