Embedded Finance: Enabling SMEs in Asia-Pacific to Access Democratised Financial Services

Embedded finance is revolutionising the financial services landscape in Asia-Pacific, making financial services more accessible, affordable, and convenient for SMEs.

FREMONT, CA: In recent years, the adoption of embedded finance has significantly increased in the APAC (Asia Pacific) region, enabled by digital technology. This has not only reduced the cost of financial services but also lowered the barriers to accessing these services.

Embedded finance has been rapidly expanding in the APAC region for the last few years, thanks to digital technology, leading to a decrease in both the cost and access barriers to financial services. As a result, traditional financial services are predicted to become even more widespread in 2023.

Financial services, anywhere, anytime
The integration of APIs between financial institutions and solution providers is increasing, resulting in greater flexibility, innovation, and the improved customer experience in collaboration with infrastructure providers. The most widely used forms of embedded finance, such as payment, lending, and investment, are already prevalent in various small and medium-sized enterprise services and business-to-consumer commerce platforms.

Embedded finance is also becoming increasingly popular in B2B scenarios for various enterprises. By simplifying B2B payment innovations, fintech solutions are enabling both small and large companies to implement digital B2B commerce, facilitating more efficient cross-border payments. For instance, a solution that assists businesses and their clients in making collections, conversions, and payouts in their local time zones, using local currencies and networks, could be implemented. This would streamline the money movement process automatically, making it easier, cheaper, and more convenient for all parties involved, without compromising on traceability.

Reaching the unbanked and underbanked
Embedded finance today, is extensively implemented in small and medium sizes enterprises (SME) platforms, resulting in essential financial services becoming available to the masses. This includes those unserved or underserved by financial institutions and infrastructure, hence, embedded finance is often mentioned interchangeably with the democratisation of finance.

According to the World Economic Forum, more than 60 per cent of people in Southeast Asia do not have proper access to banking services, either because they have limited access or no access at all. Embedded finance can be a solution to this problem, as it enables people to use digital platforms for storing money, making cross-border payments, and potentially investing in stocks and other financial instruments.

Helping banks grow
B2B banking-as-a-service solutions, which are a type of embedded finance, can assist conventional banks in their growth. In the APAC region, thousands of local banks, community banks, and credit unions can benefit from these solutions, as they allow for fast expansion of their service portfolio, quick market penetration, and increased payment revenue.

Commercial banks can benefit from embedded finance as it helps them safeguard their existing business customers and enables them to take advantage of emerging opportunities for expansion.

Around 40 per cent of businesses are keen on obtaining banking services through the digital platforms they are currently using. If embedded finance can penetrate the SME market successfully by 2025, it could result in a substantial increase in global bank revenue, estimated to be around USD 92 billion. Moreover, if the revenue from SME banking reaches dollar 32 billion by 2025, it would prompt traditional banking services to move towards embedded finance experiences.

Embedded finance is expected to initially gain traction in the B2B sector through smaller banks and financial service providers. Larger institutions are hesitant about potential disruption to their current offerings. However, community and regional banks may view embedded finance as a viable option for increasing their revenue base by expanding their reach and local relationships.

More investment choices
One of the most rapidly expanding forms of embedded finance is embedded investment, which encompasses investment-linked insurance plans that are increasingly available on digital platforms. Typically viewed as a less risky investment, these long-term investments require low upfront costs and are easily accessible, making them more appealing to beginner, occasional, and younger investors. Fintech investment platforms are witnessing a rise in fractional trading, which is becoming increasingly popular among serious investors.

A brighter future with embedded finance
The integration of finance into various platforms and services is infusing the financial industry with increased vitality and competition, ultimately benefiting end consumers the most. Banks and businesses can also profit from cheaper, streamlined, and diverse financial choices, as well as discover new channels for growth, generate additional sources of income, and stay ahead of their rivals.

Embedded finance is revolutionising the financial services landscape in Asia-Pacific, especially for SMEs. By integrating financial services into non-financial products and services, embedded finance is making financial services more accessible, affordable, and convenient for SMEs. With embedded finance, SMEs can enjoy a seamless financial experience without having to leave their preferred platforms or applications. This is leading to increased financial inclusion for SMEs in the region, and democratising the financial services experience for all. As embedded finance continues to grow in popularity, one can expect to see more innovative solutions that will further empower SMEs in Asia-Pacific. Embedded finance is transforming the financial services landscape in Asia-Pacific, making financial services more accessible, affordable, and convenient for SMEs.