The years 2020-21 will be remembered for the pandemic and the subsequent resurgence. It will also be remembered for the time where over half the world’s population pulled out their mobile phones to buy groceries, order food, get paid for services, shop for clothes, and even pay for healthcare. While the pandemic ravaged nations, humans quickly adapted to new ways of transacting. Financial transactions through almost any app of any industry became a reality and more or less a force of habit.
What made that drastic leap possible was set in motion years ago with the advent of Open APIs. The emergence of public APIs and regulatory changes such as PSD2 spearheaded the ‘Open Banking’ revolution. A flurry of fintech companies followed, offering to ‘embed’ financial services in non-financial apps. Financial capabilities once considered the privilege of banks, became a necessary touchpoint in the customer journey of any brand. While banks still held dominion over regulatory licensing, fintech was able to squeeze in financial offerings between the layers of ‘bank’ and ‘brand’ with alacrity: Thus leading to the emergence and rise of ‘embedded finance’.
In fact, according to Juniper Research, in 2021 alone, the ‘embedded finance’ market is said to be valued at $43 billion and is set to soar by 215% by 2026.
Early Adopters and Present Trends
Uber and Lyft are some of the most well-known early adopters of embedded finance.. Tackling the simple pain-point of cab riders (searching for cash, taking out a credit card, toggling between apps), Uber introduced embedded payment in its cab booking app. Its early success in alleviating a major pain point in customer experience spawned a rush for embedded payments in large, digital savvy, non-traditional players ranging from e-commerce(Amazon) to food delivery apps(Deliveroo). Fintech with technical know-how and financial acumen followed suit with offerings customizable for banks and brands.
This led to the emergence of another layer between fintech and banks, what is called Banking-as-a-Service(BaaS). Unlike Open Banking that offered only data, BaaS offers APIs for banking services that fall under the ambit of regulatory services. The fact that these APIs could now be leveraged in any digital customer journey opened up a plethora of value propositions for brands, hitherto not possible–retailers providing a ‘Buy Now, Pay Later'(BNPL) option, car dealers offering loans and insurance, and utility providers launching wallets.
The customer-share pie for financial services became open to all.
What started as embedded payments has now evolved into multiple use cases such as embedded insurance, embedded banking, embedded credit, and embedded investment. The use case list has expanded to every industry from retail to HR and has the potential to morph further. While digital-savvy, large enterprises are quick to adopt, small businesses are also jumping into the fray. Uber which was only offering payment services, now offers loans to its drivers and an Uber debit card for a checking account to its users. On the other hand, banks, both new and traditional, are opening up new avenues to reach out to their customers.
For brands, it is the customer journey that matters. For banks, it is high volume and less cost. A win-win in any case.
Speed Bumps in API Adoption
If we look at banking trends over the decades, the underlying driving force that has spawned thousands of new players in the financial services industry is most surely — APIs. From Open Banking to now Banking-as-a-Service, companies that have proactively embraced the evolution of APIs have been successful in embedding financial services. However, it is easier said than done.
Banks/ Providers typically have an API-only approach. There is no touch and feel. The graphical elements or abstractions on top of these APIs need to be recrafted and customized per brand, per use case. With virtually every bank jumping into the bandwagon, brands(especially SMBs) look for technical expertise to evaluate and buy from the exhaustive list of APIs. Navigating the labyrinth of APIs would also involve sourcing and integrating APIs from multiple providers, brands, and third parties. To build a digital layer over the APIs, the brand has to either depend on its own IT and available tools, or they have to turn to fintech or ISVs that can help them leverage the power of these APIs on an integrable platform.
Think Beyond APIs: Go Low-Code
In the end, APIs are a means to an end.
Businesses spend inordinate amounts of money and time to consume complex APIs and launch embedded finance services. Traditional hand-coding while integrating with APIs is cumbersome and can lead to latency in time-to-market. Subsequently, many businesses lose their first-mover’s advantage.
- Businesses can perform quick roll-outs of showcase applications and MVPs on a low-code platform, thereby gaining a sense of the market pulse and figuring out what works and what does not.
- BaaS providers can use low-code to enable hyper-accelerated app development by provisioning ready-to-use contextual components over their APIs, which can be easily provided as a bundled financial offering for business apps.
A low-code platform can now act as an aggregator of financial and non-financial APIs and provide a contextual layer that is customized per brand/bank.
Battling out on fierce financial terrain, are large and small brands and FIs. Whether it is ‘Buy’ or ‘Build’, businesses, fintech, and ISVs agree that application development platforms need to offer two very important aspects while integrating APIs: flexibility and security.
Low-code platforms that come with inbuilt security and a “whatever-whenever-wherever” facilitation effectively neutralize these two major concerns faced by incumbents of the financial services industry.
To Embed or Not is Not a Question!
Over the past two years, industries have shown resilience and adaptability like never before. Embedding finance into a consumer app has become a norm. A norm that took wings years before but gained momentum in the past two years. The hyper-acceleration of embedded finance in financial and non-financial applications is the phenomenon of businesses reacting to unforeseen circumstances in the most creative manner. Low-code platforms like WaveMaker can assist small and large brands in consuming and integrating disparate APIs with ease and provide a contextual consumer interface abstraction over them.
The synergy created by low-code, embedded finance, rapid application tools, and digital transformation in general, are shaping the face of what creative adaptability looks like.