Building India as a Financial Superpower with Embedded Banking

Fintech in India has seen an exponential rise in the last few years. The Government’s sustained efforts to drive and adopt digital transactions have enabled the growth of financial inclusion at a rapid rate. We have evolved from a time and age where only 1 in 4 people had a bank account in 2008. Presently, the percentage of bank account holders in the country has risen to 80. This gives birth to the need for a technologically sound infrastructure involving various public-private partnerships, enabling the adoption of technology by legacy institutions, signalling the dawn of a new age in the Indian Banking ecosystem.

As the saying goes, every company will eventually be a fintech institution.

A recent report by RBSA Advisors stated that India emerged as Asia's biggest destination for financial technology (fintech) deals. It even beat countries like China in the quarter ended June 2020. The Fintech market in India valued at INR 1,920 billion in 2019. It is expected to reach INR 6,207 billion by 2025. While it is still at the tip of the iceberg of growth, the industry will witness long-term robust growth in the coming years, with its openness to innovation and adoption of technology.

Companies that have such innovative products and solutions often take months to launch. They require financial integrations and regulation permissions to run their platforms. This means one thing; it is not possible to bypass the chaotic clutches of legacy infrastructure and broken documentation unless there are innovative solutions introduced to help these companies launch their solutions or products faster and with at least half the expense. Embedded Banking is making waves in this very aspect.

What is Embedded Banking?

In simple terms, embedded banking is connecting an entity that has finance & banking at its core to another entity that has a non-financial background. For instance, how Apple & Goldman Sachs joined hands to roll out the Apple Card, introducing finance into a tech-driven ecosystem. Banking as a service is enabling this quantum leap that's changing the way companies function and interact with consumers.

It helps companies recognize varied innovative services that they can provide to their customers and that can also give them a competitive edge in the market. With the power of API integration, embedded banking can help non-financial companies become a part of the fintech ecosystem.

Challenges that we need to address in Embedded Banking

When we talk about the leaps in the financial technology domain, the mission remains straightforward - Financial Inclusion. A term that has been a focus in the last few budgets; and the country is working towards implementing and improving. In a broader sense, inclusion happens when financial products & services become easily accessible and affordable to the general population. These products help them to manage finances and avail basic amenities irrespective of their background & earnings.

Even though financial services have evolved rapidly, thanks to API access for companies to build better products, we still have a long journey ahead. This is mainly due to the lack of integration capabilities that puts these products at the heart of any business.

Let’s rewind a couple of years.

The country is heavily dependent on cash for even the smallest transaction. We can deem Internet Banking closely, or remotely related to fintech advancement. Even then, the broken UIs and 10+ steps to perform possibly anything didn’t exactly make things faster and smoother for customers. This hassle eventually forced people to remain offline with cash payments. The same could be extrapolated to lending & credit.

This is where embedded banking has a major role in play-acting; a connecting bridge between a fintech and a non-financial institution. It is the key that unlocks the reality of financial inclusion to everyone, even the marginalized. Surely a long-term goal but the interesting part is we have already set out on that journey. One of the most common examples of it is the introduction of insurance for an app-based cab ride.

A non-financial company can provide a financial instrument on top of its core services; thus, enabling an enhanced customer experience.

Fintech in Non-Financial Institutions

With the advent of UPI, payment links, and other digital payment methods we have seen an overnight shift towards cashless payments and a digitized economy. With the pandemic and social distancing norms, we all look for a QR code even at a grocery store. Fishing out for cash & change is naturally the last option. We are looking at building a financial superpower by incorporating financial products & services at the heart of any & every sector of the economy. Some everyday examples can be:

HR tech: Manage payroll for employees, provide reloadable digital prepaid cards to track spends; give them credits/loans to tackle any unforeseen financial hiccup.

Trade & Logistics: Make payouts easily, streamline & track expenses at once place, issue & manage Fastags or reconcile payments easily.

E-commerce platforms: Offer Buy-now-pay-later options to increase sales, accept payments via multiple methods, or enable app-to-app payments via deep links.

Embedded Credit: Incorporate lending as a feature of your product. Any time a customer wishes to avail of a loan, enable the same within your platforms. Expensive flight tickets? Provide a loan to your customers and increase customer loyalty & retention.

In conclusion

Embedded banking has immense potential and the possibilities to explore are also countless. The Government’s initiatives, policies, and regulations along with the growing penetration of smartphones and the internet in India’s head earnestly in the direction of financial inclusion and advancement.

Many fintech companies and other startups are waking upto the benefits of embedded banking and the fundamental role of APIs. The API-led connectivity approach has placed Banking API platforms like Decentro perfectly to enable banks to view themselves as a Banking-AS-A-Service (BaaS) Provider and the companies to launch solutions that address the need of the market faster. For all we know, this could be the dawn of the golden era, helping equalize the state of our economy.