Embedded finance is expected to bring US$3.5 trillion to the global retail industry, according to a new report.
The report, Embedded Finance: Who will win the battle for the next digital revolution?, by cloud banking platform Mambu, predicts that the retail sector will account for 49% of the embedded finance market in the next ten years. .
Retail lending alone accounts for almost a third (29%) of integrated funding opportunities, with the digitalization of retail services expected to drive increased adoption of digital wallets and flexible funding options, such as points of sale and the Buy Now, Pay Later services.
The report, which identifies expected industry adoption of integrated finance over the next decade, also illustrates growth opportunities in the health and education sectors. Healthcare is expected to account for 17% of the market, or US$1.2 trillion globally, following a recent influx of tech companies offering health-related payments and insurance.
Meanwhile, emerging opportunities in the education sector could see it account for 7% of the market, or US$500 billion globally. This is driven by a booming education technology industry.
Mambu’s own research confirms that consumer demand for in-app financing is high in these key sectors. A survey of 3,000 consumers, conducted as part of the report, shows that 86% would be interested in buying groceries from a store without a cashier. Meanwhile, 60% would rather take out a student loan directly from their college than a bank.
In addition, 81% of consumers would be interested in taking out health insurance via an application and, among them, almost half would be willing to pay a small premium for this mobile accessibility. The results reflect the rise of finance anywhere during the pandemic and the ability of digital sectors to respond more quickly to changing consumer needs.
“We are heading towards a fourth industrial revolution where financial institutions must make strategic decisions to fully seize the opportunities offered by integrated finance,” said Eugene Danilkis, CEO of Mambu.
“One of our APAC customers, ZestMoney, already offers its 6 million customers in India the option of paying in installments, without the need for a credit or debit card. banking infrastructure to acquire customers from different vertical markets while, at the same time, delivering the hyper-personalized products that customers want.”
Paul Apolony, Managing Director A/NZ at Mambu, adds: “In Australia, utilities, retailers, telecom operators and organizations in other industry sectors have seen a growing sense of urgency to take advantage of integrated financing to meet consumer demand – it’s definitely a game – changer for the payments industry in Australia.
“And alongside growing consumer demand, it’s clear that fintech innovation is also driving growth in this sector, with a huge increase in the use of APIs and a much wider acceptance of the ecosystem approach, where customer-facing organizations are partnering with fintechs to develop financial solutions for their customers,” he says.
“Integrated finance has huge potential for banks and financial institutions, but it’s critically important that they invest in the right technology to build and enhance their own digital offerings as a foundation.”
With the integrated finance industry expected to be worth $7 trillion globally by 2030, Mambu’s report with AWS commentary also highlights three key trends that will drive this growth:
Businesses are increasingly using flexible payment options, such as Buy Now Pay Later (BNPL), to differentiate their offering, increase sales conversions, and empower buyers at checkout.
Growing Popularity of Point-of-Sale (POS) Loan Financing
The volume of flexible installment payments and instant credit options has grown significantly over the past five years, with a 20% increase expected in 2021. This reveals strong consumer demand for instant access to short-term borrowing .
Widespread adoption of digital wallets
As more people use their mobile phones to browse, buy and pay for products and services online, digital wallets are expected to account for 51% of e-commerce payments by 2024.