Consumers and investors have embraced the idea of embedded finance. Especially it has gained wide traction in the last 2 years.
The concept of embedded finance allows the integration of financial services into non-financial platforms with the use of APIs. In other words, digital customer-facing platforms can embed varied financial services in their applications so that customers need not leave the platform they are already on.
With the introduction of this term, businesses can directly offer financial services to their customers without making any separate investments for their own fintech wing.
Some of the most common embedded finance services include Embedded payments, Embedded credits, Embedded insurance, and Embedded investments. The 3 institutions play a major role in the embedded financial structures and these are Non-fintech companies/businesses having customer-facing platforms, Financial institutions like NBFCs/small finance banks, and embedded finance infrastructure companies.
More people are choosing to forego traditional ways of managing financial data as Blockchain technology promises to offer distributed ledger which helps the fintech companies to allow their users to record, distribute, share and synchronize the financial data between the number of users.
This term is trending because it provides an open, secure, and inclusive network of businesses to perform customized tasks in a short period at a lower cost.
In the past few years, blockchain technology has got maturity by representing such benefits as transparency, security, trust, programmability, privacy, scalability, and high performance. Moreover, the technology also supports cryptocurrency which means customers and banks are becoming comfortable dealing with cryptocurrency. DeFi, Decentralized Finance is one of the significant fields of blockchain that removes the role of intermediaries and allows access to the customers for loans and other financial investments. Other fintech fields influenced by blockchain include settlements of real-time transactions, services for digital assets support, and zero-knowledge proof authentication.
Microinsurance is going to be a lifesaver, especially for low-income people who can pay proportionate payments to protect against the risks involved with specific areas. The trend will be further accelerated to eradicate the challenges like high transactional costs, excessive technical know-how usage, involvement of high investment to reduce risks, and the lack of insurers’ interest.
The financial institutions allow reducing the interest rates of microinsurance by acting as a partner whose financial and claim processing activities take away the overall portfolio risk and attract more people.
AI Technology & Chatbots
Process automation, increase in efficiency, cost reduction, and improvement in customer services are the major advancements of AI technology that are likely to revolutionize the whole picture of financial institutions.
Fraud detection, assessing loan risks and credit scoring, and maximizing predictive modeling through bank incomes will become faster, help in making more informed decisions, and allow frictionless payments through facial recognition.
Whereas, chatbots will ensure task automation by offering faster and more accurate banking services to the common people. In short, the emerging trend will allow banks to offer a personalized experience to individuals and promote cross-selling with 24/7 support services.
KYC (Know Your Customers) Guidelines
The increase in cashless transactions is likely to push the need for innovative regulations where the role of KYC comes. With the use of KYC guidelines, financial institutions can prevent financial fraud, identity fraud, embezzlement, and terrorism fraud. Other emerging regulations of 2023 will also include biometry and crypto.
Following KYC guidelines is one of the excellent ways of restricting customers from exploiting financial services. The steps included in the KYC process are done to verify the individual identity such as individual name, DOB, address, and other documentation which is issued by the government as identity proof. Also, the level of associated financial risk including the unusual behavior of the customer can be monitored closely.
The trend of On-demand pay is expected to rise rapidly and people will embrace the pay-per-day system over the traditional one in 2023.
Almost 80% of the employees are willing to shift to companies where employers are ready to pay on-demand wages. This on-demand pay culture reduces the employer’s burden of borrowing money and saves the employee from the shadow of recession.
Moreover, the on-demand pay benefits the provider as well by ensuring quicker payments, easy access to financial tools, avoidance of overdraft fees and debt of credit cards, and other literacy materials that will help in reducing financial stress.
Personalized Payment Structure
Better convenience, higher security, and faster speed will be the metrics of practicing personalized payment structures.
The fintech industry will be able to access customers’ amounts easily. Given this fact, the overall payment frequency and efficiency will significantly boost. Further, managing financial risks and streamlining related financial operations will become easy.
The invention of voice recognition technology in fintech apps and services is offering the next level of liberty and contributing to enhanced fintech service efficiency.
The impact of fintech trends in the coming years is difficult to predict but these trends are surely going to revolutionize the fintech industry.
Especially, excessive financial crimes, fraud, and frequent errors can be eradicated to a great extent.
People will be able to experience increased use of payment gateways for sharing credits and personal transactions. The strategy for easy account set-up, seamless financial transactions, and other easily accessible fintech services will also lift up the efficiency of eCommerce far and wide.
Now, the significance of the Fintech trend is clear, and how this is going to power up the overall fintech industry in the right direction.