My dad worked with State Bank of India for most of his professional life. As a kid, I remember visiting some of those banks only to find long queues of people who either wanted to deposit or borrow money.
Cut to today, that has obviously changed. Our financial transactions are becoming more and more seamless without us having the need to visit branches. Think of the last time you bought a vehicle and the financing options were available for you then and there. This phenomenon is known as embedded finance. To define it in a more comprehensive way, embedded finance is the ability to provide financial services through non-financial mediums.
You might frown upon one more new term that you are expected to know. But, trust me, this thing has been here the whole time. Most of us have been using mobile apps for ordering a service / product and payment happens to be a part of that flow. Similar to payments, businesses have been quick to provide other financial services on their own platform since that is where customers need it the most. For instance, customers purchasing mobile phones on an e-commerce platform can convert their payment into EMI when they check out, without accessing the bank’s website where they hold an existing relationship.
Having said that, an obvious question that arises is if use cases are so great, why has embedded finance not taken off that well? Why do I still need to visit banks to get things done? The main challenge behind that is the lack of an open banking regulation in several countries, including India. Banks today are just sitting on top of a humongous amount of customer data, neither using themselves nor giving a possibility to the consumer to share it with other fintech providers in the hope of getting better services.
The relationship between banks and data is similar to that of a toy and its owner child. The child (bank) has the toy (data) since ages, but he didn’t care for it. However, the moment there is another child (fintech) in the house fascinated by the toy in question, the owner child (bank) would create a fuss about it fearing that he is loosing its power.
During my father’s banking days, the most digital thing for a bank to do was to have a working internet connection. That has obviously changed, but still there is a long way to go.