Embedded finance has welcomed an era of consolidation

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In a hyper-competitive world, traditional businesses have increasingly integrated with embedded finance offerings to stay in business. In order to provide the clients with better functionality, optionality, and flexibility, financial technology platforms are also investing in API-based platforms. For instance, 

• In September 2022, Jack Henry & Associates, Inc. (Jack Henry), a financial technology provider that strengthens relationships between financial institutions and individuals and businesses, completed the acquisition of Payrailz, a cloud-native, API-first platform. This acquisition strategy of the platform was solely aimed at further expanding its presence and capabilities in the payments industry.

Acquiring Payrailz allows Jack Henry to better support banks and credit unions to compete with industry disruptors and, thus, meet the growing needs of consumer and commercial account holders. Moreover, this acquisition also helps to enhance Jack Henry's payments-as-a-service (PaaS) strategy, which enables open banking together with embedded finance abilities and embedded fintech operations. Therefore, the platform adopted this strategy to cement the connections between individuals and financial institutions through technology and services to see growth in its business over the long run.

Similarly, retail banking platforms are expanding their embedded banking solutions to attract more software companies to own and process payments easily. For instance,

• In June 2022, KeyBank announced to launch of its end-to-end payment facilitation capabilities after it acquired XUP Payments in 2021. XUP Payments is a digital payments platform that provides customized merchant services experiences to different sectors such as healthcare, commercial real estate, and technology companies. Now, KeyBank's new payment capabilities will enable different payment facilitators to control more client experiences by digitally onboarding new merchants. Together with this, the clients would also be able to manage risk thresholds and keep track of their transactions with the help of a reporting product. Moreover, the software companies will also be able to decrease the payment complexities, offering an advanced onboarding experience together with risk management and customer service. Consequently, the retail banking platform will now be able to simplify the client's experiences and drive new revenue opportunities. This would further attract more businesses to engage with KeyBank, making it a prime player in the embedded banking space.

Merchant commerce platforms are also diving into the embedded finance space to capture market share. For instance,

• In June 2022, India-based Pine Labs acquired an API fintech start-up, Setu to foray into the embedded payments space. Setu, which enables secured access to banking systems via APIs, is witnessing strong demand in the Indian space. With the rising demand for seamless, frictionless payments around the globe, more companies are adopting strategies to make all the data, identity, consumer information and many more at their fingertips to make these journeys smoother and seamless. This acquisition decision of the platform is very much in line with this since the firm sees Setu helping its customers, merchants, and brands develop more seamless experiences over the longer run. Now, the consumers will be able to engage with the payments and financial services on their own terms.

Last year, Pine Labs plunged into the online payments space through its launch of Plural, advanced technology of embedded payments consisting of three key products, namely Plural Gateway, Plural Checkout, and Plural Console, to elevate the online commerce experience. Consequently, the platform strategized to merge the embedded finance and payments space to capture more market share. Specifically, the platform aims to build an infrastructure for open banking and open API and thus, the combination between Plural and Setu is expected to be very powerful for the company. Pine Labs, which deals with payment volumes of about INR 2,000 crores (US$254 million) per month through Plural, is expected to attract increased business post this acquisition.

Notably, Bengaluru-based Setu saw strong demand for its products across diverse industry verticals such as start-ups, retail enterprises, insurance, banks, and lending companies. This strong demand is also backed by the golden phase of digitization in India, where their work on UPI and the account aggregator space saw fast adoption. Setu's work on Aadhaar eSign to BBPS bill payment, payment collection integration via WhatsApp, FASTag payment collection and more are some of the above-mentioned cases.

Consequently, it is expected that Pine Labs' network of merchants and issuers, together with the power of API, will help achieve significant goals in personal finance management, credit underwriting, monitoring loans to predict default rates and several other areas.

On the other hand, embedded finance has proved immensely beneficial for e-commerce businesses, creating immense opportunities for small firms where the technology helps to modernize the financial processes. Therefore, embedded finance and e-commerce are seen to get merged for easier access for SMEs to receive capital, receive credit, and other financial services that they require, to drive growth. For instance,

• In May 2022, an embedded finance platform, MatchMove, acquired an e-commerce platform, Shopmatic, for US$200 million. Singapore-based, MatchMove, which provides embedded financial services, will now be able to provide its Banking-as-a-Service capabilities to e-commerce SME customers through Shopmatic's ecosystem. MatchMove's array of services includes banking-in-an-app, powered by APIs, for both virtual and physical cards through Mastercard, Visa and WePay, which will be able to capture a larger user base, targeting a wider sector of the economy. Therefore, e-commerce SMEs can completely digitalize their supply chains such as supply chain lending and vendor payments, through a single platform. 

Embedded finance is witnessed to boom, particularly in the Southeast Asia region, where the maximum population is underbanked or unbanked. While more than 80% of transactions in the region are made through e-commerce, SMEs need assistance, especially for supply chain financing. This opened a wide opportunity for embedded finance to flourish, where SMEs now can pay vendors overseas, and other services needed to run a business all without using a card. Therefore, e-commerce and embedded firms are forging alliances, creating numerous growth possibilities and promoting further innovation.

To know more and gain a deeper understanding of the global embedded finance market, click here.