Retail sector set to account for almost half of embedded finance market
Embedded finance is set to be worth US$3.5 trillion to the global retail sector, according to a new report.
The report, titled Embedded Finance: Who will win the battle for the next digital revolution?, from cloud banking platform Mambu, forecasts that the retail sector will account for 49% of the embedded finance market within the next ten years.
Retail lending alone represents almost a third (29%) of the embedded finance opportunity, with the digitalisation of retail services set to drive increased adoption of digital wallets and flexible finance options, such as point of sale lending and Buy Now, Pay Later services.
The report, which identifies expected sector uptake of embedded finance over the next decade, also illustrates growth opportunities in the healthcare and education sectors. Healthcare is forecast to account for 17% of the market, or US$1.2 trillion globally, following a recent influx of tech companies that offer 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-tech industry.
Mambu's own research confirms that consumer demand for embedded finance is high in these key sectors. A survey of 3,000 consumers, carried out as part of the report, shows that 86% would be interested in purchasing groceries from a cashier-less store. Meanwhile 60% would prefer to take out a student loan directly from their academic institution rather than a bank.
In addition, 81% of consumers would be interested in purchasing health insurance via an app and, of these, almost half would be willing to pay a small premium for this mobile accessibility. The findings reflect the rise of anywhere finance during the pandemic and the ability of digitally-enabled sectors to respond more quickly to changing consumer needs.
"We are moving towards a fourth industrial revolution where financial institutions need to take strategic decisions to fully capture the opportunities offered by embedded finance," says Eugene Danilkis, CEO at Mambu.
"One of our APAC customers, ZestMoney, already offers its 6 million customers in India the ability to pay in instalments, without the need for a credit or debit card. This allows them to leverage the banking infrastructure to acquire customers from different verticals while, at the same time, offering the hyper-personalised products that customers want."
Paul Apolony, general manager ANZ at Mambu, add, "In Australia were seeing a growing sense of urgency by utilities, retailers, telcos and organisations in other industry sectors to leverage embedded finance solutions to meet consumer demand - it's definitely a game-changer for the payments sector in Australia.
"And alongside the increasing consumer demand, its clear that fintech innovation is also driving growth in this sector, with a huge increase in the use of APIs and much broader acceptance of the ecosystem approach, where customer-facing organisations partner with fintechs to develop unique financial solutions for their customers," he says.
"Embedded finance has enormous potential for banks and financial institutions, but its incredibly important that they are investing in the right technology to build and enhance their own digital offerings as a foundation."
With the embedded finance industry set to be worth US$7 trillion globally by 2030, the report from Mambu with commentary from AWS also highlights three key trends that will drive this growth:
Payments as part of the experience
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) lending financing
The volume of instalment-based, flexible payments and instant credit options have increased significantly in the past five years, with an increase of 20% expected in 2021. This reveals a strong consumer demand for instant access to short-term borrowing.
Mainstream adoption of digital wallets
As more people use their mobile phones to browse, buy and pay for products and services online, its forecast that digital wallets will account for 51% of eCommerce payments by 2024.