Finance, but different

The way we financially transact is changing – again. Not so long ago, swapping cash for contactless payments felt like a leap of faith, but in the space of a few short years, transacting with a touch or a tap became second nature. Now, a new world is emerging spurred by the evolution of embedded finance (EmFi), a global phenomenon that transcends payments, lending, savings, insurance investments, and more, creating an opportunity that could run into the trillions of dollars.

Simply put, embedded finance is the placing of a financial product in a non-financial customer journey –be it ride hailing, food delivery, or in-store retail. Juniper Research estimates that the market could exceed $138 billion by 2026, with other sources predicting a value of $7.2 trillion by the dawn of the next decade.

The nascency of the industry casts doubt on the accuracy of these forecasts, but they are indicative of an immutable fact: that embedded finance is embedding itself in our daily lives. The fact is that we have already experienced the ease and convenience it offers without even knowing it; especially as commerce becomes more digital and the ability to embed digital financial solutions becomes easier.

EmFi is the solution that enables commuters to travel from A to B with payment for the journey nothing more than an afterthought, or that allows foodies to order via digital platforms without the need for cash or cards to settle the bill. From the corporate perspective, meanwhile, it allows non-financial companies to offer financial products that augment their core business and create new lines of income.

Non-banks have offered financial services in some shape or form for years, but what makes today’s embedded finance movement different is the ability to integrate it into the digital interfaces that permeate everyday life. Think Careem, Airbnb, Amazon, Apple, Ikea, or Amazon, that is now testing pay with the palm of a hand in their stores.

A poster child within the EmFi ecosystem is buy now, pay later, or BNPL, a form of alternative lending that enables consumers to spread the cost of purchases. BNPL has blurred the lines between payments and lending and although it is under tremendous regulatory scrutiny, the adoption of the solution continues to grow, even in the Mena region. In Saudi Arabia alone, buy now, pay later payments are expected to grow by 24.1 per cent on an annual basis to exceed $1.4 billion in 2023.

Progressive non-FIs have already started to embed financial services, including BNPL, into their products and platforms. For example, Saudi food delivery app, ToYou, offers a deferred payment solution in partnership with the kingdom’s leading buy now, pay later provider, Tabby; e-commerce player, Noon, is introducing a range of financial services; and restaurant technology player Foodics offers embedded payment solutions to its merchants.

The writer is Head of Financial Services, Mena at Arthur D. Little. Views expressed are his own and do not reflect the newspaper’s policy.