Embedded finance is set to be worth US$3.5 trillion to the global retail sector, according to a new report titled ‘Embedded Finance: Who will win the battle for the next digital revolution?’. The research 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. This is driven by a booming education-tech industry and growing demand for lending amid record levels of student debt.
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’re moving towards a ‘fourth industrial revolution where financial institutions need to take strategic decisions to fully capture the opportunities offered by embedded finance. 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,” says Eugene Danilkis, CEO at Mambu.
For Kevin Pu, General Manager Malaysia at Mambu, Malaysia is seeing growing interest in the embedded finance space, especially in terms of services like Buy Now, Pay Later. The potential for positive impact in terms of creating embedded financial solutions that meet specific consumer needs in particular is very high.
“Banks and financial institutions have an enormous opportunity, however, it’s important that these organisations are leveraging the right technology solutions and embracing the fintech ecosystem approach to ensure they can capitalise on the opportunities on offer.”
With the embedded finance industry set to be 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, it’s forecast that digital wallets will account for 51% of e-commerce payments by 2024.
