In the fast-paced world of digital commerce, one trend is gaining momentum like an unstoppable hurricane: embedded finance. This concept promises to redefine how we interact with money in the digital environment.
But what exactly is embedded finance, and what is its potential in the region? Embedded finance involves integrating financial services directly into digital platforms that are not necessarily related to the financial sector. This allows any digital commerce platform, from delivery apps to online retailers, to offer a wide range of additional financial services to their users—such as payments, loans, insurance, and more—without needing to be a regulated financial entity.
A NEW REVENUE PARADIGM
One of the most attractive aspects of embedded finance is its ability to generate additional revenue for digital businesses. In Mexico, there are numerous examples, one of which is RappiCard, issued and managed by Banorte. This card has demonstrated how such revenue can become a substantial part of their earnings, despite not being the primary focus of their business activities.
GLOBAL USE CASES AND SUCCESS STORIES
In more developed markets like the United States and Europe, we see inspiring examples of the use and success of embedded finance. For instance, Shopify Capital provides loans to small businesses using its e-commerce platform to support their growth and expansion. In the U.S., Square has integrated financial services into its payment platform, allowing merchants to easily access loans and accounting services. Revolut has shown how a digital banking app can offer a wide range of financial services—from checking accounts to investments—within a single platform. Additionally, embedded insurance is emerging as a new trend, enabling users to purchase insurance from regulated institutions integrated into the digital platforms they regularly use for other activities.
This concept is driving digital commerce platforms to offer a variety of services beyond their core, transforming them into SuperApps with the integration of external services such as travel and mobility.
POTENTIAL AND CHALLENGES IN LATIN AMERICA
Although embedded finance originated in Europe, its potential in Latin America is equally exciting. In a region where digital commerce is booming, any institution can leverage its existing user base to offer additional financial services and generate significant extra revenue.
THE IMPORTANCE OF TECHNOLOGICAL INNOVATION AND PARTNERSHIPS WITH EXPERTS
To fully capitalize on the potential of embedded finance, it is crucial for non-financial companies to partner with experts in bespoke Fintech software development. Additionally, having the appropriate regulations in place is essential to provide certainty and security to users and all stakeholders. Specialized Fintech companies can offer the necessary expertise to drive technological innovation and integrate regulated institutions’ technologies into digital platforms, thereby creating a new revenue stream and providing a comprehensive financial experience for users.
CONCLUSION: A PROMISING FUTURE
In summary, embedded finance is poised to be the next big thing in Latin America. Not only does it enable digital commerce companies to diversify their revenue streams and offer a more comprehensive experience to their customers—resulting in greater loyalty—but it also provides banks and regulated Fintechs with the opportunity to expand their reach and increase their potential customer base. With promising potential and an innovative spirit, embedded finance is ready to transform the financial landscape of the region.
Source: Forbes Centroamerica
