News & Insights

As part of INNOPAY’s continued focus on monitoring the Embedded Finance (EmFi) landscape, the company published the lasted edition of the INNOPAY Embedded Finance Radar in late 2023. The ‘spotlight topic’ in this edition is financial inclusion. Here, we take a deeper dive into the most recent findings, including why and how EmFi can be particularly transformative for the ‘unbanked’ and ‘underbanked’, and how it will continue to drive financial inclusion globally.

EmFi provides financial services at the point of need

Embedded Finance (EmFi) is about integrating financial services in customer journeys within digital platforms or applications. It allows end users to utilise personalised financial solutions in their preferred application at the moment when it matters. These solutions are typically enabled by means of application programming interfaces (APIs), which connect the various actors required to offer an embedded financial solution. In previous publications, we’ve elaborated on how APIs serve as a driver of EmFi, as well as how the different actors collaborate within the EmFi value chain. 

INNOPAY’s Embedded Finance Radar tracks EmFi trends and developments

Since organisations are increasingly offering EmFi products and services, INNOPAY is closely monitoring the landscape systematically. The latest findings were published in the INNOPAY Embedded Finance Radar in Q4/2023. The radar tracks evolving use cases and the organisations involved throughout the value chain and around the globe, across six product categories (e.g. payments, lending) and six major industries (e.g. retail & ecommerce). Additionally, the radar visualises the maturity of various geographic regions in terms of the availability of use cases (see Figure 1) and presents three concrete real-life use cases. These are always linked to the radar’s ‘spotlight topic’, which picks up on one specific trend within EmFi. The spotlight topic of the latest radar is ‘financial inclusion’.

EmFi progress enables financial inclusion for the unbanked and underbanked

Broadly speaking, financial inclusion in the context of EmFi means providing faster, easier and digitally seamless access to financial resources for those consumers and businesses who would typically not have it. EmFi’s approach is particularly transformative for those in underdeveloped countries with stunted economic growth, such as the Philippines where (according to data from 2021) a significant number of the population are classified as ‘unbanked’, i.e. without access to any form of traditional banking services. There can be various reasons for being unbanked, such as lacking the necessary identification documents, residing in areas without physical banking infrastructure or encountering prohibitive fees.

Furthermore, financial inclusion issues extend beyond the unbanked. They can permeate certain professions and industries where financial services have not been fully integrated (see Use Case 1), leaving a gap that EmFi is uniquely positioned to fill. While these ‘underbanked’ individuals have some access to financial services, they often find these services to be limited in scope, flexibility and affordability. Although the underbanked may have basic bank accounts, they often lack access to credit, savings mechanisms, insurance or investment products that suit their needs and income patterns. There can be numerous reasons for people being underbanked, such as a lack of credit history making banks reluctant to offer loans.

According to the World Bank’s 2022 report, an estimated 1.4 billion people are currently classed as unbanked. The underbanked segment is even more extensive and is made up of a diverse demographic, including gig economy workers and seasonal labourers. Embedding financial services into commonly used digital platforms can eliminate the need for physical banking infrastructure, thus helping to address the unique challenges faced by these groups. Moreover, thanks to the expansion of mobile connectivity and internet penetration in increasingly remote areas, EmFi has the potential to provide more unbanked people with access to digital wallets, peer-to-peer lending platforms or micro-insurance products, for example. Meanwhile, for the underbanked, EmFi can offer tailored, context-appropriate financial products, such as those catered to less regular income streams. 

The INNOPAY Embedded Finance Radar highlights three real-life use cases to illustrate in more detail how EmFi can improve access to financial services for these two underserved target groups (see Use Cases 1-3). As these compelling use cases for financial inclusion show, EmFi definitely has transformative potential in this domain and merits further investigation in the future.