Embedded finance: A new model to revolutionise business in Bangladesh?
The embedded finance market in Bangladesh covers telecommunications, manufacturing, health, retail and logistics – and it is set for significant growth in the near future
Embedded finance is the seamless and complete integration of financial products or services into non-financial services. It incorporates various types of financial products such as loans, insurance, debit cards, savings and investment instruments on the platform of a non-finance company, organisation or institution.
Being a very popular business model, embedded finance is accepted by several giant companies worldwide.
Bangladesh also has a wide scope to incorporate this model in various sectors. The embedded finance market in Bangladesh covers telecommunications, manufacturing, health, retail and logistics. And it is set for significant growth in the near future.
According to research and markets, the embedded finance industry is expected to grow at an annual rate of 28.5%, reaching a market size of $817.10 million by 2024.
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It is projected to maintain a compound annual growth rate (CAGR) of 48% from 2024 to 2029, with the market value estimated to reach $5.80 billion by the end of the forecast period.
An embedded lending platform is created when non-financial companies partner with banks or lenders to offer loans to their customers through APIs (Application Programming Interfaces). This allows non-financial companies to include loan products from partner banks directly on their platforms.
This allows non-financial companies access loans to meet both employee payroll needs and personal needs. It also supports customers who want to make a purchase but don't have enough money to pay right away.
Secondly, embedded insurance is another application of embedded finance where customers can insure the products at the time of purchase from non-financial companies. They don't have to approach the insurance provider for these services. It's an innovative approach to reduce the cost of purchasing and distributing insurance.
Thirdly, another key use is embedded payments where banks play a major role. Non-financial companies can make direct bank-to-bank transfers through embedded payments, saving customers' transaction cost and reducing hassle.
One advantage of embedded finance is that it creates new sources of revenue for everyone involved. By incorporating financial services into the business platform, the business revenue can be increased for both financial institutions and customers.
Embedded finance gives underserved users easier access to formal financial services. It helps them avoid the complicated processes typically required by traditional financial institutions.
Embedded finance has immense potential for the MSME sector as well. MSMEs currently account for 90% of global business, 60 to 70% of employment and 50% of GDP worldwide.
Accenture is a global multinational professional services company that specialises in IT services and consulting. In 2021, it surveyed over 2,500 SME business leaders across 10 countries: Australia, Brazil, Canada, France, Germany, Italy, Singapore, Spain, the United Kingdom and the United States.
The main objective of the study was the use of digital services by SMEs, willingness to purchase financial services products from digital platform companies, forecasted additional revenue from using embedded platforms and more.
Accenture has found in their research that embedded finance is expected to expand the overall SME banking market to $92 billion by 2025, with the total embedded finance market for SMEs potentially reaching $124 billion. Furthermore, embedded banking for SMEs could account for up to 26% of global SME banking revenue by 2025.
So it can be said that embedded finance in the SME sector will capture a large market share in the future.
Between 2022 and 2023, global embedded finance revenue increased by 25% and embedded payments gross transaction value also increased by 17%.
This makes it evident that the embedded finance market is growing rapidly and represents a modern digital business model. Given Bangladesh's developing economic landscape, this model can be an opportunity to revolutionise business by integrating digital financial systems.
A S M Ahsan Habib is a banker and certified digital finance practitioner (CDFP). Email: ahabib46@gmail.com
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
