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“Every company will be a FinTech company.”
The phrase first used at Andreessen Horowitz perfectly captured the zeitgeist of the FinTech landscape over the last couple of years. The proposition morphed into a slogan – almost a warcry – rallying 73% of the companies surveyed in one study towards embedding financial services on their platforms in 2022.
Undeniably, FinTech capabilities can supercharge any business. Companies can offer loans, credit cards, salary advances and buy-now-pay-later options, to name just a few uses. These result in better conversions, unlocking alternate revenue streams, and helping secure a loyal customer base.
But there are dangers to overambition. Despite recent incursions from tech-backed upstarts, the financial services sector remains largely impregnable with age-old institutions and ironhanded regulations. There’s certainly immense scope for collaboration with this sector, but not enough for co-opting it entirely, yet.
Those who dare to build a self-sufficient financial services infrastructure in-house may not immediately melt their proverbial wax wings, plummeting to a death fall. But they’re likely to get singed. After all, resources are scarce, so core offerings must be prioritized. In the meantime, building banks out of bupkis remains a pipe dream.
Barters in the bargain
What goes into building financial capabilities? To answer succinctly, a lot. In many ways, it means creating a new business from scratch. And for most companies, it’s like wading blindly into a different industry without the tech, resources or knowhow to do it.
Google wrapped up Plex, its service providing mobile-first bank accounts, within just a year. It asserted that it would deliver “digital enablement for financial service providers” instead of becoming a provider itself. Similarly, Amazon did away with its own credit product, instead partnering with Affirm to offer BNPL on its platform. When giants like these take a step back, smaller companies walking in their shadows must pay attention.
Evidently, if you’re a non-financial business looking to up your customer experience by incorporating financial services, you have to make some serious trade-offs. Building a FinTech arm from scratch without hurting your existing business is the stuff of daydreams, at least for now. Here’s why —
To be able to facilitate payments, offer credit and run other basic financial services, companies must assemble teams to develop the infrastructure, conduct risk analysis and collections. Besides manpower, this requires a large amount of capital.
Acquiring a banking or NBFC license is no mean feat. And the job doesn’t end there. NBFCs are expected to follow a codified set of regulations, which in turn means hiring more people to ensure compliance.
Raising debt capital requires convincing lenders to plug their products into your platform. Such collaborations result from painstaking conversations with various banks that can eat up precious resources better utilized elsewhere.
It can be hard to find the right financial product to complement your core offering. You will have to identify the possible credit products – whether BNPL, credit line or a good old-fashioned business loan – and develop the necessary tech to offer them at checkout.
Collaboration is the way to go
Thanks to plug-and-play Embedded Finance architecture, financial services need not compete with a company’s core business for resources. It creates a parallel closed-loop ecosystem, creating an opportunity for additional revenue and making good on this promise without encroaching on the core business.
The key to its success is collaboration. It allows companies to stay focused on their core offering, while delegating the responsibility to third parties specializing in financial service infrastructure. They can reap all of the gains by taking none of the responsibility. Here’s how —
Embedded Finance allows for plugging APIs and SDKs developed by an infrastructure provider into your platform. Service providers like FinBox take care of everything – tech stack development and operations, partnering with banks, credit risk assessment, disbursement, compliance and collections – with just one simple integration.
Strong underwriting suite
Companies can make use of pre-packaged underwriting suites developed and maintained by Embedded Finance providers. They scour bank statements from hundreds of banks and device insights for alternative data which is then enriched by marrying it with credit scores from bureaus.
Early warning systems
Lending doesn’t end with disbursals. Service providers keep tabs on real-time cash flows, spending behaviours and credit utilization to warn you of defaults and delinquencies in advance. This cuts costs of collection and prepares you to strategize communication.
Wide range of credit products
Embedded Finance service providers often have partnerships with a number of banks. This allows them to offer a range of credit products tailored for various platforms and use cases. FinBox has partnered with eight lenders that offer all manners of products like BNPL, credit line, business loans, salary advances, overdrafts and personal loans.
Piggyback on lending licenses
You can leverage the power of NBFCs without the hassle of obtaining a license. In light of the Reserve Bank of India (RBI) seeking data on NBFCs’ collaboration with BNPL providers and recommending doing away with off-balance sheet digital lending, pursuing licenses will only open an unnecessary Pandora’s box for non-financial companies.
Moreover, companies stand to gain from the Account Aggregator framework which has already been adopted by the likes of FinBox. This can allow them to quickly access user data in a consent-driven manner without having to run pillar to post for necessary documents like bank statements.
Fresh projections estimate that the Embedded Finance market will be valued at $7.2 trillion by 2030. It has applications everywhere – B2B, B2C or D2C businesses cutting across industries. In an economy that is becoming increasingly fragmented, this bodes well because any company can now internalise FinTech capabilities. By collaborating with an Embedded Finance provider, companies can focus on what they do best while they can leave the fintech piece to the experts to build, run and manage.