Can embedded finance turn brands into one-stop-shops?

Embedded finance is emerging as key to meeting customer expectations
embedded finance
Embedded finance

A recent report from Mambu, a SaaS cloud banking platform, and Amazon Web Services (AWS), showed that demand for convenient and frictionless experiences is putting pressure on consumer industries globally, with embedded finance emerging as key to meeting customer expectations. Embedded finance is predicted to reach $9.8 trillion in market value by 2032.

In an exclusive interview with Miljan Stamenkovic, MENA GM at Mambu, Economy Middle East asked:

Miljan Stamenkovic

1- What is your specialty at Mambu?


Mambu fast-tracks the design and build of most financial offerings for banks of all sizes, lenders, fintechs, retailers, telcos, and more.  In the Middle East, Mambu has recently enabled LNNDO – a digital lending solutions provider for SMEs in the UAE.  Recent developments in digital banking and finance include the launch of next-generation banking platforms such as Wio, a fully digital banking platform from ADQ, which was recently approved by the UAE Central Bank.

2- What can the consumer do with a digital wallet besides contactless payments?


Digital wallets have become an increasingly popular method of managing our payment experience. I believe that digital wallets are much more about understanding the profile of customers and, in turn, creating personalized offerings rather than just enabling yet another payment method. Mambu’s research indicates that digital wallets will account for 51% of e-commerce payments volumes by 2024.

Consumer spending is becoming closely linked to their phone usage, therefore, it makes sense that we will see consumers increasingly desire to access financial services seamlessly within apps as we see with Apple Pay and Google Pay.

3- What is embedded finance?


Embedded finance enables any brand, business or merchant to rapidly, and at a low cost, integrate innovative financial services into new propositions and customer experiences.

Under embedded finance, the ‘buy now pay later’ (BNPL) option allows companies to reach a wider audience. BNPL business models champion this movement as they use soft credit checks to provide customers with more convenience at the point of sale (POS).

Embedded insurance allows brands to become a one-stop shop. These are just two examples of embedded finance’s use cases.

Another way embedded finance works is when a non-financial company selects a financial institution/payment provider to upgrade this company’s offering by embedding financial services alongside their core offering. Think of Tesla now offering insurance services alongside their automobile production.

We are increasingly seeing embedded finance in the lending, investments, banking, and insurance sectors. As demand for embedded finance accelerates, financial institutions will have to provide new branded or white label products that non-banks can use to embed financial services for their customers.

4- What is the responsibility of payments solutions providers when it comes to end user debt and credit rating?


As much as they are able, providers should not be offering BNPL services to customers that are already in debt. However, there is a limit to the responsibility we can put on them. For example, if a customer bought a product from multiple companies using different BNPL providers, these providers won’t be aware of the amount of debt that consumers are piling up elsewhere. Communication, as well as education with consumers, is essential to ensuring that they also use BNPL responsibly.

There has also been high-level talks of getting regulations put in place to help consumers understand the terms and conditions (T&Cs) associated with lending platforms, putting some of the responsibility in the hands of the government

5- How is due diligence performed on individuals, in healthcare or any other sector, when offering embedded finance services?


Embedded finance is growing within the healthcare industry, with global digital payments in the industry set to grow 22.6% annually till 2024, reaching a value of $9.6 billion. When offering flex payments due diligence has to be in the conversation. In the case of BNPL, customers undergo soft-credit checks. This is when financial companies supplying the embedded finance model, briefly conduct background research on customers’ shopping history, whether they have shopped at that company, and/or their credit score.

6- What about tuition-based embedded finance?


Yes, we see huge potential for educational institutions to start activating embedded finance for tuition. According to Mambu’s research, 60% of global consumers would prefer to take out an education loan directly from their academic institution rather than a bank.

This shows how consumers’ behaviors are shifting, but payment providers would need to innovate to allow for this sort of long-term lending. This would require revising the short-term credit checks and to involve payment providers to dig deeper into consumers’ credit scores.

7-Is embedded finance solely in the private sector realm? Does it have a role in the public sector?


The surge in embedded finance within the private sector in the region has been driven by diverse factors. The collaboration between private and government efforts and strategic global partnerships play a significant part. But also, the growth would not have been possible without the existing and newly developed infrastructure e.g the launch of the first AWS data centers in the region in 2019 with plans for more in the UAE in 2022.

As a result, we believe that the region has enormous potential to grow for years to come in the private sector. We believe governments have not allocated enough resources in order to digitize government services but there are opportunities to do so.

The Middle East has seen an uptick in investment inflows to the embedded finance sector over recent years. Taking a broad look at the landscape in the region; It is projected that, in 2022, approximately 465 fintech companies will raise over $2 billion in venture capital in comparison to just 30 fintechs that raised a total of $80 million in 2017.

Regional use cases of embedded finance


Embedded finance, and particularly BNPL programs, will lower the barriers to entry for financial services and create new revenue streams for both financial and non-financial companies. Some noticeable examples of this growing trend in the Middle East include:

  • Uber launched embedded insurance for its drivers and delivery partners in Saudi Arabia in 2018.
  • UAE-based Careem (Ubers subsidiary) offers in-ride insurance for passengers and drivers across 15 cities and covers up to $20,000 for expenses from major injury or death incurred during a Careem ride.
  • Dubai-based BNPL firm Tabby has partnered with over 2,000 global brands – mainly consisting of SMEs in the region.
  • Saudi Arabian firm Tamara is offering short-term loans to consumers through BNPL collaboration with 1,000 merchants in the UAE and Saudi Arabia.