In today’s digital landscape and with a new generation of consumers playing a more prominent role, transactions are no longer limited to traditional banking, but have been integrated into all aspects of our daily lives. This radical change is driven by embedded finance, which refers to the integration of financial services directly into non-financial digital platforms and applications.
From payment options to travel insurance, these tools are transforming the way we interact with money and manage our finances. If you have shopped online, you have surely benefited from the advantages offered by embedded finance.
Imagine you are shopping on a mobile app, selecting your favorite products, and instead of being redirected to a banking platform to make the payment, the entire process is completed on the same site that you are browsing. This is possible thanks to embedded finance, which integrates financial processes into digital platforms and applications, simplifying transactions for an increasingly younger and more digital audience.
In Latin America, this trend is of great interest to the banking sector as almost 65% of the population in the region belongs to the group of millennials or younger generations. In fact, more than 370 million people in the region are digital consumers, and the demand for flexible payment solutions and simple processes is on the rise.
This paradigm shift is not a passing fad, but a new business model that is gaining momentum and is here to stay. By 2033, the embedded finance market is projected to exceed $291 billion, an impressive figure that reflects the exponential growth these technologies are experiencing.
Does this mean that the days of traditional banking are numbered? Yes and no. Institutions that cling to legacy systems lose ground in new payments ecosystems, but that doesn’t mean they are disappearing entirely. The key to their survival lies in their ability to carry out an effective digital transformation and how proactive they are in evolving their business models.
In fact, in Chile in the last three years, more than 20% of bank branches have closed, according to La Comisión del Mercado Financiero (CMF) sources. This trend of eliminating branches is due to a dynamic that has been taking place due to the social outbreak, the pandemic and the digitalization of banks.
Embedded finance and new platforms go beyond simplifying online payments for the newly banked generations. They also boost access to financial services for those who have historically been excluded from the traditional banking system. People who previously did not have access to loans, insurance, or investment management tools can now benefit from these services directly through digital platforms and apps.
This shift towards a more inclusive and connected model promises to radically change the banking industry in the region. By integrating financial services directly into our favorite apps and digital platforms, they are improving access to financial services and transforming the way we interact with money.
With the potential to raise rates of financial inclusion and economic growth across the region, these technologies are ushering in a new era in digital finance.