What Is The Role Of Embedded Finance In The Growth Of Islamic Fintech?

eCommerce is booming all over the world. The ongoing COVID-19 pandemic has made online businesses all the more ubiquitous among buyers. Millions of new customers have joined the bandwagon of eCommerce after the pandemic started early this year. Most eCommerce companies have been reporting massive increases in their sales revenues.  Embedded finance has been playing a pivotal role in the growth of eCommerce these days. This new phenomenon could help grow the Islamic fintech industry in the future.

The Halal Times plans to write on this emerging trend in a series of articles. Today`s post could provide a foundation for embedded finance and how it is going to shape the next of the Islamic fintech industry.

Role Of Embedded Finance In The Growth Of Islamic Fintech

The question is how Islamic fintech can play a role in the growth of eCommerce and the ensuing payment transactions. When the revenue of these companies grows, they need fintech solutions to process payment systems. Embedded finance helps them do just that.  Now, non-financial companies can offer financial products to their customers without having to spend millions of dollars on building infrastructure and going through the hassle of regulatory approvals.

We need to address quite a few questions in this regard. Firstly, what is embedded finance, how does it work, what enables embedded finance, what are the opportunities and threats for the Islamic fintech industry, and what impact it is likely to have on the growth of the Islamic fintech industry in the future?

According to a marketing report conducted, embedded finance is expected to generate more than US$7 trillion during the next 10 years. All Islamic fintech companies need to understand the true nature of embedded finance and how it can impact the Islamic fintech industry in the years to come.

What is Embedded Finance?

According to fintechfutures.com, Embedded Finance is about enabling any business to manage and sell innovative financial services; seamlessly integrating creative forms of payment, debit, credit, insurance, or even investment into their end-user experiences. The simplest example of this in action is paying for an Uber ride. Another example is the account firms or marketplaces which provide their services as Software As A Service, SAAS.

Embedded finance integrates a  financial service or technology with a traditionally non-financial service, product, or technology.

What Are The Applications Of Embedded Finance?

An eCommerce company gives its buyers the option to buy their products and/or services now but pay later.  The cost of the goods we as consumers buy becomes an automatic loan which we need to pay to the eCommerce company.

In the same way, a car dealer offers insurance products to its customers at the time of the purchase of the car.

What Are The Advantages of Embedded Finance?

1. It provides a new revenue stream for business entities
2. It is helpful for customers as it provides them opportunities to buy a product or service on credit