Asia primed for embedded finance boom

Embedded finance has encouraged innovation within many business-to-business (B2B) companies, in particular for e-commerce firms who can use the technology to modernise their financial processes, write CEOs of MatchMove and Shopmatic.

Southeast Asia is currently a region of massive growth, a result of the subcontinent’s growing population. Many companies are making the most of Asia’s adoption of technology and open attitude to innovation, which also leads to its high rate of technological cut-through. In particular, smartphone usage in Southeast Asia is rife, with the number of users expected to rise to 326.3 million throughout this year, making this the perfect landscape for embedded finance to thrive.

Euromonitor’s 2022 report on the growth of the digital economy predicts that e-commerce sales across the Asia Pacific region will double to $2 trillion by 2025. The report also said there is “a significant appetite and opportunity here for digital transformation and bringing together embedded finance and e-commerce makes a lot of sense”, confirming that combining fintech with e-commerce is a step in the right direction and that companies are ready to embrace the benefits.

The need for embedded finance

Due to both a lack of awareness, and a lack of trust in banking services, six to ten Southeast Asians are currently underbanked or even completely unbanked. In areas such as the US, Europe and Japan, a credit card is the simplest way to pay online, but in Southeast Asia where the market operates much differently, only three in 100 even own credit cards.

This presents an enormous gap in the market that banks are simply unable to fill, hence the rise of embedded finance. With embedded finance, companies can now send money back to family abroad, pay vendors overseas, and purchase insurance and other services needed to run a business all without using a card. Banking-as-a-service can also enable various forms of investment options, so consumers can have a full one-stop-shop for their finances.

Embedded finance has created opportunities for those who have never owned a bank account, meaning they can now access finance digitally. Business owners merely need a phone to onboard, go through security and transact online, eliminating the necessity for banks.

E-commerce is key for SMEs

In Southeast Asia, 85% of transactions are made through social commerce, conversational commerce or marketplaces. Throughout the region, SMEs need assistance, particularly when it comes to addressing supply chain financing. This is where e-commerce becomes crucial.

E-commerce is enabling the movement of data that is integrated across the supply chain. Digitising SMEs gives them an online presence, but it’s also equally as important to include smaller firms into the supply chain to give larger corporates visibility of the firms they’re financing and ensure the provision of the necessary goods.

E-commerce is enabling SMEs to access loans, credit, and assistance with data and inventory management. With this layer of financial flow, SMEs can now exist in a very different ecosystem that pushes smaller companies to venture into areas that weren’t available to them before.

The combination of fintech with e-commerce is driving innovation forward

Shailesh Naik, CEO of MatchMove

With embedded finance allowing business owners access to finance without the need for a bank and e-commerce creating a wide variety of opportunities for small firms, it’s clear that digitisation is transforming the ways in which businesses operate completely. The merging of the two sectors allows for easier access for SMEs to receive capital, receive credit, and any other financial services that they require, while they work hard to gain their footing and grow as a business.

Not only is this merging increasing the e-commerce space, but also the entire fintech industry as a whole, due to the numerous possibilities it creates for businesses and in promoting further innovation. What makes an e-commerce and fintech combination particularly powerful is that it enables firms to grow faster and embrace digitisation, and proves that technology can encourage new ideas and ways of thinking.

While it may seem like a revolutionary idea, any segment merging with fintech is a natural phenomenon. By offering financial services we can both help the local economy, and also keep more of the economy moving on our platforms. Companies such as Amazon have begun introducing payments and financial services, and this demonstrates that the combination will become very popular very soon, it’s just a matter of time.

We are enablers in both fintech and e-commerce and we want to be a part of the movement to democratise financial services. Through combining fintech and e-commerce, we’ll be involved in most of what an SME does on a day-to-day basis, which is why the synergy is so powerful. And the positive reaction to the combination so far in Asia demonstrates that we must be on to something.

About the authors:

Shailesh Naik, CEO of MatchMove, has more than 35 years experience working in finance including at EY, PWC and Capgemini. He’s also worked in management roles at leading technology firms such as Cisco, before founding MatchMove Play in 2009, and then founding MatchMove in 2014.

Anurag Avula, CEO of Shopmatic, is an experienced chief executive officer with a demonstrated history of delivering value to stakeholders in the internet and payments industry. His career has awarded him with skills in sales, business development, and account management. He has a Post Graduate Degree in Management focused in Marketing & Finance from T.A. Pai Management Institute.