Will embedded finance supercharge business recovery in the COVID-19 endemic new normal?

Embedded finance may be a term not familiar to many, but it has become deeply ingrained in our daily lives, effectively revolutionized the fintech space – especially in the last 12 months – allowing non-financial companies to incorporate financial services into their business.

Asia Pacific’s embedded finance industry is expected to grow by 39.7% on annual basis to reach US$108 billion in 2022. Not only is APAC home to leading embedded lending providers in the world, but the region continues to be a hotspot for some of the most advanced global fintech markets.

However, beyond the leading fintech markets in the region, APAC also houses several emerging markets that have the potential to grow in a COVID-19 endemic world.

With the rapid pace of digitalization, coupled with the need to recover from the pandemic’s impact, is embedded finance the means to supercharge operations and achieve their goals for businesses in the region?

DigiconAsia sought out Shailesh Naik, Founder & CEO, Matchmove, for some answers.

What role has embedded finance played in helping businesses recover from COVID-19’s impact?

Shailesh Naik, Founder & CEO, Matchmove

Shailesh: COVID-19’s impact has been felt across all industries, but some businesses have been more affected than others. Now, as restrictions ease, there is a glimmer of hope for businesses, particularly small and medium enterprises (SMEs), to recoup some of the losses incurred in recent years.

Embedded finance played a significant role in the survival of these businesses when physical transactions were limited – and will continue to be relevant for companies to recover and thrive in the future.

The use of technology in embedded finance helps businesses smoothen processes, making it easy for them to stay financially connected with their customers and partners. With embedded finance, it is straightforward for businesses to conduct transactions – spend money, send money, lend money, as the case may be – and efficiently service their customers, spurring business growth even during the most challenging times.

How does marrying fintech and e-commerce drive innovation and business growth?

Shailesh: Asia Pacific’s e-commerce revenues are predicted to double to US$2 trillion by 2025, while embedded finance revenues are forecasted to reach US$140.8 billion. With these figures, the future of combining fintech and e-commerce looks extremely promising.

MatchMove has perhaps been the first company to create a powerhouse that marries fintech and e-commerce. Our acquisition of renowned e-commerce specialist Shopmatic, announced in May 2022, helps propel two prominent regional leaders in e-commerce and fintech further in their shared mission to enable businesses to thrive online with an end-to-end offering for digitalization.

MatchMove’s platform provides customizable, fast, secure, and regulated embedded financial services, such as banking-in-an-app, powered by APIs, to help enterprise firms offer richer services to their SME customers. Shopmatic offers small businesses and individual entrepreneurs an e-commerce presence with chat commerce, social commerce, webstore commerce, and marketplace commerce expertise.

The combined company now enables MatchMove to provide its Banking-as-a-Service (BaaS) capabilities to Shopmatic’s ecosystem of over a million e-commerce SME customers.

What are some key considerations to ensure a positive embedded finance experience for consumers?

Shailesh: Each business is unique and has different demands from fintech solutions. Understanding your customers and their needs is no doubt important. Apart from a faster and more seamless manner of doing financial transactions, what particularly stands out is the demand for even greater security.

With the rise of digitalized businesses comes an increase in cybersecurity threats too. Therefore, companies must work with fintech platforms with a robust security mechanism to detect fraudulent activities and combat cybersecurity threats.

For instance, we utilize fraud detection tools in every transaction. Artificial intelligence (AI) algorithms are used to scan through a variety of data points to detect security threats. In addition, we also make use of AI-based document verification to fast-track the Know-Your-Customer (KYC) or user verification processes.

We also use AI to provide a personalised experience to our Business-to-Business-Consumer (B2BC) customers. We want to enhance our transaction monitoring capability further to be able to predict malicious intent such as money laundering using ML.

The cornerstone of an embedded finance product is to make it extremely easy for businesses to spend, send, and lend money across shores without any glitches.

Many enterprise customers we work with are offering fintech solutions to their customers – small to medium-sized businesses (SMBs) – on the back of Matchmove-powered solutions across various markets. Thanks to the robust platform we have built through the years, enterprise customers can enter new markets and offer neo-banking capabilities to their clients without building things from scratch.

Which industry sectors have leveraged embedded finance services effectively so far? What other sectors stand to benefit from it?

Shailesh: Embedded finance caters to a broad spectrum of organizations from all possible business segments –  food, retail, travel, insurance, jewellery, government, and many others. In most cases, they are looking to digitalize faster than they would be able to with their existing banking partners.

We also see a diverse range of customers on the e-commerce side of our business. There are SMBs and individual entrepreneurs ranging from grocery stores and supermarkets to sellers of jewellery, fashion, food, pet food and accessories, handicrafts, art, handicraft, and more. In fact, the Shopmatic customer base spans teenpreneurs selling cakes and cookies to greypreneurs and great-grandmas in their 90s, selling besan laddoos and pickles to the remotest parts of the world from their online stores!

How is the diverse digital economy in APAC being served by the embedded finance sector, and what are MatchMove’s long-term plans for the sector in this region?

Shailesh: Asia Pacific’s diversity is reflected in different aspects, including the digital economy. While there are leading fintech markets such as Hong Kong and Singapore, emerging markets are gradually growing their fintech capabilities.

Southeast Asia, for instance, has adopted digital solutions in commerce and banking. According to research by Macquarie, the pandemic saw an additional 60 million people in the region become online consumers throughout its duration.

During the pandemic, emerging Southeast Asian markets like Thailand and the Philippines showed the highest proportion of new users starting online consumption, according to Bain & Co., Google and Temasek. E-wallet payments have also gained popularity, especially in Malaysia and the Philippines.

It is similar to what the World Economic Forum (WEF) found regarding e-commerce growth worldwide, with the Philippines and Malaysia occupying the top two spots. The increased digital adoption in these emerging markets paints an optimistic picture of the region’s potential and the future of fintech and e-commerce.

MatchMove’s Shopmatic acquisition has already led to the emergence of an embedded finance and e-commerce powerhouse. This acquisition is the first in a series of planned acquisitions for MatchMove to create an end-to-end service for companies aiming to digitalize their entire business entirely, and we are already making giant strides in this direction.