Embedded finance is expected to drive the next phase of financial inclusion in India

Embedded finance is expected to drive the next phase of financial inclusion in India

Embedded finance is expected to drive the next phase of financial inclusion in India

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In the global financial services sector, embedded finance has emerged as the leading theme, with the sector being hailed as the next great wave in the Fintech industry. With the rising role of Fintech firms in the financial services market, coupled with the growing number of global firms tapping this route, the growth opportunity in the embedded finance sector remains huge. Today, businesses across industry verticals like logistics, insurance, grocery, manufacturing, and e-commerce are seeking to launch customized embedded financial products.

In this perspective, the opportunity for developing nations such as India remains very high. Over the last three to four years, India has emerged as one of the fastest-growing economies in digital adoption, and the global pandemic outbreak has further accelerated the trend. However, in terms of financial services penetration, India still has a long way to go compared to the global market. According to PayNXT360 estimates, insurance penetration rate remains less than 5% in the country.

However, this situation is quickly shifting. Insurance penetration is growing in the country, with several leading e-commerce platforms, such as Flipkart, offering embedded insurance products at the checkout. Notably, amid the growing embedded insurance traction among Indian consumers, more and more domestic e-commerce marketplaces are forging alliances with embedded insurance providers. For instance,

  • In April 2022, Pepperfry, the e-commerce platform for furniture and home goods firm, announced that the firm had forged a strategic alliance with Cover Genius, the leading global insurtech for embedded insurance. Under the partnership, Pepperfry offers its customers personalized product protection plans. Notably, the partnership aims to bring seamless insurance purchases to millions of shoppers in India.

These strategic collaborations are expected to drive insurance penetration in the country over the next three to four years. Notably, the embedded finance sector in India has already been recording strong growth in India over the last few years due to the robust digital payment ecosystem. For instance,

  • The National Payments Corporation of India (NPCI) promoted Unified Payments Interface (UPI) is one of the leading growth drivers of embedded finance in India. Consumers may now make payments without leaving the marketplace thanks to UPI's integration at the checkout process on all of the main e-commerce platforms, including Amazon, Flipkart, and Myntra.
  • UPI P2M (person to merchant) emerged as the most preferred payment method among customers, with a market share of 55.2% in terms of value and 71.3% in volume. Notably, in Q1 2022, UPI amounted to INR 26.2 trillion in value and over 14.6 billion transactions in volume.

With the adoption of the UPI payment method expected to grow significantly in Tier III and IV cities of India over the next three to four years, embedded payment solutions such as UPI are expected to drive financial inclusion in the country from the short to medium-term perspective.

Also, embedded lending options, such as buy now pay later (BNPL), is gaining widespread adoption among Indian consumers. These products are making it easier for consumers to avail of short-term loans directly from the merchant's website when making purchases online. Given the vibrant Fintech ecosystem and the well-regulated financial system in India, embedded finance is projected to drive financial inclusion at an accelerated pace over the next three to four years.

To know more and gain a deeper understanding of the embedded finance market in India, click here.

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