Embedded finance is changing Thailand’s financial services and banking ecosystem

Vilaiporn Taweelappontong, Consulting Lead Partner and Financial Services Leader, PwC Thailand
Vilaiporn Taweelappontong, Consulting Lead Partner and Financial Services Leader, PwC Thailand

‘Embedded finance’ is disrupting the global banking order as non-finance companies are eating into traditional banks’ market share. The threat to the traditional finance sector is significant. Banks and insurance businesses risk losing customers and revenue to more-innovative companies who are embedding financial services and products into the suite of non-financial services they already offer consumers.


To stay relevant, banks must embrace and develop their digital platforms to expand their service offerings. This would help to maintain their customer base, create new revenue streams and improve customer experience. 


Vilaiporn Taweelappontong, Consulting Lead Partner and Financial Services Leader, PwC Thailand said that the financial, banking and insurance industries have already undergone a digital transformation to improve the integration of financial services into customers’ daily lives. But, by embedding finance into the non-financial ecosystem, non-banks and non-insurance can offer more flexible forms of payments, loans and insurance, using online marketplaces or platforms to make transactions convenient and fast.


A recent article by Strategy&, ‘2022 Retail Banking Monitor: Repositioning for embedded finance’, forecasts that embedded finance will account for more than 15% of the revenue share in Europe by 2030.


“The embedded finance market will continue to expand globally. Non-banks and companies in retail, telecommunications, insurance and e-commerce sectors are all highly interested to compete in the market, leading to the creation of new services in banking, insurance, travel and health,” Vilaiporn said. 


“When a burgeoning market is this competitive, it typically leads to rapid market growth and the development of new technologies related to embedded finance. In the meantime, retail banks are at risk of losing customers and revenue share to the new competitors,” she said.


The Strategy& article says the market for embedded finance is currently valued at USD22.5bn (THB788bn) in the US and the volume of revenue is expected to grow by more than ten times to USD230bn (THB8tn) by 2025. This suggests that the total global market value of embedded finance is much higher.


In recent years, non-bank financial service providers, especially fintech, have widely adopted embedded finance into their products and services, introducing new financial solutions tailored to consumer needs. 


Services such as ‘buy-now, pay-later’ by airline businesses, patient financing solutions from hospitals and payment services established by retail businesses are just a few examples. These non-banks are seeking to improve customer experience and increase share of the revenue pool in the retail banking sector. 


Leveraging embedded finance to create differentiation


On creating differentiation, Vilaiporn said traditional banks and financial institutions should consider evolving their ecosystem and the delivery of financial services offerings. Financial services providers can quickly innovate and introduce financial products through existing applications, platforms or digital interfaces that their customers use every day. This will help create an improved user experience leading to a stronger relationship with their customers.    


It’s vital that financial institutions address this threat from the non-banking sector by rethinking their role and position in the market, she said. 


According to Vilaiporn, here are some options that traditional banks and financial institutions should consider as part of their strategy: 


  1. Participant: Embed products and financial services into the business ecosystem of other companies’ platforms. This would make it easier to quickly distribute products and services to potential customers, despite having no control over the platforms or ecosystems. 
  2. Orchestrator: Partner with a business to create a new ecosystem. Both entities will have influence over the ecosystem, such as formulating strategy, releasing new services to the market, product categorisation and using data analysis to improve the overall experience. However, this will require a higher investment in time and resources than the first strategy. 
  3. Creator: Be the sole creator of the ecosystem, investing significant capital in people and technology. In this scenario, financial institutions have total control of the ecosystem, the power to choose customers and partners, shape the customer experience, product categorisation, experiment with innovation and much more. This business model is suitable for financial institutions who intend to scale up and experiment with innovative products that influence and shape the market. 


“In Thailand, it’s likely we’ll see more partnerships form between fintech and banks’ subsidiary companies looking to go fully digital over the next couple of years while retaining complete control of the brand. Their goal is to increase revenue streams and transform their business models, and, in turn, the industry as a whole.


“However, traditional banks must first focus on redefining their role in an increasingly complex ecosystem, while improving value propositions to cope with changing trends. In this highly competitive landscape, it's important to focus on differentiation by developing products and services that improve customer experience and are superior to their competitors,” Vilaiporn said. 


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