Jinchang Lai, principal operations officer of the Financial Institutions Group in Asia & Pacific, International Finance Corporation (World Bank), speaks at the annual Embedded Finance Summit last Friday in HCM City. VNS Photo Bồ Xuân Hiệp

Bồ Xuân Hiệp

HCM CITY — Embedded finance is the next big thing in the financial services industry as it has integrated seamlessly into the local fintech landscape in recent years, experts said at a meeting last Friday in HCM City.

Speaking at the Embedded Finance Summit, Jinchang Lai, principal operations officer of the Financial Institutions Group in Asia & Pacific, International Finance Corporation (World Bank), said the future of the financial services industry would be embedded finance.

Embedded finance had gradually become prevalent in Việt Nam, he said, adding it is the new normal for modern business, regardless of the industry.

Embedded finance occurs when a non-financial website or app, such as a ride-hailing company or retailer, integrates a financial service, allowing customers to access financial services anytime, anywhere. 

An example is an online store offering short-term loans in the form of Buy Now Pay Later (BNPL), or digital wallets on phones which enable instant contactless payments. 

“But this is just the beginning,” he noted.

Experts said embedded finance has already started to simplify financial processes in both consumer and business commerce by reducing barriers to entry for various products and services. 

Embedded payments in particular will facilitate consumer and business purchases by enabling instant payments at the touch of a button.

Common examples of embedded finance include embedded lending and embedded insurance, among others.

Nguyễn Viết Châu, chief innovation officer at MBBank, said as more companies and ecosystems embed financial services in their offerings, banks should take the opportunity to decide on the role they will play in this model.

"For example, when payment technology is integrated within the infrastructure of an app or e-commerce site, buyers don’t have to enter their credit card details for every transaction. 

"By partnering with the Grab ride-hailing app, a bank can utilise embedded payments, so customers don’t need to pull out their credit card or scramble around for cash, instead paying automatically via the app upon completion of their journey," he said.

In Việt Nam, local firms are making the most of the country’s adoption of technology and open attitude to innovation, leading to its high rate of technological cut-through. 

Recent data shows Việt Nam is one of the countries with the lowest credit card penetration in Southeast Asia, along with Indonesia and the Philippines, with only 4.1 per cent of the population owning a credit card. 

In addition, the credit gap and lack of knowledge about digital payments is a challenge in Việt Nam, resulting in the majority of transactions being carried out in cash. 

Experts said this had created a huge gap in the market that banks were simply unable to fill, creating room for development of embedded finance. 

Game changer

Experts said embedded finance could be a game changer for non-financial companies. 

With embedded finances, customers would no longer need to stop by the bank to access their money. In some cases, embedded finance could eliminate the traditional bank. 

Businesses could also send money to family members abroad, pay vendors overseas, and purchase insurance and other services needed to run a business all without using a card. 

According to Makoto Tominaga, CEO of Credify, embedded finance occurs in the context of the big-data boom of which we are in the early stage. It is vital to take advantage of the data boom in the current financial context.

"Data is like crude oil. It’s valuable, but if unrefined, it cannot be used, so data must be broken down and analysed for it to have value," he said.

According to the Việt Nam Embedded Finance Markets Report 2022, Việt Nam’s embedded finance industry is expected to grow by 66.3 per cent on an annual basis to reach $336.4 million this year.

Việt Nam has set a goal to transform itself into a digital country by 2030, with its digital transformation expected to fuel the embedded finance market in the coming years. 

According to Oracle’s estimates, the value of the embedded finance market is expected to exceed $7 trillion over the next decade, making it worth double the combined value of the world’s top 30 banks today.

Organised by Credify and sponsored by Việt Nam Digital Communications Association, the annual summit attracted more than 300 experts in the financial, banking, insurance, e-commerce, retail, and healthcare industries. — VNS