In an era where convenience is king, embedded finance has quietly become an indispensable part of our daily lives, seamlessly integrating financial services into the apps and platforms we use without us even realizing it. From the ease of purchasing on e-commerce giants like Amazon to the simplicity of booking a private hire or taxi ride, embedded finance is the silent architect behind these effortless transactions. And it’s not just changing the way we shop; it’s also reshaping the financial landscape across Southeast Asia at an astonishing pace.

One example of this fintech revolution can be found in Singapore, where embedded finance is projected to grow by a staggering 33.7 percent annually. The city-state’s dynamic and forward-thinking financial ecosystem has become a crucible for innovation, pushing the boundaries of what embedded finance can achieve. But Singapore is just the tip of the iceberg. Across the region, from Malaysia to Indonesia and beyond, businesses are recognizing the undeniable potential of embedded finance, with its transformative power to enhance both customer experiences and their bottom lines.

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As the demand for digital-first solutions continues to surge, businesses are undergoing a pivotal transformation. They understand that their ability to cater to diverse financial needs, encompassing payments, lending, insurance, and investment, is no longer an option but a necessity. In this landscape, embedded finance emerges as a critical enabler, streamlining business processes and elevating overall customer satisfaction. But how exactly does embedded finance achieve this feat? Join us as we delve deeper into the world of embedded finance in Southeast Asia and explore the ways it’s revolutionizing the intersection of technology and finance.

We spoke to David Brady, SEA Enterprise Sales Director of Airwallex, about the potential of the industry and how it works in Southeast Asia. The company has been scaling in the region and also has a strong global presence.

What is the current state of embedded finance in Southeast Asia?

My perspective is that embedded finance is evolving and gaining momentum in Southeast Asia. Companies throughout the region are recognising the immense potential in offering financial services.

Southeast Asia has witnessed substantial embedded finance growth in the fintech sector, with homegrown unicorns like Gojek and Sea expanding their services beyond ride-hailing and e-commerce into the realm of financial services. 

While there are abundant opportunities in the region, they come with their own set of challenges. Southeast Asia is home to eleven countries, each with its own set of regulations and cultural nuances. Successfully navigating this diverse region is no easy task. 

Therefore, having the right partners across the region, those who understand its intricacies is crucial for companies looking to succeed in offering financial services beyond their core offerings.

Which industries do you think have the most potential for the adoption and integration of embedded finance?

When considering which companies or industries are best suited to adopt financial services, it’s crucial to examine their offerings and how these can be enhanced to deliver greater value to their customers, as customers consistently seek convenience and are unlikely to adopt a service unless it seamlessly integrates into their daily routines. This leads us to identify a few key industries:

E-commerce and Marketplaces: The immediate benefits here are widely recognised. Embedding ‘Buy Now, Pay Later’ (BNPL) options at checkout boosts conversions, and loyalty systems enhance retention. However, a less discussed aspect is the intricate network of merchants and suppliers that offer the products and services ultimately consumed by customers. By integrating financial services, like multi-currency wallets, platforms can empower sellers across countries to collect funds, convert at competitive foreign exchange (FX) rates, and use local payment rails for supplier settlements. This enhances the platform’s appeal and broadens choices for end customers.

Fintech: The rising adoption of digital financial services prompts higher customer expectations. We have seen significant growth in the adoption of investment apps whose core value lies in enabling the broader market to invest at competitive rates. However, investing in foreign stock markets with varying currencies poses a challenge. Platforms offering low-cost currency conversions and local payment options can save consumers money while capitalising on untapped fund flows.

Remittance Providers and Banks: We often work with remittance providers eager to integrate our services, benefiting consumers with broader payout options and better FX rates. This approach also appeals to smaller and medium-sized banks, which typically offer limited payment methods or rely on SWIFT, and can expand their network efficiently through financial service integration. This gives their customers more choices without the need for external fund transfers.

HR, Bill Payment, and Booking Platforms: The pandemic has reshaped remote work, hiring, retention, and online appointments. Many appointments are virtual, and digital solutions handle employee contracts and bills. Simplifying administrative tasks and offering competitive global payment solutions, these platforms streamline processes. They provide one-stop solutions for HR, bill payments, and online bookings, enhancing customer loyalty and boosting user retention.

All of these examples underscore a key point: enabling customers to accomplish everything they need in a single place. By embedding financial services into platforms they already use, we facilitate smoother, more efficient user experiences. This is where the transformative impact of embedded financial services, which has been promised for so long, truly comes to fruition.

What is holding back more businesses from adopting fintech solutions?

In 2023, businesses faced significant challenges, prompting them to refocus on their core offerings.

Earlier this year, we conducted a survey among hundreds of SMEs in Singapore, uncovering insightful findings in the current macroeconomic climate. A prominent theme was SMEs’ drive to manage costs effectively and optimise operations. Our findings indicated a strong trust in fintech and digital platforms, with over 90% of SMEs expressing high confidence in these technologies to enhance their business activities.

However, despite this trust, some businesses struggle due to a lack of time to explore fintech options and the difficulty of identifying a starting point. Additionally, pinpointing a partner that aligns with their specific needs can be time-consuming and daunting. This underscores the crucial role of fintech companies in proactively identifying business opportunities and clearly communicating the specific challenges and opportunities that embedded finance can offer.

Partnerships with companies like Airwallex, offering global capabilities through a single API, are highly valuable in this context.

What’s next for Airwallex in Southeast Asia?

Embedded finance is at the forefront of transforming the financial services space, and we are incredibly excited about its potential in Southeast Asia. We believe it’s the right time for businesses to explore how embedded finance can enhance the customer experience and boost revenue.

At Airwallex, we are well-positioned to add value to these companies, given our global experience in embedded finance and our deep understanding of the region. Across the region, we see this trend growing as locally and regionally-based businesses restart their plans for global expansion. We look forward to supporting them and helping them expand beyond borders.