Since Covid-19 forced us all indoors — credit cards in hand — Southeast Asia has seen a dramatic rise in online spending. In fact, the region has added 70 million new online shoppers since the start of the pandemic — and running parallel to this increase is a growing desire for a one-stop-shop experience that is giving rise to several new forms of payment.

Among these new payment options is embedded finance. Put simply, this is the integration of financial tools and offerings into a traditionally non-financial platform. This could be an e-commerce company providing a pay later option, or a ride-hailing app offering car insurance, for example. It is designed to streamline financial processes for consumers by making it easier for them to access the services they need, when they need it. For businesses — ranging from retailers to telcos — embedding consumer financial services closely within their ecosystem aims to both boost retention and increase their customers’ lifetime value.

With the value of the global embedded finance market expected to exceed $138 billion in 2026, and a digital-savvy population with one of the highest smartphone penetration rates in the world, Southeast Asia is a prime market for this growth.

Simplifying the user journey

The sheer availability of online services and options today has driven up the demand for better speed, convenience and personalisation. Consumers are willing to abandon transactions at a moment’s notice if they experience any delay or inconvenience, making it essential for companies to provide a seamless journey.

When it comes to embedded finance, the primary benefit is its ease of use for consumers, as it removes pain points – such as the need to seek credit or other financial services elsewhere. It allows any type of company or online service provider to incorporate retail banking solutions directly into its website or mobile apps, eliminating the need to redirect users to third-party websites or fill out lengthy forms for each transaction. Ultimately, this makes it more likely for customers to complete a purchase and be happy with the overall experience – which is what every business is aiming for.

Democratising access to financial services

One of the reasons embedded finance is critical to the region’s digital future, is this ease of use and accessibility, given that half of Southeast Asia’s population remains unbanked, with no access to financial products. One fifth also remains underbanked, with access to only a bank account. The inaccessibility of a formal and established banking system in many parts of the region has set the backdrop for the rise of several alternative financial and fintech services.

Another factor contributing to this is the high barrier to entry for traditional financial and banking services. In many countries, even opening a bank account can be a tedious and complicated process involving multiple documents, credit history and hefty fees. On the other hand, having quick add-ons like digital wallets or BNPL as part of the customer journey is a gamechanger for financial inclusion, by democratising access to finance in a risk managed ecosystem.

But this doesn’t mean bad news for banks — in fact, it streamlines the process for them, too. Rather than needing to individually source and onboard customers, banks can simply find and leverage the customer touchpoint directly. Many major players in the region have also begun to restructure their divisions and processes to focus on this emerging area of opportunity.

The adoption of embedded finance is a work in progress

While the concept of embedded finance is still evolving across Southeast Asia, there are three key stages of the process to consider when adopting this format — availability, convenience and protection.

The first stage of availability is key, of course, but the next step requires businesses to ensure that the integration of financial services in their customers’ journey is as unobtrusive as possible. Reducing the amount of information someone needs to provide – and ensuring fewer breaks in the customer journey – is crucial to create that ‘one-stop’ experience customers crave. Achieving this requires businesses to tap on advanced technologies like AI and edge decisioning to automatically process data as close to the purchase point as possible to save manual processes and time. Once this is done, the final level of evolution will involve creating products and avenues that protect people while transacting online.

At the end of the day, when consumers sit in front of their device ready to purchase, they’re not necessarily explicitly looking for financial services. The demand begins with the search for digital goods and services – but has the potential to end in embedding finance in the fulfilment journey, ultimately becoming essential to the overall experience.