By Vinay Kapoor, Executive Vice President, Triterras
In the heart of the Middle East, the United Arab Emirates (UAE) is undergoing a profound transformation in its business landscape, propelled by the groundbreaking influence of embedded finance. This innovative financial paradigm is not only reshaping traditional structures but also fundamentally altering the way businesses conduct transactions, manage financial risks and navigate the complex financial landscape.
At its core, embedded finance involves integrating financial services seamlessly into non-financial platforms, weaving banking functionalities into everyday activities. This innovation allows businesses to offer financial services as part of their core offerings, creating a seamless and integrated customer experience. As we delve into the transformative era of embedded finance in the UAE, the impact is profound, influencing how businesses interact with, and leverage financial tools to enhance operational efficiency and customer engagement.
The UAE, comprising of seven emirates, has strategically transitioned from being a logistics-centric hub to a comprehensive business nerve centre, strategically catering to Asia, Europe and the Middle East and Africa (MEA). This strategic shift is a result of the UAE’s commitment to economic diversification initiatives, the meticulous implementation of national logistics plans and the widespread adoption of cutting-edge digital technologies.
Embedded finance, with an annual growth rate projected at an impressive 30.1% until 2029 in the UAE, stands as a beacon of this transformative journey. At the forefront of this financial revolution is embedded payments, a phenomenon that seamlessly integrates digital payment options within non-financial platforms. This integration streamlines the payment process, enabling customers to make transactions without leaving the website or app. Instant payments and digital wallets like Payit have become integral, illustrating how financial transactions are now seamlessly embedded into the daily operations of businesses, enhancing transaction efficiency and elevating customer experiences.
Another dynamic facet of this transformation is embedded insurance, a strategy that involves selling insurance alongside another product or service, typically at the point of sale. The concept of add-on insurance for products or travel, for example, not only enhances customer confidence but also mitigates risks for both consumers and businesses. In the fiercely competitive market of the UAE, this integrated approach serves as a valuable differentiator, fortifying businesses against unforeseen challenges.
Embedded lending services are actively bridging financial gaps within businesses by providing easier access to credit. The rise of Buy Now, Pay Later (BNPL) services, SME financing and co-branded credit cards exemplify this trend. These lending solutions empower businesses to manage their finances more efficiently, fostering growth and innovation. The impressive growth projection of BNPL services at a CAGR of 13.1% during 2023-2028 in Saudi Arabia underlines the transformative impact of embedded lending in the region.
Embedded investing is also making waves, democratizing wealth management services. Businesses can now seamlessly offer investment opportunities integrated into their digital platforms. Non-financial companies, such as the ride-hailing giant Careem, have ventured into investment products, marking a departure from traditional financial institutions and creating a more inclusive approach to wealth creation.
While the prospects of embedded finance are promising, it is crucial to address challenges such as regulatory frameworks, data security concerns and ensuring transparency in financial practices. Navigating these challenges adeptly presents opportunities for businesses operating in the UAE. The integration of embedded finance not only opens new revenue streams and enhances customer loyalty, but also establishes a symbiotic relationship between financial and non-financial entities.
The UAE government has taken bold initiatives to bolster the nation’s financial infrastructure, seamlessly aligning with the rise of embedded finance. For instance, the Central Bank of UAE launched the Financial Infrastructure Transformation Programme, a pivotal initiative to accelerate digital transformation in the financial sector. This program supports digital transactions, fosters innovation and positions the UAE as a hub for financial excellence. Such initiatives foster a climate conducive to greater financial integration, digitalization and sustainability in business operations. As businesses navigate this new era, where financial services seamlessly intertwine with their core operations, the UAE stands at the precipice of a new financial landscape.
One of the noteworthy impacts of embedded finance, is its transformative effect on the supply chain in the UAE. The efficiency gains achieved through streamlined payments, innovative lending solutions and enhanced financial management directly contribute to a more interconnected, efficient and resilient supply chain ecosystem.
In the context of the supply chain, embedded payments play a pivotal role. The seamless integration of digital payment options reduces friction in transactions, expediting the entire procurement process.
Suppliers and manufacturers can now receive instant payments, improving cash flow and reducing the need for complex invoicing procedures. This not only accelerates the pace of transactions, but also minimizes delays and uncertainties in the supply chain.
Furthermore, embedded lending solutions such as BNPL services and SME financing, inject liquidity into the supply chain. Businesses can access credit more easily, allowing them to optimize inventory levels, meet sudden demand surges and navigate through seasonal fluctuations. This financial flexibility enhances the resilience of the supply chain, ensuring a continuous and smooth flow of goods and services.
Embedded insurance contributes to risk mitigation within the supply chain. The ability to purchase insurance at the point of sale provides businesses with an additional layer of protection against unforeseen disruptions. Whether it is insuring shipments against damages or protecting against financial losses due to unforeseen events, embedded insurance fosters a more secure and reliable supply chain environment.
Moreover, embedded finance facilitates strategic partnerships within the supply chain. Businesses can collaborate more seamlessly, leveraging shared financial platforms and services. This not only streamlines payment processes between partners, but also fosters trust and transparency in financial transactions. Collaborative financial tools, such as co-branded credit cards, enable businesses to jointly invest in initiatives that enhance the efficiency and sustainability of the supply chain.
The versatility of embedded finance is evident in its application across various non-financial customer journeys, including ride-hailing, food delivery and in-store retail experiences. This versatility enables businesses to adapt to changing consumer preferences and market trends, ensuring a more dynamic and responsive supply chain.
Buy Now, Pay Later (BNPL) services emerge as a poster child within the embedded finance ecosystem, particularly in the supply chain. Despite regulatory scrutiny, the growth of BNPL payments in Saudi Arabia exemplifies the widespread adoption of this innovative financial tool. In the context of the supply chain, BNPL services empower businesses to manage cash flows efficiently, providing them with the flexibility to make payments based on the actual revenue generated from the delivered goods.
The transformative impact of embedded finance on the UAE’s business dynamics extends beyond financial services; it is redefining the very fabric of the supply chain. As businesses embrace this financial evolution, the UAE is poised to usher in an era where collaboration between financial and non-financial entities propels unprecedented economic growth and innovation. Embedded finance, with its seamless integration into supply chain operations, is revolutionizing the way transactions occur, creating a more interconnected, efficient, and resilient ecosystem that will define the future of commerce in the UAE.
