Unlocking fintech’s potential in the GCC region: The business opportunity of embedded finance

If you’ve ordered takeout from an online food delivery company – choosing your meal, paying, and tipping, all without leaving one app – then you’ve benefited from embedded finance. It’s a streamlined, seamless process that is already delivering on its huge potential for businesses and consumers — promising not only to streamline the customer experience, but also to extend financial inclusion to underserved populations.

Few regions better demonstrate the scale of embedded finance’s potential than the Gulf Cooperation Council (GCC) economies. Thanks to a unique mix of high smartphone penetration, a burgeoning fintech scene, and a large unbanked population, embedded finance is revolutionising the GCC region’s financial industry.

The rise of embedded finance

The term embedded finance might be relatively new, but the broader concept itself isn’t. Airline credit cards, payment plans for expensive items – all examples of embedded finance – have been around for decades.

Now, though, the barriers to entry are falling. Take the example of one-click payments. When the technology was introduced by Amazon back in 1997, it was hailed as a game changer: rather than having to type out their billing, shipping and payment details every time they wanted to buy something, customers could enter that information just once. Every subsequent purchase could be made with a single click. 

But while that technology was at the time available only to e-commerce giants, that’s no longer the case. Thanks to APIs that allow non-financial companies to connect to the infrastructure of banks and other financial institutions, even the smallest of businesses can provide the same smooth experience as bigger companies. Open banking, which allows customers to share their financial data with non-bank third-parties, has had a similarly democratising effect. 

Legislation like Bahrain’s Open Banking Framework, launched in 2020, has helped create the type of enabling environment in which these technologies can thrive. As a result, today, leading companies like Sinnad and Infinios, both of which are headquartered in Bahrain, have emerged  embedded finance solutions – such as card processing and payment acceptance – for all sorts of businesses. 

And thanks to these types of offerings, embedded finance is taking off in the region: it’s predicted that the industry – which could be worth over $600 billion globally by 2025 – will have a compound annual growth rate in the wider MENA region of 27.8% from 2022 to 2029

What embedded finance means for customers

The benefits of embedded finance solutions for consumers are significant. It allows them seamlessly to carry out financial transactions like making payments, taking out a loan or buying insurance with ease. For example, users browsing on a home-buying app could receive a mortgage quote in the same app. Customers purchasing a flight online could at the same time be offered the opportunity to buy travel insurance for their trip, saving them the hassle of having to look elsewhere.

Already, businesses in the GCC region are taking advantage of these opportunities to create a friction-free buying experience, which research suggests leads to higher-spending, more loyal customers. For example, Souqalmal, which has its headquarters in the United Arab Emirates, has partnered with banks to integrate loan offerings into its price comparison platform, simplifying the financing process for its users.

Another example comes from the telecom industry, with the Saudi Telecom Company’s stc pay, a digital wallet that allows customers to access a range of financial services through their mobile phones.

A game changer for financial inclusion

But if embedded finance stands to be a game changer, it’s because it can do more than simply turn brands into one-stop-shops, or simplify the lives of online shoppers: it has the potential to provide a lifeline for people who have until now been underserved by traditional financial institutions. For example, people without local credit history, such as immigrants, who in the past would have struggled to access banking, will now have more options.

In fact, companies in the GCC region are already putting the technology to use in this way. Earlier this year, for example, Arab Financial Services (AFS), the region’s leading digital payment solutions provider, which is headquartered in Bahrain, announced it was partnering with Brankas, an open finance company, to offer clients a wider range of embedded finance solutions, such as credit scoring, payroll disbursements and account-to-account payments.

E-commerce companies in the region are also using embedded finance to widen access to their goods. For example, the Bahrain-based e-commerce platform Mumzworld allows customers to purchase products but pay for them in instalments, a form of embedded finance referred to as “buy now, pay later,” which research suggests can – if carefully managed – improve financial inclusion by increasing access to credit.

A groundbreaking innovation

Embedded finance is a groundbreaking innovation that has the potential to revolutionise the business environment in the GCC region – making financial services more accessible, convenient, and affordable; creating a richer, more seamless shopping experience for consumers; and ensuring that companies can match or even exceed their customers’ expectations.