An

Embedded
Finance
Future in
Asia
Payments have already
become invisible, finance is
soon to follow.

A report from Kapronasia in

collaboration with Thought Machine

November, 2022
Contents
Executive Summary 3
Introduction 4
Open Banking and Embedded Finance in Asia 5
Creating Embedded Finance Solutions in Asia 6
The Business Case and Risks of Embedded Finance in Asia 9
Conclusion 11

Methodology
Kapronasia conducted both primary and secondary research in Asia-Pacific to obtain the most relevant insights from the
industry around embedded finance. Secondary research sources included but were not limited to, market intelligence
reports and studies by industry experts and professional services networks, white papers, educational materials, media
articles, and marketing collateral. Primary research interviews were secured from relevant players across the ecosystem,
including financial institutions, Fintechs, and industry experts.
An Embedded Finance Future in Asia
Executive Summary
The inexorable march of new technology in
everyday life is heavily impacting the nature of
financial services in Asia. One area of particular
interest is the degree to which financial services
are increasingly being provided via non-financial
platforms or apps – embedded finance. Examples
abound, from booking a taxi where payments
are automated to simply clicking a box to add
insurance for a product or service as a user is buying
something from an e-commerce site.
Open banking, essentially the sharing of financial
data between banks and 3rd parties, has provided
succor to platforms looking to embedded financial
solutions in Asia’s ecosystem. Whilst the extent of
open banking varies markedly across the region,
several business models have arisen making use
of the technical developments and more liberal
information flows.
Today, scores of market participants are deploying
embedded finance. Naturally, traditional financial
institutions are embedding solutions to enhance
their current offerings. Meanwhile, smaller, and
more nimble start-ups are looking to muscle in
on the incumbents’ markets. More recently, non-
financial organizations have started to develop
the ability to deliver financial services on top of
their existing products in order to join the fray and
capture a slice of the market.
These firms have various approaches to embedded
finance. To begin with, many are including basic
payments and FX services in their platforms. This
can lead to the offering of complementary services
such as lending or insurance products at the
point of sale. Finally, firms may cross-sell entirely
new product lines, for example full-service bank
accounts.
The ramifications for market participants are
substantial. On one hand, embedded finance can
help firms acquire clients who are more engaged via
platforms which customers are already using. This
acquisition can be done cheaply as less physical
infrastructure is required, particularly pertinent in
rural parts of Asia where ticket sizes are smaller.
On the other hand, clients may become more
engaged with the 3rd party app than with the
financial firm, whose products can be simply
commoditized.
Nevertheless, profitable opportunities in Asia
are myriad for those able to capitalize on these
developments and create solutions which
customers find appealing. Firms would do well to
be cognizant of developments as embedded finance
is on the rise across Asia. The progress is likely
to continue unabated into the foreseeable future
and become an increasingly important element of
financial services in Asia.
3
An Embedded Finance Future in Asia
Introduction
Financial services have evolved over time as banks
and other financial institutions have improved
the customer experience using digital solutions
to make services faster and more convenient.
The benefit of these developments has been
profound, to the point where banking and financial
services have been dramatically simplified and
the cost of making transactions has been reduced
substantially.
That said, the opportunity exists for market
participants to innovate further in order to capture
additional value from existing processes or indeed,
find ways to acquire clients more cheaply using
digital means.
These market participants typically consist of,
on the supply-side, large incumbent financial
institutions through to smaller fintech startups. On
the demand-side, e-commerce platforms through
to more traditional businesses such as airlines and
telecommunications giants, many of which have
begun embedding financial services into platforms
which customers use daily.
Quite simply, embedded finance can be defined as
financial services that are incorporated into non-
financial platforms such as e-commerce or social
media platforms. Embedded finance gives users
access to financial products directly in a 3rd party
platform without having to open a bank app or go
to a bank branch.
A good example of an embedded finance solution
is the partnership between Standard Chartered
(SC) nexus, a Banking-As-A-Service (BaaS) service,
and Bukalapak, an Indonesian e-commerce
operator. By leveraging Standard Chartered’s retail
banking licenses via SC nexus, Bukalapak is able
to provide their clients direct access to an array
of Bukalapak branded, but SC nexus powered,
financial services within their platform.
In this report, we lift the cover on embedded
finance in Asia and look at what makes it unique.
Further, we develop a framework which both
financial and non-financial entities can consider
when looking to deploy embedded finance
solutions. Finally, we look ahead to developments
which provide insight into how the embedded
finance space might look in the future.
4
An Embedded Finance Future in Asia
Open Banking and Embedded Finance in Asia
The always-on nature of digital platforms such as
social media sites, chat apps, and gaming has made
customers, especially the younger generation,
more demanding of financial services providers.
Increasingly, customers are looking for that same
fast and convenient service they get from their
non-financial platforms at the click of a button
from their banks.
In recent years, technology has evolved to such an
extent that a substantial proportion of financial
services can be offered digitally, and increasingly
through 3rd party non-financial platforms. The
advent of open banking has accelerated this
process.
Open banking
Open banking allows customers’ financial data
to be shared between financial institutions and
3rd parties. Typically, this is achieved using
Application Programming Interfaces or APIs. An
authorized 3rd party can then utilize this data and
access to offer financial services on their platform
or app.
A good example of open banking in action is
the Singapore Financial Data Exchange, or
SGFinDex, a government led initiative which
allows bank customers to view consolidated
financial information even if various accounts and
investments are held with different government
agencies and financial institutions. Historically
this could only have been accomplished through
screen-scraping but can now be done simply
through an API.
Whilst open banking is being widely employed
across the region, the extent to which it is adopted
and the driver for adoption varies significantly by
jurisdiction.
For instance, the Australian Prudential Regulation
Authority (APRA), Australia’s banking regulator,
has required the country's banks to comply with
a number of open banking mandates. Conversely,
Singapore and Korea have had a more market
driven approach whereby banks are encouraged
to create APIs under regulatory ‘guidelines’, but
they are not obligated to do so. Meanwhile, other
countries in South-East Asia such as Vietnam and
Thailand have focused less on developing open
banking altogether.
The advent of open banking enables new business
models to develop by structurally separating the
customer interface and back-end services. The
spectrum of open banking models ranges from
a bank building a wholly-owned interface and
distributing its own products, through to a 3rd
party corporate branded platform, powered by a
bank's technology and license, selling financial
products alongside or in combination with the
corporate entity’s products. There are, of course,
a number of hybrid forms of these arrangements
in-between.
Embedded finance
Embedded finance is one manifestation of the
open banking evolution. Brankas is an open
finance technology company providing services
to financial institutions. According to its CEO and
Co-founder Todd Schweitzer, embedded finance
can be defined as “services which enable access
to financial services via 3rd party platforms or
applications. Simply put, embedded finance
enables interaction with bank data or bank
products without the need to use a banking
application or physically visit a bank branch.”
"Simply put, embedded finance enables
interaction with bank data or bank
products without the need to use a
banking application or physically visit a
bank branch.”
The key driver for developing embedded finance
solutions is ultimately for the product and service
providers to increase revenues. Enabled by open
banking, this new paradigm creates opportunities
for market participants to profit on this
technological progress and build new solutions
which enhance customer journeys.
Figure 1 illustrates the various different open
banking business models. Embedded finance is
most accurately represented by Category 3, where
the financial products are embedded in a 3rd party
platform.
5
 An Embedded Finance Future in Asia

Figure 1
Open Banking Business Models

As-a-service supplier 2 White-label platform 3

Banking-as-a-Service
External third-party

Clients Bank connects to a Clients Corporate-branded

third-party platform to platform (powered by
provide liquidity or bank) distributes
Distribution Distribution
other treasury services products to end clients
Distribution method

API API Bank owns the APIs

Bank owns the but products are from
products and APIs Products / Services third-parties
Products / Services

Traditional full-service 1 Platform owner/curator 4

Clients Clients Bank-branded platform

Platform banking
Bank provides services
or marketplace
to clients via an owned
Distribution Distribution distributes products to
distribution channel
Own

bank’s clients
API API
Bank owns the Bank owns the APIs
products and APIs but products are from
Products / Services Products / Services
third-parties
Own External third-party

Bank owned product Third party provided product

Covered or owned by bank

Creating Embedded Finance Solutions in Asia

The desire to launch embedded finance products
is a two-way street in that both finance and non-
finance companies want such products to profitably
serve customer needs.
One one side, incumbents such as Westpac, an
Australian bank, via its Banking-As-A-Service
platform, are looking to use embedded solutions
to increase customer acquisition, for example
by helping their non-banking clients create
savings accounts on their apps for the non-bank’s
customers. On the other side, non-financial
companies are looking to add revenues from new
product lines which cross into the financial realm.
For example Tokopedia, an Indonesian e-commerce
platform has embedded merchant lending products
into its platform, seamlessly providing access to
capital for merchants on their platform, many of
which would not have had access to traditional
financial services providers. Naturally, Tokopedia
benefits from a more engaged customer and a new
revenue stream in the form of lending. Merchants
benefit from never having to leave the platform to
borrow.
Meanwhile, a raft of fintechs have started
developing API gateways designed to bridge the gap
between financial and non-financial platforms and
enable embedded finance, potentially encroaching
on traditional incumbent providers.
Approaches to embedded finance can be bucketed
broadly into three buckets which we have detailed
in Figure 2.

6
An Embedded Finance Future in Asia

Figure 2
The Stages of Embedded Finance in Asia

1 2 3

Capture value of existing Provision of Launching full-service

financial services
Building additional
functionality in a platform
to be part of the financial
value chain, often through
payments.
complementary financial banking
products and services
Launching new financial The sale of completely
products or services that new, typically full-service,
are complementary to the financial products and
existing offerings. services through an
existing platform.

Example: an e-commerce Example: Thai mobile Example: Indonesian e-

platform such as SEA operator dtac incorporating commerce platform
Group’s Shopee bringing insurance offerings in its Bukalapak allows users to
payment processing platform by leveraging open full-service bank
in-house. bolttech, a Singapore accounts on the platform
insurtech. leveraging Standard
Chartered nexus.

Capturing Value of Existing Services
First, companies typically look to capture some
part of the existing financial services value chain.
Nearly three decades ago, Bill Gates was quoted as
saying “banking is necessary, but banks are not.”
Today, a myriad of companies are following that
mantra by building solutions into their platforms
aiming to muscle in on the banks’ markets and
capture value from some more elementary
financial services like payments or foreign
exchange (FX).
This first step is perfectly exemplified by ride
hailing apps such as Grab and Gojek who routinely
process payments at the click of a phone button.
Traditionally, these payments would have been
the domain of banks and other large financial
institutions as well as payment service providers
(PSPs). Today, more platforms are bringing
payments in-house, effectively becoming their own
PSP either through their own payments license or
a partner's.
Similarly, embedded FX transactions have evolved
such that they can be conducted with less friction
yet more certainty on the exchange rate and time
for the money to be transferred. Rohit Narang,
Managing Director, APAC, at Currencycloud,
a financial infrastructure provider, goes a step
further commenting that “many of the traditional
services can simply become a feature in a 3rd
party app which allows a corporate to deliver a
better customer experience and at the same time,
increase revenue.” For example, Currencycloud
provides infrastructure for fintechs that support
e-commerce platforms by providing their sellers
with multiple virtual currency accounts. This
minimizes cost and complexity for sellers when
consolidating cash from sales across different
countries/currencies.
Provision of Complementary Products
The second step of embedded finance is providing
financial products which are complementary to
an existing non-financial offering. For example,
the ability for a customer to borrow, or obtain
insurance at the point of sale when purchasing
a non-financial good or service. This allows the
platform to provide a more seamless service to its
customers while also capturing a portion of the
financial product revenue.
Rohit Khatri, Head of Insurance Exchange at
bolttech, an international insurtech based in
Singapore, elaborates the benefits further with
respect to insurance “when a client is engaged at a
particular time when buying a service or product,
they are sensitized to the transaction, hence it is
the right time to provide the additional service.”

7
An Embedded Finance Future in Asia
“When a client is engaged at a particular
time when buying a service or product,
they are sensitized to the transaction,
hence it is the right time to provide the
additional service.”
An example of this can be seen in the partnership
between bolttech and dtac, a large Thai mobile
operator. The partnership allows dtac’s customers
to access relevant insurance products and services
more easily in a convenient manner directly on the
dtac platform. By collapsing the need for multiple
platforms or apps to complete tasks into a single
touch point with which consumers are often more
engaged, the user experience is enhanced.
Further evidence of this is in the embedded
lending space where lending products can give
customers more flexibility and control in making
immediate decisions on spending/borrowing.
Matthew Little, VP of Product at Episode Six, a
payments technology company, explained “if a
customer can see more flexible borrowing options
at the point of sale, the customer is not only
empowered to make decisions immediately, but
their shopping experience is further enhanced.”
Asia's Buy Now, Pay Later (BNPL) platforms such
as Atome and Afterpay leverage this approach in
their point of sale offerings.
Lending can be further extended to the business
space, where cashflow may be an issue, especially
for SMEs. Gus Poston, Founder of Netbank in the
Philippines pointed out that “there is potential
for supply chain financing to be embedded
into 3rd party platforms,” as is the case in the
aforementioned example of Tokopedia’s merchant
financing service.
Launching Full-Service Banking
The third and final step for many participants is
the sale of completely new financial products and
services, often as part of a more comprehensive
digital banking offering. In this case, clients are
channeled to new services which may be different
from the business’ current offering, thus creating
a brand-new revenue stream. For example, a
platform offering a full-service bank account
to customers where previously minimal or no
financial services were on offer.
In Asia, this approach can help platforms
profitably acquire clients that might not have
been possible using traditional banking channels,
essentially those that are financially excluded.
According to Bain Consulting, more than 70%
of people in Southeast Asia remain unbanked
or underbanked. Oftentimes, this is due to the
relatively high cost and low revenue potential of
serving these customers who are often in rural
areas without significant traditional financial
infrastructure. The ubiquity and low cost of mobile
phones and on-line banking mean that many
of these customers can be banked profitably on
digital platforms even though the transactions
sizes might be lower.
Sachin Sharma, Chief Product and Commercial
Officer at Standard Chartered nexus business
highlighted this using Standard Chartered’s
partnership with Bukalapak, an Indonesian
e-commerce platform, where a white labeled bank
account is opened on Bukalapak using technology
provided by Standard Chartered’s nexus. The
partnership allows a user on Bukalapak to open,
via a sister app, a full-service bank account which
is equivalent to that offered by a traditional bank
without the need for the usual physical banking
infrastructure.
Whilst Bukalapak manages the client interaction,
client deposits are held on the balance sheet of
Standard Chartered. This arrangement provides a
win-win solution as it creates new revenue streams
for both the bank and the e-commerce platform.
Mr Sharma elucidates “we believe it creates a
winning proposition, as it helps to create a brand
for the e-commerce player, as opposed to a simple
referral fee to a fintech.”
Mr Schweitzer highlights a further example in
which Brankas is building the technology to help
customers purchase Wealth Management products
directly from their e-wallets. Again, this cross sell
offers a cheaper client acquisition strategy for the
wealth manager and an additional revenue stream
for e-wallets. Meanwhile, the customer experience
is enhanced as customers can get faster access to
high-quality financial products from one place.
8
An Embedded Finance Future in Asia
The Business Case and Risks of Embedded
Finance in Asia
The evolution of embedded finance provides an
opportunity for businesses large and small to
profit by making financial life simpler for their
customers, however, the growth of embedded
finance is not without challenges and risks.
The Bullish Case for Embedded
Finance in Asia
At a very basic level, embedded finance can
create a more engaged customer as they are using
an ecosystem in which they are typically more
familiar with. Rather than needing to take multiple
steps to complete a financial transaction, users
are able to achieve the same outcome in a more
seamless manner.
In a similar vein, banks and financial institutions
can access alternative data through 3rd party
platforms which can help banks better serve or
cross sell their products to individual clients,
hopefully increasing revenue and creating a better
customer relationship.
On the tech side, banks can effectively delegate
the heavy lifting of customer acquisition and
tech development to the 3rd party and focus on
up-selling their products. For example, if a BNPL
product is deployed on an e-commerce platform,
the platform already has a user base and will
ensure the smooth running of the platform,
allowing the bank more time to focus on up-selling
rather than maintenance.
As embedded finance transactions often occur
at a point of sale, they can also improve product
development as they can be personalized to the
user. Mr Khattri from bolttech, explained in the
context of insurance products that “embedded
products can be tailored exactly to the client’s need
at the point of transaction so that the client gets an
appropriate product with the precise coverage for
the exact term.”
Further, he argues that embedded finance
products can make the non-financial company’s
core product more attractive if it adds to the ease
or confidence of doing business. For example, an
e-commerce platform may embed insurance as an
offering to its premium customers/sellers which
may drive confidence in the underlying platform.
The Bearish Case for Embedded
Finance in Asia
On the flip side, embedded finance also has risks
and challenges given that it is often reliant on
new technology and there are a surfeit of new
competitors entering the marketplace.
A primary concern for incumbent financial
institutions is the risk that a plethora of new
entrants dis-intermediate their existing business
model. Whilst this threat of dis-intermediation is
not limited to embedded finance products, it can
be exacerbated given that clients may have a close
association with a 3rd party app, so banks are
concerned that their customer relationship may
become marginalized, and their banking products
become more commoditized.
New distribution channels for financial products
via 3rd party platforms can also make it tougher for
banks to acquire clients in the traditional fashion.
Particularly so as these services are often in places
where customers are more engaged. It follows that
the incumbent may require a meaningful upgrade
to their services and infrastructure to defend
market share thereby squeezing their margins.
Lastly, whilst developing new products and
services is one thing, the traditional risks in
lending or insurance operations should not be
overlooked simply because a neobank or insurtech
operation has an attractive and smoothly
operating platform. These new players potentially
lack experience in more traditional risk monitoring
and compliance and could inadvertently suffer
heavy losses if those elements are not treated with
due care. This is exemplified in the BNPL market
in Australia where the share prices of several newly
established operators have suffered during 2022 as
substantial bad debts mounted.
In light of these opportunities and risks, we have
developed a embedded finance framework for
companies to consider when they are looking to
launch embedded finance services and products.
Figure 3 encapsulates the current zeitgeist and
gives market participants suggestions on which to
ruminate when launching products.
9
An Embedded Finance Future in Asia
Figure 3
Embedded Finance Development Framework
Enhance the Client Journey
• Map out client journey and identify
points of friction.
• Define and focus on short-term
goals to address and resolve issues
• Review current C/X and ensure any
new solution is same or higher
quality to maintain service level and
brand loyalty.
• Be conscious of making large, rapid
changes rather than incremental.
Build Platform Scalability
• Build modular platforms to ensure
straightforward deployment in new
markets.
• Assess internal processes to
ensure organizational capability for
new solutions.
• Ensure platforms can be scaled up
on demand to POC new markets.
• Assess new customer profitability
especially in markets with low
average revenue per user.
Develop Product Agility
• Ensure products are sufficiently
dynamic to allow for personalization.
• Ensure platforms can assess and
track user uptake of and feedback
on new products.
Client Product • Identify partners who understand
Journey Agility product offering and can deploy both
standard products and personalize
new products.
Ensure Regulatory Compliance
• Review potential regulatory issues
Platform Regulatory when designing products from both
Scalability Compliance the tech and product angle and
ensure compliance.
• Engage with regulators at an early
stage of product development and
continue regular dialogue as
products/platforms develop.
• Work with partners who
understand and can ensure
regulatory compliance.
10
An Embedded Finance Future in Asia
Conclusion
As technology has improved over time, so have
financial services. Embedded finance is another
iteration of this journey, and it is playing out in real
time throughout Asia’s financial ecosystem. Both
financial and non-financial players are looking for
ways to innovate and claim or defend market share
in Asia’s financial service markets.
The embedded finance landscape is developing
from the rather ubiquitous lending and payments
services today and evolving as more complex
financial products are added. Whilst the potential
product development is essentially limited only
by the innovation of market forces, the reality
of embedded finance today is that more simple
products such as payments/FX, and retail lending
predominate.
This begs the question about what is next
for embedded finance and how products and
platforms may evolve in the medium term. Mr
Poston from Netbank said that “there has been a
gap in ideation which banks have not addressed.”
However, it appears there is ongoing dynamic
change with further progress on the horizon.
An obvious candidate for the next evolution is for
companies to further embed the more mainstream
financial services such as savings accounts
and investment products into non-financial
applications. Products which Standard Chartered’s
nexus and Westpac are today pushing hard to build
out via 3rd party applications.
Retail BNPL offerings are today relatively
mainstream, however Mr Little from Episode Six
suggested this can be developed further as clients
want financing and flexible options on a wider
array of products. A scenario can be envisaged
where a provider sets up a BNPL program for an
on-line car retailer that allows customers to buy
and finance a car through the manufacturer’s site
as easily as a textbook is purchased from Amazon
today.
Mr Narang from Currencycloud noted a dearth
of products serving the SME market “whilst it is
difficult to predict the exact form of the industry,
there is a huge opportunity to serve SMEs with
embedded products and it would be unsurprising
to see a J-curve in this area in the next 5 years.”
An example of this type of B2B offering might be
the integration of financial services into Enterprise
Resource Planning (ERP) systems. Mr Schweitzer
from Brankas suggested further integrations of
payments into accounting platforms. “SMEs would
be able to make payments to suppliers directly
from an accounting system, rather than having to
separately log into an additional bank portal just to
make a payment.”
As with any free market, precisely how embedded
finance plays out remains to be seen, however
what is clear is that embedded finance is here to
stay in some form. Market participants would do
well to remain cognizant of these developments
and the Framework detailed above provides a
basis for consideration when designing such
solutions. There is opportunity to cash in on these
technological developments for those putting in
the effort to build new products. The corollary is
that there is risk to existing business models for
those remaining wedded to business models of the
past.
11
Thought Machine has developed the foundations of
modern banking with its cloud-native core banking and
payments technology. Its cloud-native core banking
engine, Vault Core, is trusted by leading banks and
financial institutions worldwide, including Intesa
Sanpaolo, ING Bank Śląski, Lloyds Banking Group,
Standard Chartered, SEB, Lunar, Atom bank, Curve, and
more.

Thought Machine is currently a team of more than

500 people spread across offices in London, New York,
Singapore, Sydney, and Melbourne and has raised more
than $500m in funding.

For more information, visit https://thoughtmachine.net

Kapronasia is a leading strategic consultancy covering

fintech, banking, payments, and capital markets. From
our offices and representation in Shanghai, Hong Kong,
Taipei, Seoul, and Singapore, we provide clients across
the region the insight they need to understand and take
advantage of their highest-value opportunities in Asia
and help them to achieve and sustain a competitive
advantage in the market.

Please visit https://www.kapronasia.com

© 2022 Kapronasia Singapore Pte. Ltd.

All rights reserved.

www.kapronasia.com