New Delhi [India], January 1 : Embedded finance has the potential to emerge as a cornerstone of India's next phase of financial sector innovation and inclusion, helping democratise access to formal financial services, reduce transaction costs, and deliver personalised solutions at scale, according to a report by global think tank Observer Research Foundation (ORF).
The report highlighted that embedded finance stands at the vanguard of India's evolving digital financial ecosystem and is transforming how individuals and businesses engage with financial systems.
It stated "embedded finance has the potential to democratise access to formal financial services, reduce transaction costs, and deliver personalised solutions at scale".
By leveraging the widespread penetration of smartphones, the rapid growth of e-commerce, and the expansion of platform-based services, embedded finance enables financial products to be offered seamlessly within non-financial digital platforms that people already use in their daily lives.
Embedded finance refers to the integration of financial services, such as payments, credit, insurance, or lending, directly into non-financial platforms or applications.
Instead of customers approaching traditional banks or financial institutions separately, financial services are built into digital platforms like e-commerce apps, business software, or service platforms, allowing users to access them at the point of need in a smooth and frictionless manner.
According to the ORF report, this model is particularly relevant for India, where large sections of the population remain underserved or underbanked despite significant progress in digital inclusion.
By embedding financial services into commonly used platforms, embedded finance can lower entry barriers, simplify access to formal finance, and reduce transaction costs for individuals and businesses.
The report noted that embedded credit stands out as one of the most powerful emerging embedded financial products. By integrating credit into the tools that small and medium enterprises (SMEs) already use, lenders can offer financing exactly when it is required.
Ultimately, the report stated that embedded finance creates a new path for low-friction, data-driven credit, which can support business growth and financial inclusion at scale.
However, the report cautioned that realising this potential will require a careful balance between innovation and oversight, flexibility and accountability, and growth and protection.
The ORF emphasised that only a forward-looking, harmonised, and adaptive regulatory framework can ensure that embedded finance contributes meaningfully to India's broader goals of economic resilience, digital sovereignty, and inclusive development.
With the right policy and regulatory approach, as per report, embedded finance can play a crucial role in shaping a more inclusive, efficient, and resilient financial ecosystem in the country.