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Embedded finance: assessing the benefits, use case, challenges and interest over time

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  • Ozili, Peterson K

Abstract

There is little academic interest in embedded finance despite the fact that embedded finance is part of the on-going digital finance revolution. This paper presents an overview of embedded finance. It identifies the applications, use case examples, benefits and challenges of embedded finance. The paper also analyzes global interest in embedded finance and compares it with interest in related finance concepts such as open finance, open banking, decentralized finance, financial innovation, FinTech and digital finance. Granger causality test and two-stage least square regression were used to assess interest over time in embedded finance. The empirical result show that interest in embedded finance increased significantly during the COVID-19 pandemic. The United States, the United Kingdom and India witnessed the highest interest in embedded finance compared to other countries. There is bi-directional Granger causality between interest in information about embedded finance and interest in information about financial innovation. There is uni-directional Granger causality between interest in information about embedded finance and interest in information about digital finance and open finance. The findings also reveal that interest in decentralized finance and open finance are significant determinants of interest in embedded finance. On the other hand, interest in embedded finance is a significant determinant of interest in digital finance, decentralized finance, FinTech and open banking. Also, interest in embedded finance is significantly correlated with interest in digital finance, decentralized finance, open banking and FinTech.

Suggested Citation

  • Ozili, Peterson K, 2022. "Embedded finance: assessing the benefits, use case, challenges and interest over time," MPRA Paper 115775, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115775
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    File URL: https://mpra.ub.uni-muenchen.de/115775/1/MPRA_paper_115775.pdf
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    References listed on IDEAS

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    1. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    2. Peter Gomber & Jascha-Alexander Koch & Michael Siering, 2017. "Digital Finance and FinTech: current research and future research directions," Journal of Business Economics, Springer, vol. 87(5), pages 537-580, July.
    3. Franklin Allen, 2012. "Trends in Financial Innovation and Their Welfare Impact: An Overview," DNB Working Papers 355, Netherlands Central Bank, Research Department.
    4. Peterson K. Ozili, 2018. "Impact of digital finance on financial inclusion and stability," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(4), pages 329-340, December.
    5. Ozili, Peterson Kitakogelu, 2018. "Impact of Digital Finance on Financial Inclusion and Stability," MPRA Paper 84771, University Library of Munich, Germany.
    6. Franklin Allen, 2012. "Trends in Financial Innovation and their Welfare Impact: an Overview," European Financial Management, European Financial Management Association, vol. 18(4), pages 493-514, September.
    7. Hensen, Joris & Kötting, Brigitte, 2022. "From open banking to embedded finance: The essential factors for a successful digital transformation," Journal of Digital Banking, Henry Stewart Publications, vol. 6(4), pages 308-318, March.
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    More about this item

    Keywords

    Embedded finance; open finance; open banking; decentralized finance; financial innovation; FinTech; digital finance; BaaS; API.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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