[Interview] Efayomi Carr: Embedded finance and its impact on financial inclusion

Efayomi Carr is a Principal at Flourish Ventures, a Global Fintech Venture Firm investing in fintech startups across the globe, whose innovations help people enhance financial health.

With deep fintech industry and country-specific expertise, Flourish Ventures is focused on building its investment in Africa and adding to its growing portfolio of a dozen startups located in Nigeria, Ghana, Egypt and Kenya that includes Apollo Agriculture, Fair Money, Financial Services Innovators (FSI), Flutterwave, Lendable, Pula and Paga.

How does FinTech contribute to the growth of financial access in Kenya?

FinTech has established itself as a significant engine of economic development by accelerating financial inclusion and rapidly offering innovative financial solutions. While Kenya is a FinTech pioneer, the greater effect may be accomplished by permitting more innovation and bringing more investment into Fintech. A supportive regulatory environment is critical in recruiting new market participants and laying the stage for increased innovation in the sector.

In Kenya, financial access increased to 83.7 percent in 2021, from around 70 percent in 2016, and this was mainly driven by use of technology.  

What role does embedded finance have to play in the future of the banking industry?

Getting a loan from a bank is quite an arduous task. The banking and financial industries have traditionally interacted with customers face-to-face in physical branches. Performing basic transactions often involved commuting to a bank and filling out countless forms, a tedious process where a successful transaction was not guaranteed.

New fintech solutions have disrupted the banking industry. Start-ups and small businesses have decoupled some of the core banking services and consumers can now access quick loans, bank accounts, savings and investment products, or payments from a range of providers without setting foot into a bank. This is a boon to a growing tech-savvy audience, both banked and unbanked.

The banking industry is increasingly focusing on embedded finance, which means that financial services impact every sector of the global economy. This is a positive because customers are now allowed to access financial services wherever they are, and thus they are able to get banking products from separate entities without having to set foot in a banking hall.

What are the key reasons for the growth of embedded finance in Kenya?

Growing digitization in many domains, acceptance of UPI payments, and increased demand for consumer and SME loans are some of the reasons driving the growth of the embedded finance market. The Covid-19 pandemic has also pushed the cashless economy and encouraged embedded financial consumption. SME lending is another expanding segment that is propelling the global embedded finance market forward. Small and medium-sized businesses require financial assistance to grow their distribution channels and supply chains; the covid-19, in particular, had a negative influence on these SMEs.

To recover from the crisis, many small and medium-sized businesses sought financial assistance, a loan against a business, or any other sort of loan. This increased the demand for embedded finance solutions and services.  

What is the future of fintech in the next 10 years in Kenya?

Fintech startups are beginning to bundle banking services, and the competition is forcing banks to up their game. To be at par with the quick speed of fintech, the banking sector has been forced to refine and revamp their own services. 

As a result of this evolution, the big tech platforms are now leaning more heavily into the sub-sector, trying to preserve their position as the dominant distributors. Previously, one would receive financial services through their bank or an agent, but with the emergence of mobile banking and online banking applications, this is increasingly happening through mobile devices.

We are also seeing the growth of startups with very unique models aimed at reaching the most underserved customer where they are. Many are actually introducing bank accounts as a means of accessing the customer across multiple segments. Startups will start with lending then transition to bank accounts, a debit card and additional services. This is the next generation of what the fintech giants of the continent will look like. They will no longer be specialists in doing one service particularly well, but they’ll actually be able to aggregate more products and provide a multitude of services to the customer.

How will embedded finance Impact Financial Inclusion?

Embedded finance now looks set to transform industries and this demonstrates an opportunity for fintechs, banks and lenders to create more tools and resources for those that may not have access to traditional banking and financial services.

We expect many more use cases to come. It’s a great opportunity for start-ups, SMEs and large corporations to create more client value while capturing new revenue lines. It’s also a good reason for incumbents to partner with fintech startups to accelerate initiatives that offer more support to the underserved and underbanked. Banks and financial businesses can save money, resources, and time by leveraging non-financial companies and their infrastructures to offer their financial tools.

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