The emergence of embedded finance in corporate South Africa

Abstract

This study explored the burgeoning phenomenon of embedded finance (EmFi) within the South African financial services sector, examining whether it is a disruptive force or merely an evolutionary progression in service delivery. Grounded in Christensen's disruptive innovation theory and supplemented by a comprehensive review of both local and global EmFi implementations, the paper aims to dissect the impact of EmFi on consumer access to financial services, evaluate its benefits and challenges, and project its future implications for the industry. Qualitative interviews with industry experts were conducted to assess how EmFi is reshaping consumer interactions with financial services, the operational and strategic benefits it offers to businesses, and the potential challenges it poses, including regulatory hurdles and data security concerns. The study further investigated EmFi's capacity to disrupt traditional banking models and induce a paradigm shift towards more inclusive, efficient, and customer-centric financial services. Findings indicate that EmFi significantly enhances consumer access to financial services, embedding banking, loans, and investment products into everyday digital platforms, thereby democratizing financial access. While EmFi presents clear benefits in terms of convenience and personalized service delivery, it also introduces challenges such as regulatory ambiguity and increased data privacy risks. The future impact of EmFi on the financial services industry suggests a potential hybrid future where traditional institutions and fintech innovations collaborate more closely under a redefined regulatory framework. It was concluded that, currently, EmFi represents an evolutionary step designed to enhance the delivery of financial services. However, it possesses the latent potential to become a disruptive force. Traditional banks that fail to keep pace with technological advancements, update legacy systems, and foster open partnerships with fintech’s and third parties may find themselves at risk of disruption. EmFi stands at a crossroads, with its trajectory dependent on the strategic responses of the banking sector to these emerging challenges and opportunities. Recommendations for future research underscore the importance of continuous exploration into EmFi's evolving iii role in promoting financial inclusion, adapting regulatory frameworks, and reshaping the competitive landscape.