Embedded Finance: What’s in it for Banks?

Embedded finance now holds a common place in our everyday lives. Calling a ride-share, making a purchase through social media, or choosing the buy now, pay later (BNPL) option on your favorite e-commerce site has all been made possible by embedded finance.  

Embedded finance is becoming an increasing area of focus among a vast array of businesses due to its ability to increase revenue streams and streamline convenience for customers. It has leveled the playing field and allowed new players, such as small businesses and tech startups, to enter the financial services industry where they can leverage existing user bases and technology to offer improved financial services as a non-banking organization.  

At the recent 2023 MoneyLive Summit Europe, Teo Blidarus, CEO and Co-founder at FintechOS; Kevin Mountford, Co-founder at Raisin UK; Kristina Persson, Analytical Lead at Google; and Mario Benedict, Head of APIs, Open Banking, EMEA – Digital Solutions and Wholesale Payments at JP Morgan Chase sat down and discussed the industry’s future in the panel discussion: Envisioning the Evolution of Embedded Finance, moderated by Juliette Foster, Magnus Communications. 

The benefits customers receive when businesses use embedded finance may be obvious. They get a simpler, more seamless experience or transaction without having to leave the platform or application they’re already using. But what opportunities does embedded finance present to banks? Here’s a few takeaways from our panelists’ conversation. 

Sky’s the Limit: Tapping Into New Revenue Streams 

Embedded finance is not a new concept, but the increase in technology solutions like APIs and open banking is accelerating its adoption. Non-financial entities are realizing the value they can add to customers’ experiences through third-party integrations. For banks, this means providing better value to your customers and tapping into new revenue streams and markets. Blidarus shared examples of three companies successfully utilizing embedded finance to expand their offerings in three very different ways: 

1. A small challenger bank in Southeast Europe was able to create a highly personalized set of products and propositions using embedded finance. From credit cards and BNPL options to loans, they did things differently than established giants and transformed into the most profitable bank in Southeast Europe. 
2. A French-based multinational financial services leader created a whole new business sector in banking which they call e-commerce. They use a holistic approach to identify value opportunities all the way down the supply chain – from collecting payments to offering warranties and BNPL options to insurance coverage.  
3. A non-banking UK company embarked on an ambitious journey to diversify their portfolio with embedded insurance and embedded finance products. They were able to personalize their offerings to each channel’s needs by presenting a customized value proposition and customer journey. 

Each company uncovered new revenue streams and successfully tapped into them using embedded finance solutions. Read additional success stories here.  

Here’s Where Embedded Finance is Taking Root 

We’re seeing embedded finance integrated across industries, such healthcare, transportation, and retail, with the expectation to expand into additional industries as more business recognize the benefits of integrating financial services into their offerings.  

Common examples include: 

• Financing options for medical expenses 
• In-app payment capabilities or add-on insurance for rides and flights 
• The option to split payments when checking out with BNPL 

The bottom line – embedded finance is everywhere, and small businesses and startups want the opportunity to enhance customer value and experience. 

If embedded finance is integrated as seamlessly as it should be, customers won’t even recognize it’s there.

– Kevin Mountford, Co-founder at Raisin UK 

Stay Relevant and Know Where to Invest 

As challenges spring up and competition tightens, banks need to react nimbly and stay relevant if they hope to stay on top. “Every customer you work with will require a different approach and you need to have the flexibility and data-driven products in-place to be able to work with big partners like Amazon, regardless of your size. It’s all about readiness, openness, and being able to open multiple channels rather than narrowing down on just one when the right time arises,” stated Bildarus. 

Another important area to invest in is data, which leads us to our next section. 

Be Prepared For Inevitable Challenges 

Embedded finance needs to be a seamless experience and there are certainly a few hurdles banks need to overcome to deliver that seamlessness customers are looking for. One such hurdle is data. Maybe your organization doesn’t have enough data or it’s too difficult to extract, maybe recent data protection regulations have paralyzed internal decision processes, and maybe your organization simply hasn’t grown into a data-driven decision-making company. Personns suggests using embedded finance as a catalyst to understand your data and Benedict brings up the point that incumbent banks have vast legacy systems that can take a great deal of time to sort through, leading to a greater investment.  

Another hurdle is risk. Getting clients to use new solutions is a huge challenge. Many large corporations stop implementation projects when they see red flags rather than weigh them against the potential gains and overall opportunity value provided by the APIs.  

Lasting Thoughts 

Embedded finance provides better value to customers and allows banks to tap into new revenue streams. The sky is the limit for those willing to innovate and take a chance on modern day solutions. With the right strategies, banks and non-banking companies can successfully adopt embedded finance into their existing and future solutions, allowing them to thrive in the rapidly evolving financial landscape.