Is embedded finance an opportunity or a threat to banks?

Embedded finance is the integration of financial services into non-financial businesses, such as e-commerce platforms or supply chains. The global market size was valued at USD 65.46 billion in 2022 and the expected compound annual growth rate (CAGR) is 32.2% from 2023 to 2030. Given that organisations from a wide range of industries can now offer financial products and services to customers, banks must realign their business model to incorporate embedded finance. In fact, banks have a key role to play in delivering convenient digital financial services. By embracing change, banks can address the challenges embedded finance presents and make the most of the opportunities it offers. 

Understanding the challenges of embedded finance for banks

The primary concern for banks is the increased competition, which expands beyond the established banks to new fintechs, technology companies and a wealth of organisations in a variety of industries. There is also a technical challenge in integrating secure banking systems with external platforms. Security is a paramount concern and just one of the regulatory requirements that banks must adhere to when working with third parties. This includes compliance with data protection regulations and customer identification procedures. 

Embracing the opportunity of embedded finance 

Embedded finance may open up new revenue streams when integrating financial services with other companies’ products and services such as credit for purchases made on e-commerce platforms or loans for a major purchase such as a car. This in turn opens up customer access to a broader customer base and can provide valuable demographic and financial data that highlights other new opportunities. This approach can also improve customer experience (CX) because the additional data can be used to personalise communications and improve the relevance of financial products offered. Consumers are keen to adopt open banking and embedded finance solutions; a recent EY study showed that 63% of consumers would “highly value” this facility. 

Understanding the added value of embedded finance 

The commercial opportunity of embedded finance is clear, but there is further added value that banks will gain. Financial institutions can offer their customers a comprehensive service by combining financial services with other aspects of their customers’ lives – and for customers the added convenience improves the CX, boosting the bank’s brand. Additional data generated by integration with third parties can add sophistication to personalisation – not just tailoring products offered, but also having a greater understanding of customer behaviour and preferences. One of the key opportunities of embedded finance is big data that combines information on behaviour and transactions. The insights gathered can not only support personalised customer communications but also inform the strategy for future products and services by highlighting new opportunities. 

Working with CREALOGIX to deliver a successful embedded finance strategy

We work closely with banks to deliver embedded finance solutions; as a technology partner we can ensure that all integration and security requirements are met. We currently support banks all over the world in developing and implementing innovative financial services that can be seamlessly integrated into the offerings of non-financial companies.