Embedded Finance: Transforming Financial Services

Embedded finance has revolutionised financial services over the past few years, integrating fintech services with non-financial business and changing how we shop, pay and work.

Insurance offerings integrated into e-commerce platforms, one-click payments via a coffee shop app and branded credit cards are all changing the way businesses and consumers interact with financial services. 

In this roundtable, we speak to industry experts on the transformative impacts of embedded finance, how it can innovate further and how organisations can overcome barriers to its adoption. 

Meet our speakers: 

• Radha Suvarna, Chief Growth Officer, Payments & BaaS at Finastra
• Peter O’Halloran, VP and Head of Enterprise and Digital Commerce, EMEA at Fiserv
• Karine Martinez, Head of Sales for Edenred Payment Solutions
• Ryan O’Holleran, Head of Sales, Enterprise at Airwallex 

How transformational has embedded finance already been in the context of financial services?

Peter O’Halloran:

Embedded finance is a transformative force reshaping the very nature of financial interaction. It enables non-financial businesses to offer a variety of financial products and services to their customers and unlock new revenue streams. 

When it comes to payments, merchants and their customers both want a seamless and integrated experience. 

Embedded solutions allow customers to access a variety of payment methods within the context of their usual transactions, without the need for a third-party app, which could disrupt the fluidity of the payment experience. 

For example, a retailer that embeds a buy-now-pay-later (BNPL) option into its checkout process can deliver a seamless experience while capturing additional customer spend. 

Merchants also can gain insight into customer purchasing activity to further tailor their offering, helping to build tighter relationships. 

Ultimately, embedded finance has become a game changer for merchants and their customers and will continue to be a hugely desirable proposition for businesses.

Karine Martinez:

Embedded finance has immeasurably changed the way people interact with financial services. If we look at the launch of Uber, customers now expect to be able to source, communicate and pay for taxis all in one app. That was unthinkable almost 15 years ago.

And it’s a global phenomenon. Instagram shopping has allowed us to move from photos of friends’ holidays to booking a last-minute break effortlessly in one place. AliExpress has exploded in China for online shopping, while Booksy dominates online beauty services in the US. 

Paying for items and services is the least exciting part of the customer experience, but absolutely necessary – and embedded finance has revolutionised that formerly laborious process into something far more convenient. 

From a business perspective, offering these financial capabilities as part of the overall product increases customer loyalty and serves as an additional revenue stream.

Ryan O’Holleran:

Although the sector remains in its relative infancy, embedded finance has already proven its ability to be a transformational component of financial services. 

It has changed how financial products are accessed, offering the opportunity for businesses to build a diversified revenue stream and deepen relationships with their customers. 

Integrating multiple financial services that suit their unique needs into everyday platforms facilitates a more seamless consumer journey, boosting retention and loyalty. 

However, despite embedded finance gaining traction, we can see that the opportunity remains untapped by a range of businesses, including software platforms. 

A survey from Airwallex found that although 83% of SMBs are interested in acquiring financial services through their Software as a Service (SaaS) platforms, only 9% currently have access to these services. 

Overlooked by traditional banks, SMBs are now looking to access financial services such as payment acceptance from their existing software providers. 

In many cases, non-finance brands are well-placed to offer these kinds of services because they have deeper relationships with customers and richer customer data. 

As a result, they can recommend the right financial products to users at the right time. If software providers meet this demand, we will truly see embedded finance transform the marketplace as we know it.

How pivotal do you feel embedded finance can be to future innovation and growth?

Radha Suvarna:

Banks are looking to invest for growth. BaaS and embedded finance is an area where they see opportunities to grow and to reach new audiences cost-effectively through indirect channels. 

Those banks that act prudently and secure priority customer context will experience the greatest upside. Those who wait may very well be left outside looking in.

I think 2024 will be a critical year for the continued rollout of BaaS and embedded finance technologies. In Finastra’s 2023 State of the Nation survey, BaaS came out top, just above AI, in terms of the technologies financial organisations plan to prioritise over the next year.

It’s clear from our research that respondents saw 2023 as a year of action and that the industry is moving beyond the observation and planning phase. 

Concerning BaaS and embedded finance, we saw an acceleration in the implementation of these capabilities. Some 48% of financial institutions globally have enhanced or implemented BaaS capabilities into their offerings, compared to 35% in 2022.

Ryan O’Holleran:

Embedded finance has the capacity to be a catalyst for future innovation and growth for businesses worldwide. 

By seamlessly incorporating financial services into various digital platforms, it allows for a more interconnected and efficient market landscape that can meet endless customer needs. 

We will most likely see embedded finance be a key driver of competition amongst businesses as merchants leverage different stacks of financial tools to enhance their offerings for their customers. 

The growth potential is huge with embedded finance enabling companies to unlock new revenue streams and foster customer loyalty. 

As traditional barriers between industries blur, embedded finance stands to be a cornerstone of the evolving digital economy, adopting a new wave of global enterprise. It will be pivotal in how businesses scale their business across borders. 

Traditionally, businesses have focused on establishing a presence in the local market first. 

However, with embedded finance, we’re increasingly seeing a multi-market approach from the offset, powered by more efficient money movement, attractive FX capabilities and creating new revenue streams.

What barriers are preventing the adoption of embedded finance?

Radha Suvarna:

Recent economic headwinds have constrained technological investment, but in my experience, financial institutions are still prioritising rolling out BaaS and embedded finance use cases.

Faced with meeting increased customer expectations for much more seamless experiences in financial services, BaaS and embedded finance are timely enablers. 

They offer the means for financial institutions to integrate their services into the apps, websites and other platforms that their customers already use. 

This way, businesses can satisfy customers’ expectations by meeting them where they already are, not vice versa.

Of course, banks need modern, open platforms in place that allow them to enable open finance, collaborate seamlessly with ecosystem partners, and address challenges such as ensuring regulatory compliance and data security – but the right partnerships can help them overcome obstacles and accelerate the journey.

In fact, as BaaS and embedded finance models become increasingly advanced, and the functionalities they provide become simpler to integrate, organisations are now able to offer more all-encompassing tailored propositions. 

Crucially, these models also offer a faster way of doing this than before. Over four in five (81%) decision-makers in our 2023 research said that both BaaS and embedded finance enable quicker time-to-market; leveraging these technologies eliminates the need to build banking products from scratch.

Karine Martinez:

It’s hard to create this in-house, especially for industries that don’t have a strong finance background. 

Depending on what you want to offer your customers, you’ll need access to banking schemes, licences or card processors, and depending on where you’re based and where your operations take place, you might need local financial regulation, eg. from the FCA, or NBB.

But the good news is the rise of BaaS and embedded finance companies in fintech means a lot of those more technical and time-consuming elements can be outsourced to experts, leaving the businesses to focus on what’s most important to them. 

Edenred Payment Solutions can create an embedded finance solution in as little as 72 hours in some cases, due to having all of the infrastructure and relationships already in place.

How can companies adapt their business models to better exploit embedded finance?

Radha Suvarna:

We’re seeing the industry continue to move away from the ‘euphoria stage’ towards the ‘prudent execution’ phase where the focus is on the deployment of real use cases that drive client value.

Common reasons embedded finance programmes have failed previously include over-strategising, prioritising embedding over consumption, or pursuing use cases where others control the point of context – and economic interests.

To achieve success, it’s essential for banks to:

• Understand what use cases will deliver the most value to customers.
• Select monetisation models that deliver required capabilities and enable profits.
• Be clear on how to take a BaaS solution to market, selecting partners with capabilities that accelerate delivery.

Finastra will continue to act as an orchestrator and facilitator in this space. Our network of thousands of financial institutions and embedders; together with our Fintech partnerships and suite of embedded finance solutions will help to accelerate market entry and monetisation.

Peter O’Halloran:

Successful companies will be those that remain nimble and evolve their business models in line with customer’s needs and preferences. 

In recent years, the proliferation of digital commerce has driven consumer demand for choice and convenience in how they buy. What has become important for businesses is creating a more connected commerce experience. 

So, whether the customer is ordering an item for collection through a mobile app or making a purchase directly in-store, embedded solutions should provide access to relevant payment options at logical points within their journey. 

Such solutions are also beneficial for wider business planning as purchasing data can help merchants better anticipate customers’ needs and personalise their offerings through targeted discounts and rewards. 

By leveraging embedded solutions in this way, businesses can create stickier and more valuable relationships with their customers, while expanding their revenue potential.

Karine Martinez:

Embedded finance isn’t just good for the customer and their experience, it can offer some really valuable data to the businesses embedding it. 

Suddenly you’re able to track user interactions and transactions, find out what’s popular when and reduce spending on stock that’s not performing. 

Analysing this data offers really useful insights into consumer behaviour, preferences, and market trends, meaning businesses can make more informed decisions and develop targeted strategies for growth and expansion.

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