Embedded finance: Redefining banking and corporate boundaries
Banks, once a beacon of the high street now an app on our phones. Shops which filled towns and cities everywhere, now found on our computers. It can’t be understated just how much technology has completely shifted our way of life. How we act and think is dictated by information streaming through our devices. Embedded finance has beenat the forefront of much of the change that we see today whether we notice it or not. Whether you’re a business-owner or a consumer, you may be wondering how it affects you and what the possibilities are by realising its opportunities. Well, this opinion article will dive into how embedded finance has transformed our way of life, and how banks must keep up with the times and remain competitive in an ever-evolving financial landscape.
The power of the consumer
Traditionally, going back three or more decades, banks would be lined up with mangers in smart suits, armed with secret knowledge no one else was allowed to know. They knew your history and could make any decision they wanted, say you wanted to buy a carthey could deny you, and you would have very little say in it. This is no longer the case for many, and you the consumer have an almost guarantee of being approved for any purchase and don’t have to face the minefield of paperwork filled with confusing language. Digital banks swooped in and decentralised control, so you can make your financial decisions from the comfort of your own home, instead of in a cold concrete building.
It happened almost overnight when the dawn of the internet woke up businesses and enterprises all over the world to a new reality. Many people questioned it and couldn’t fathom that shops wouldn’t be the only place you could buy a t-shirt or a sofa. Now it’s second nature and we don’t give it another thought about just how much power we the consumers have. Embedded finance led the revolution to accessible financial management and transferred control from the banks to the people. For example, when you go on holiday you don’t have to spend hours searching for last-minute insurance. Instead, at your chosen airline, you can select it at checkout and focus on shopping for clothes instead! This level of convenience wasn’t believed to be possible, but because of embedded finance, you get to experience it every day.
For businesses, it presents a golden opportunity to explore new avenues and generate revenue streams which will unlock innovation and inspire creativity. Consumers have been reaping the benefits for years now, so what’s stopping you from doing the same?
I’m a business-owner, what’s in it for me?
We are all aware of the global challenges which have put pressure on businesses to re-think their models and tap into new areas which were previously unfamiliar to them. By integrating embedded finance solutions such as BNPL, businesses like yours can make the transition without the hassle of understanding its processes and how to implement it, because other people can do that for you. Instead, you can leverage what embedded finance has to offer, such as tailored terms and speedy pay-outs which have long been demanded by customers. Personalisation is at the heart of embedded finance and has proven to be a game-changer as customer loyalty and trust is enhanced. Even better, it’s a two-way street, as such technology is largely API-based so your business can too benefit from tailored versions of embedded technology and only use the parts that are applicable to you.
The key ingredient for bank’s survival
Data is inescapable in today’s financial landscape. As a bank or a business, you will rely on some form of data to guide your investments and choices and get a better understanding of your customers and their behaviour. I want banks to be able to compete with challenger and neo banks, so we have a healthy and functioning market which delivers for people. However, banks must be open to collaboration to make it work. By partnering with fintechs, banks can position themselves as innovative financial institutions and improve customer satisfaction and ensure longevity in an increasingly digital world. In addition, what makes me passionate about embedded finance is its tools which can be incorporated seamlessly. For example, data analytics process the data to derive predictions and determine risks for lending, fraud detection, and tailors the financial product to a specific customer’s needs. AI is a core part of this, and its algorithms can be used to simplify customer data and convert them into personalised product offerings. These examples demonstrate the agility of embedded finance and how it can be applied to multiple areas of a business where you may be struggling.
The Cultural Incentive
As I have explained, embedded finance has done wonders for the modern financial world in which operate in – but it doesn’t stop there. The cultural impacts must be highlighted too. While banks must implement the existing technology and prepare for upcoming features, it can’t ignore its other objectives to remain relevant. Banks must undergo a cultural transformation by letting go if its legacy systems which are outdated and don’t reflect the values of customers today. A report by Accenture revealed that by taking steps to build more meaningful personal relationships, banks could boost revenue from primary customers by up to 20%. By shifting cultural norms and adopting a fresh approach which takes into account the younger generations who are getting to grips with personal finance, banks can be a leader in open banking. Furthermore, banks must also be careful not alienate its older employees and customers, by helping them get to grips with the apps and digital products through training which considers the long-term.
The global embedded finance market is projected to reach $622.9 billion by 2032, according to a recent report by Allied Market research, growing at a CAGR of 25.4% from 2023. Embedded finance isn’t a trend, it’s here to stay, and if banks and businesses fail to get on board, they will miss out on a slice of the very big pie. Just take your mind back to the 90s when people were objecting to technological advancement and just how wrong they would later be. Don’t repeat history, learn from past mistakes, and embrace embedded finance in 2024 and beyond.
About Philipp Buschmann, Co-Founder and CEO at AAZZUR
Philipp Buschmann is co-Founder and CEO at AAZZUR, a one-stop-shop for smart embedded finance experience. Recognised as a rising star in the FinTech space, AAZZUR’s mission is to build profitable banking whilst at the same time empowering consumers to have access to better informed financial choices.
Philipp is a serial entrepreneur with extensive experience of working in Challenger Banking, Financial Services, IT and Energy across the world. He took one of his businesses public – Ignis Petroleum was publicly listed in the US and Germany.
Having started as a developer in Financial Services, Philipp has first-hand experience of the banking revolution from both a technology and financial perspective. His interest in behavioural economics helped inspire AAZZUR’s revolutionary work on customer centricity in banking.
Philipp holds an MBA from the London Business School. He is passionate about entrepreneurship and loves exchanging ideas, insights and discussing FinTech’s future. He has spoken at major Fintech events including Money 20/20, MoneyLive, Finovate, Fintech Matters, and the Future of Retail Banking.
