Andrea Ramoino, Chief Strategy Officer at Contis, explores why the idea that banks are at risk of being taken over by firms adopting embedded finance is a myth, how it will reshape the financial services ecosystem in Europe over the next 5 years, and why the real fintech threat for banks will come from Silicon Valley giants in the future.
On the surface, it may appear that embedded finance presents a threat to banks. However, the idea that banks are at risk of being ‘taken over’ by it is a myth.
Firstly, embedded finance has the power to elevate, not eliminate. Often, banks are too busy with legacy systems, multibillion dollar loan books and huge batch reconciliations to drive the innovation agenda. But their significant budgets and long-standing consumer trust means they’re perfectly placed to take advantage of innovations driven by others. Fuelled by the power of embedded finance, new market entrants and existing corporations with expertise in niche areas are pushing consumer and business finance capabilities to new frontiers, which is in turn driving collaboration between banks and fintechs through acquisitions and partnerships.
Secondly, embedded finance is enabling corporates to address business and personal customer needs that banks traditionally haven’t. Whether that be on-demand access to earned wages via payroll innovation or enabling request to pay capabilities between businesses, it’s plugging the gaps that currently exist to enhance the way we pay, access and move our money.”
Thirdly, banks will never disappear as long as they are trusted by their customers. While many consumers and businesses try out new fintech products, many will in fact maintain their primary banking with long established and recognised high street retail banks.
Where banks actually face being left behind is in the wake of Silicon Valley giants that are increasingly bringing out financial products and dipping their toes into the financial services waters (most recently seen in crypto-assets and stablecoins). The likes of Apple, Facebook, Amazon and Google have deep enough pockets, strong customer bases and the innovative pedigree to truly challenge banks’ finance and payments offerings in future.